Start With A Win - The Shocking Truth About Building Business Systems Most Entrepreneurs Don't Know

Starting point is 00:00:00 How do you build a business model that stands the test of time? Today, we talk about that on Start With A Win. Welcome to Start With A Win, where we unpack leadership, personal growth and development, and how to build a better business. Let's go. Coming to you from Area 15 Ventures and Start With A Win headquarters, it's Adam Kantos with Start With A Win. We're joined by someone who's done just that,

Starting point is 00:00:22 industry heavyweight and great friend Sam Ballas. As the founder and CEO of East Coast Wings and Grill, co-founder of Sammy Sliders, and founder of Zorability, Sam's leadership and innovative franchise strategies have earned him a top spot in both the restaurant and franchise space building business systems. That's important. Sam builds business systems. With over 40 years in the game, he's here to share with you what it takes to build and sustain successful brands over time. Welcome to the show, Sam. Good to be here, Adam. Good seeing you. Awesome. Hey, I mean, you've been involved in a ton of business over the years,

Starting point is 00:01:00 building a lot of systems and processes, exhibiting a lot of leadership. And so everybody knows I'm on the board of the International Franchise Association with Sam. We get to talk business quite a bit. So this is an honor and a pleasure to see my good friend on here. Sam, can you take us back? How did you start in business? How did we get to where we're at today? Well, as far as the franchising space is concerned, I came from a Wall Street background. I ran some companies out of New York and Manhattan in North Carolina. At the time that franchising hit my doorstep, I was running North Carolina for Hayne Greenberg at AIG. And at the same time, I had a real estate passion, right?

Starting point is 00:01:42 So I'm real estate credentialed, have been since 1990. And in that passion of real estate, just wanting to buy some assets, et cetera, I got invited into a transaction with a wing concept, a single store concept. And long story short, as everybody's story goes in building your asset base or building your career, I was looking at this venture as maybe an extra thousand dollars a month that maybe would pay the mortgage, right? I mean, I was building a family. I've got four kids today and I got grandkids today. So back in that day was kind of every, you know, hundred dollar bill that you can bring into the hopper, you know, helped. So to fast forward that, I'm a Greek immigrant son.

Starting point is 00:02:31 So I grew up in the restaurant space. My family were restaurateurs. Right. And it's in my bloodline. And I was the first one to go to college. I was the first one to venture into making money without a spatula in his or her hand, so to speak. And it was kind of a wow for the whole family line. And we're a big family. So for me to look at this opportunity back then that was just an economic opportunity, not knowing what I was going to do with it was crazy for the family. What are you doing? You're getting kind of like the Godfather 3. You get pulled back in again, you know.

Starting point is 00:03:07 And I'm like, well, you know, it's just an extra, you know, $1,000 bill maybe a month. So long story short, or so to speak, it turned into, wow, this is something different, right? I wonder if I can validate and proof this idea out for maybe this kind of growth. My family line had done the restaurant space by regionalizing, you know, a dozen locations or 15 locations or 20 locations. So I opened up the second location in a different market, but within a supply chain radius. And so let's see if I can duplicate it. And then I opened the second location of East Coast Wings. At that point, there was no end grill. It was just a wing concept, totally. And it did very, very well. So then I got intrigued. So I studied, you know, how do I

Starting point is 00:03:58 roll this out differently than I grew up in and sustain an office job environment, so to speak, not being in the grind of the restaurant daily. Kind of appeasing that legacy play of, hey, we came to this country, broke, we built some style of wealth, we sent you to college, you got educated. Why are you in the restaurant business, you know, from an immigrant perspective. And I decided to investigate franchising modeling and really spent 2000, 2001 really studying the model. I went to a lot of back that day. Adam, you can probably remember these days where they were doing, you know, hotel rah-rah pitches, right, for brands.

Starting point is 00:04:46 Yep. I think my first one was Allied Domenic that owned Dunkin' Donuts and the coffee business. Ice cream. They had ice cream as well. So I went to one of those. It was in Charlotte, North Carolina. And I collected, I think, in two, two and a half years, maybe two or three dozen of FDDs, which then they were called UFOCs. And so I studied and I decided that, you know, this might be something I could do differentiating that would make the family line happy, that I didn't waste the college education, which is never a waste.

Starting point is 00:05:21 Any education is good education. But from that immigrant perspective, it was kind of like, you know, get out of the grind of the restaurant space and do something smarter than us. In the meantime, all these guys were getting very wealthy in the restaurant. Right. I'm thinking, well, that doesn't make any sense. I mean, you're telling me to get out, but you're all driving Mercedes and you all have nice houses. I mean, what's up with this situation? Right. That's kind of how I got into it and, you know, just started grinding.

Starting point is 00:06:05 I still had the spatula in my hand back that day, but that's how it started. it's really interesting. You have a lot of Greek immigrants that really get deep into restaurants here. But Sam said a couple of interesting things. And what he was talking about here, I want everybody to notice this. Sam went from horizontal scale of, let's say you have a restaurant, then you open another restaurant, you open another restaurant. You're in this horizontal scale at that point. And what Sam looked at is, okay, if we get in franchising, you own this vertical scale. So you start doing, you know, maybe instead of building multiple restaurants, you build systems that build restaurants and you have restaurants, restaurant owners within your system that you don't own a restaurant, but somebody else does, but you're still making money on it. So it's, it's fascinating how, you know, when you compare vertical and horizontal scaling within franchising, how you can start building more wealth.

Starting point is 00:06:49 And Sam noticed that. He took on to that real quick, you know, with a wealth of business knowledge also in that entrepreneurial spirit, which we love so much. You pioneered multiple innovative franchise strategies, Sam. So you went from the wings and grill to, you know, you got Sammy Sliders and you have another business that actually helps with the building of franchises. Take us into your concept of, you know, can you franchise this with Zorability? What started that? Yeah. So basically, you know, Zorability started with the desire to help emerging brands or help chain style brands who want to enter the franchise model in what we feel like, and I feel like is the correct way to enter it. And what you just described is perfect, right? So I think a founder of a brand has to have a horizontal play, right? You've got to open one,

Starting point is 00:07:50 open two, open three, validate, validate, validate, proof, proof, proof. And then before you start going vertical, how do you in the restaurant space, how you develop the correct supply chain? What does that look like logistically? So for me, it was really critical that I went horizontal because I came from a background that at the Christmas table or the holiday table, if you didn't have a 35, 40% NOI, you had to go sit with the kids, right? Now the restaurant space today has completely changed. That's almost unattainable at that high of NOI. But Zorability for me was a brainchild of mine back in 2016 when I started recognizing that I had started kind of the wave of putting EBITDA in print. Little old East Coast wings and grill regionalized in the southeast, you know, 14 years ago in item 19.

Starting point is 00:08:46 And all of a sudden, everybody's putting, you know, percentages and dollar amounts in print as far as earning claims. We, I believe, were maybe the first brand to ever stick a dollar in print to say, hey, this is what my people earned last year on an average of the entire system. So as I started getting people asking me for advice or, hey, can I pick your brain about this culture you've built? And I've got 200 locations or 140 locations. I'm having a hard time. I started realizing, man, there's just so many people that take the horizontal direction initially, but then get pulled into that vertical too fast who aren't ready for that and uh zurability for me was a brainchild on the plane flying back from the finance and development the restaurant show in in las vegas and thinking now how do i develop something that i could have a legacy play and it pay back, you know, to the franchise model to help these

Starting point is 00:09:45 emerging brands or re-emerging brands. And on the plane, I just thought, you know, franchisors, you know, and it's really, you know, do you have the ability to be coached? Do you have the ability to, you know, can your brand be franchisable as a vertical? And quite frankly, can you as a founder be franchisable as a vertical right and i think there's two distinctions in that that has to be really tackled and um so i put zor and capitalize the a with ability and create zorability on the three hour and 55 minute flight you know in the air and then i invited some people that had talents that i know that that restaurant space and zorability needs were exclusive to the restaurant space.

Starting point is 00:10:26 And we have helped some non-restaurant brands with just ULE and EBITDA and P&L, CultureBuild, et cetera, a level economics type of build. But for me, it's kind of the legacy play, right? Now, Zorability has brought other opportunities on where you have emerging brands that says, hey, I've gone horizontal, I've gone vertical, and I'm imploding. Something's not right with my vertical. Well, you went vertical too fast. You didn't get your supply chain ready. You're two people and you're eight franchise owners and you're 12 locations with your corporate stores and you can't be all the hats forever. What does that look like? What does

Starting point is 00:11:13 capitalism and that look like? So for me, durability was kind of when I decide to retire one day, which in the franchising space usually is never right. Cause even when you, you get out of the race of building concepts and building models, you're there consulting or coaching or speaking or whatever. You know, what do I want people to say about my journey and Sam Ballas, you know,

Starting point is 00:11:39 to the space. I don't want it to be just East coast wings and grill and, and our consistent drumbeat of, you don't level economics using that as a barometer of brand unit growth, which we do laser-like focus and very disciplined. And that's why I'm a regionalized lifestyle brand with that concept. And Zorabilia is kind of my selfish way of developing that legacy play and giving back to the model. I love that. And you, you hit something here that I, I think is really important. These two components that really have to function together, but actually function separately. And that's the founder piece and essentially the unit level economics piece, the same store profitability. So when you take a look at,

Starting point is 00:12:29 and I want to address the founder piece secondarily, but a lot of people think that, okay, I've got something that's making money here or that shows profitability on the bottom line here. So it must be franchisable. Do you, I mean, that, that, that seems like a big fallacy to me because there are lots of balls being juggled in the air at this time and there's no system around it. That's right. It's a huge, it's a huge mistake, right? Because the franchise owner's profitability comes from systems in place, comes from the very definition of franchising, where the founder or founders have gone through all of the weeding of the concept and have identified all the problems, right?

Starting point is 00:13:16 And in franchising definition, you're supposed to have the optimal opportunity for success, non-guaranteed, because you can't guarantee that an operator is going to operate once they're on the ground, right? And the arms are in their hands and they're trucking through the field. It's a different mentality than conversating about it, going through discovery day processing, creating a relationship and launching, you know, a new location. But people need to understand that as founders, the middle of the P&L is where it makes and breaks you. And you can't just take two or three stores that you're able to make 25 points on or 30 points on or 19 points on and instantly say, man, this is a moneymaker because there's

Starting point is 00:14:00 then operating costs to the franchise owner. You've got to retract in order for you to fund the support you have to give them. So you have to understand immediately there's a 6%, 7% reduction of that NOI for that individual. Then you've got to take into account the debt servicing, right? What is your ratio of development costs? There's so much more involved before you just launch and go. And I tell you, it is astonishing how many brands call us, ones that we decide to work with, ones that we decide not to work with, that have taken that track, right? I've got two locations and I'm doing 35 points, 37 points. And I think I can make this go to I can be the next first watch in a billion dollar public evaluation.

Starting point is 00:14:47 Right. And I'm thinking, stop the press. You know, you've got to have supply chain. You've got to have support mechanisms. You've got to. And then you've got to have enough. And you're not going to have the revenue to support that in the first 20, 25, 30 locations. Right. So we teach it's our ability that you've got to have some pillars, right? You've got to have unilever economics as a culture understood, not just in place. What does that mean? What are you measuring? How are you trying to move the needle? And is those processes and procedures transferable where maybe Adam can embrace it and have a trust with it and roll with it, right?

Starting point is 00:15:25 Can they execute that? Huge pillar you've got to figure out. Then you've got to figure out, after a few franchise locations, maybe three or four, you got to stop the press and make sure you massage those owners for maybe a year, even though you're itching to go 20 more. Don't, right? Spend a year with three or four operators so you then can feel the reality of what they're willing to do or not do or what they can and can't do so you can identify how to shift your systems and make them more interstatable, more embraceable, right, for execution. So your franchisee validation is critical as a pillar, and I think you can't do

Starting point is 00:16:06 that if you jump out of the chute with three or four corporate founding locations and sell 30 in one year and open up 20. You're going to be too busy trying to figure it out of how just to function. And you're going to miss a lot of critical components that you need to understand to make your system more sound. And the third huge pillar, and when I tell this to brands, even at a hundred locations strong that call us, they're like, well, how do you do that? You've got to have a strategy to be royalty sufficient. How fast can you get to and what does that timeline look like? And what does that unit count look like in order for you not to do a deal

Starting point is 00:16:45 and get a license fee in to pay your support expenses as a brand, right, as a corporate model, as a service center model. So that to me is a strategy. You know, how many units based on your AUVs and how you drive the middle of the P&L and what do you have systems in place for those franchise owners. For me, it was 21 locations, right? I passed 21 locations. I didn't have to do another deal.

Starting point is 00:17:12 And I had enough revenue coming in to suffice paying for that support mechanism. The franchise owners expect in that agreement they signed, the franchise agreement they've signed. So it is critical, Adam. There's so many components. And my biggest advice to a listener is if you've got, you know, a half a dozen, 10, three, two locations, don't come with one location. It's not going to do it, right? You have to have two or three different market locations to validate your product lines and your service lines.

Starting point is 00:17:43 Go into franchising smartly when you start your vertical, but maybe no more than six locations open for the restaurant space and stop your press. Have enough funding ready so you can do that for a year so you can retract the data you need from the franchise owners who are going to tell you in the front lines what's going on. So you can tweak your system to be more sound, helping them. But then that next round of six that come in are going to have a better experience.

Starting point is 00:18:13 Then you stop it again. Tweak that the second year. The next round of six come in, even a better experience. When you think you have it clad where then your intellectual capital gets outgrown by the growth, which is going to happen, I call it a borsmosis, right, David Bore-ism. It's going to happen that those systems are easily transferable to the next talent that comes in, right, to keep your system moving. So it is a methodical process, and I tell our Zorability durability clients and we have them that are from the ground up. We have them that have started that vertical and and realized, you know, 10 locations later. Oh, nobody's making money. What happened? Well, you shouldn't have gone vertical. You know, the previous advisor is getting maybe a little flawed, maybe too aggressive.

Starting point is 00:19:04 But we make them stop franchising. We call the attorneys, stop the FDD. We got to fix this because now you have franchise owners' livelihoods online and you're experimenting with their livelihoods. I think that's just bad franchising. You shouldn't be doing that. It's interesting because there's constant evolution going on in here, especially in the early days. And it's also capital intensive, as Sam has said. And I just see so many people come into franchising with just enough money to run one location. And they're like, I'm going to franchise. I'm like, it's going to cost you a lot more than that. So I mean, you talked about the

Starting point is 00:19:42 staying power of the capital and be able to fund this thing. But I want to switch over now to the founder piece because I think this is really important. And something always pops up, and I call it founder syndrome. particular thought or process, or, you know, I've got this amazing way of cutting hair or washing houses or, you know, making a sandwich or whatever it is that they get lost in that instead of understanding that, you know, you have to be adaptability in order to make, you know, supply chain and customer desires and the franchise location, you know, like you talk about the middle of the P and L work that founders can't see that sometimes. So how do we find that key aspect or what do we look for in founders where they have the humility to say, I wasn't quite right on that, or I have to adjust my recipe, or I have to adjust my process in order to make this profitable. I've seen it a bunch of times in franchises. Is that a key thing that we need to talk about early on or is it happening along the way?

Starting point is 00:20:50 Well, first, it's critical, right? Because I do believe that the product lines and the brand and what you've developed, regardless of what you're doing, you could be power washing, you could be cutting hair, you could be selling sandwiches, you can be selling wings, whatever your process is that you've had success with, right? That has to be validated. Two, three locations strong, two or three years in process, and, you know, et cetera. That really is the easier part of the two. The founder's got to be franchisable. And, you know, our very first client, and I won't put no names to this, but our very first client at Zorability happened to land in us right as COVID hit, right as the pandemic hit. And I was on a plane in airports, you know, with a National Guard and guns, you know, at the airports, making sure you had your green, you know, checkmark to go through. But this individual, although successful in what he did in two

Starting point is 00:21:49 locations, soon to be three, although very meticulous at what he did on sourcing product, making sure that it was top quality to the consumer, good sales, good NOI, franchisable number projections. We basically put our executive summary and we do a discovery with our clients. We have a podding system to help emerging brands make this affordable. They can't come in and sign on to a $100,000 deal to get you consulted or coached into a franchise model. So we charge a small fee and do what we call a discovery, where we basically take your numbers apart. We take your system apart. And then we rebuild that as a scalable interstate model.

Starting point is 00:22:36 Does it work? Can we source the same products across state lines? You can't send a franchise owner to the docks to source tuna for a poke bowl concept because the founder had that much passion, right? So we found our very first case that we had to tell the brand, your brand has differentiation. Your brand has good logistics. Your brand has some numbers that we think have some legs. But unfortunately, we don't think you should franchise. We think you should open up store four, five, and six, maybe expand to these two different territories that

Starting point is 00:23:10 we've done some homework for you on and just live life large. And he called and said, Sam, what happened? I said, you know, to this individual, I said, with all due respect, you're not franchisable. What do you mean? You will not let us restack your recipe cards. You will not let us resource processing. You are not willing to do sourcing through a broad liner for certain product lines. And that is franchising. How do you interstate that if you're not willing to make that bend? And in one case, I had to take a founder and I said, tell me who is your best beat player in the restaurant? And they identified somebody and I invited them over. And I said to this person, hey, you know, Mary, meet Adam, your owner, your boss.

Starting point is 00:23:58 OK, what's going on here? Adam, give Mary your checkbook. Give Mary your livelihood. And I want you to walk out that door and not come back for 60 days. And everybody's like a standstill. And he says, Mary, you can go back to work. Sam, what's going on? I'm like, that's what you're telling a franchise owner to do. You're telling a franchise owner to walk away when you're recruiting the

Starting point is 00:24:25 right talent from what they're doing in their livelihood and have faith in your system and processes based on what you're disclosing. And you're telling them to basically have some faith and trust that this will work. If you operate it to the guidelines, your checkbook will be full, you can pay your bills, et cetera, et cetera, et cetera. You didn't hesitate one iota to send her away instead of saying, great, checkbook's in the top drawer. I'll see you in 60 days. And that's what a franchise founder has to be able to do. You've got to have that confidence level in what you're developing where you can hand that checkbook to your B player. I didn't ask for your A stud or studdus. That's even a word.

Starting point is 00:25:06 I sneaked it there. Now it is, Sam. I've aged myself, right, you know, with SNL. But, you know, the reality is I've had to tell an owner to do that. And every occasion, you know, they just freeze. And I'm like, you have to be able to take coaching and look at it from a different lens, because now you're going and you're recruiting what you feel like is like kind, necessary talent. But you can't guarantee yourself or even them when they open that location, how will they perform?

Starting point is 00:25:40 Will they freeze on a really busy $14,000 day of opening, which we've had in East Coast Wings and Grill and our new franchise owners just freeze in the kitchen? Like, okay, I'm lost. What do I do? Do you have the ability to navigate that? Do you have the ability when you don't have any sales? You're doing an average of four and you did 1200 bucks that first day and everybody's panicking day one. How do you navigate that process? You have to have complete confidence in your system that you can support that. And some founders can't make that turn. They just can't, you know, they look at the bottom line numbers of expectation and in some cases get a little overwhelmed with the big fat check maybe

Starting point is 00:26:23 one day on the exit. And they just, they get blinded. They can't see the forest despite the trees. So some owners need to be chair of founders, need to be told you just shouldn't franchise. And we've done that probably 25% of our cases as a liability. Interesting. Yeah. I mean, a lot of, a lot of things to think about in franchising, both as a franchisee and as a franchisor, I mean, a lot of, a lot of things to think about in franchising, both as a franchisee and as a franchisor, I mean, you know, it's, there's no guarantee in any of this. And the fact that you want to franchise doesn't mean that you can, which I get that. Yeah. I mean, it's, it's, it's interesting. Sam, there's so much to learn here and there's a lot more than what we can fit into this podcast. Where can people find you and Zorability online?

Starting point is 00:27:11 Well, they can go to sballas at zorability.com and link me there. Or they can call the office at 336-760-4985. Wow. Okay. And there's got to be a piece of advice that you've given franchisees and franchisors that you lean on quite a bit, and maybe it forms your life and how you run your business. But what is a key piece of advice you would give to one of these people that are interested in, maybe they're already in franchising or maybe they want to get in franchising, but give us a good piece of advice here. So in franchising, the franchisor owes and is responsible for the franchise owner's optimal and success as far as the system. So my advice is drive your system growth from the franchise owner's perspective in. Don't outgrow or outpunt your ability to service the franchise owner driving ULE and driving net operating income.

Starting point is 00:28:14 So if you'll build your brand with the franchise owner foremost, the most important part, two important things in franchising, franchise owners and franchise owners profitability. If you'll build your system that way, you'll find a slower building process because a lot of work to do it that way. But you'll find higher quality results and easy validation as you grow your business. Gotcha. Great. And Sam, I have a question I ask all of the amazing leaders on Start With A Win. And I'm sure you have a fun answer. You're just a blast of a guy. It's a lot of a good time to

Starting point is 00:28:53 see you at these different events. How do you start your day with a win? Well, it's funny. I get a cup of coffee every morning and I take my dog outside and I get my phone in the other hand. And while my dog's taking care of nature's business, I'm looking at my reports that I get every afternoon before everybody leaves on what happened yesterday on a specific benchmark and KPI analysis that I look at. And then that tells me when I go into the office, if there's anything that I feel like I should jump into to help steer something a little more aggressive than what the team's doing. And I do that religiously every morning. Wow. I love it. You know, know your numbers and stick to the plan there. So that's and take care of your dog at the same time. I mean, you know, that's that's a great plan there.

Starting point is 00:29:43 Sam Ballas, you've done so much in franchising and business growth. We appreciate all that you do. Um, and it's great to call you friend. It's great to be on the board with you and the franchise association. And thank you for starting with a win. Absolutely. you

Start With A Win - The Shocking Truth About Building Business Systems Most Entrepreneurs Don't Know

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