In this episode, Michael and Brad are joined by special guest and entrepreneur, Randy Stepp. Randy is a leader in the franchise space and joins us to share the formula he developed to run a successful franchise. Tune in as we “zoom out” on the future of franchise growth in the medical industry.
Listen to the full episode using the player below, or by visiting one of the links below. Below is the episode’s transcript which has been edited for readability. If you have any questions or would like to learn more, email us at info@byrdadatto.com.
Transcript
Intro: [00:00:00] Welcome to Legal 123s with ByrdAdatto. Legal issues, simplified through real client stories and real world experiences. Creating simplicity in three, two, one.
Brad: Welcome back to another episode of Legal 123s with ByrdAdatto I’m your host Brad Adatto with my cohost Michael Byrd.
Michael: Thanks, Brad. As a business and healthcare law firm we are often immersed in the heavy details of a particular issue or project. It is beneficial if not mandatory to every so often take a step back and evaluate the bigger picture. This season’s theme is zoom out. We have all been immersed in life of a global pandemic and so we’re going to make sure with each story this season that we step back, look at the issue and how the pandemic has impacted our lives.
Brad: Absolutely. I’m really excited for our [00:01:00] audience today. For this episode, we have entrepreneur extraordinary joining us today with a background in many different industries from healthcare to restaurants, and all with the means to try to help a business and a franchise owner really realize their dream of independence and more importantly, freedom.
Michael: I’m really excited too. I know you know this Brad, but I actually have a connection to the franchise world. My in-laws were McDonald’s owner operators throughout their career and sold out several years ago. So I always have a soft spot in my heart for this business sector. Speaking of franchises, Brad, do you know when franchising began?
Brad: I do. And only because right before we started the episode, you and I had a sidebar on this. It started in the 1950s and basically really picked up steam in the sixties.
Michael: Hey Brad, you get a [00:02:00] figurative gold star. And no, I did not get some actual stickers that you could put on. According to franchising.com, one of the early franchise behemoths, McDonald’s speaking of, opened 1000 units in just 10 years. Midas Muffler reached 400 locations, Holiday Inn grew to 1000 locations and Budget Rental Car topped 500, all during the same period.
Brad: That’s pretty amazing. That must have been an amazing time to own and start a franchise.
Michael: Well, actually in the early sixties it was more of an amazing time to sell a franchise, not so much to buy one. As with many aspects of sales, many major companies were only focused on selling the next franchise, but not on the supporting and operating side of making one successful. And so there was a lot of bad outcomes and based on this and lawsuits, and the state actions, [00:03:00] the federal trade commission issued franchise rules, which established minimum disclosure requirements throughout the country.
Brad: If you look into the franchise history, this really helps kind of slow down franchising in the eighties and nineties because a lot of people were concerned about how to put together a correct FDD franchise disclosure document. The franchises really need to start focusing on operating and developing great processes and those who listened to our podcasts in the past would have known that this goes back to something we always talk about is the form must match the substance. So if the model doesn’t have the right operations team in place, it’s just going to collapse.
Michael: So true. And now with over 3000 franchise doors operating in the US it’s vital, no matter what industry, that you partner with the correct franchise and the correct persons to help develop the model.
Brad: [00:04:00] I totally agree, Michael. And that’s why today we have a special guest to give us insight on running that successful franchise. Please bring in our special guest.
Michael: Today we have our friend Randy Stepp. Randy has worn many hats. He’s the principal and chief operating officer of Apex Franchise Development Group. He’s the chief administrative officer and franchise development for Romeo’s Pizza. He is currently the chief operating officer for VIO med spa, Romeo Pizza area representative and senior franchise and business development consultant for Renaissance Leadership Group. Ashlyn University, including a doctorate in leadership, master degree in administration, Bachelor’s in education. And probably what he wears most proudly is he [00:05:00] is a member of Access+ with ByrdAdatto. Welcome, man. Thanks for coming, Randy.
Randy: Thank you. Thank you for the introduction. I do have to clarify one point. I’m no longer the chief administrative officer with Romeo’s pizza. That was a position that I held actually early on in my experience in the franchise world. My partners in the franchise group actually own Romeo’s pizza so what happened is they purchased Romeo’s Pizza About six years ago and asked me to come in as a chief administrative officer and build their operational system to help create that foundation. I had the fortune of learning all about franchising through that process, how complex it was and how important it was to your point, [00:06:00] Michael earlier, in supporting the franchisees in their growth and development as they looked to build their business.
Brad: Well, that’s perfect. I mean first off, thank you for the clarification. Randy, again glad you could join us, but that leads me right to my first question. I think what the audience is going to want to understand is kind of what brought you into working with clients in the franchise world?
Randy: So when I was with Romeo’s, we worked very hard to create a structure that was operational and sound. And when you think about what it takes to be operationally sound it’s about creating systems and processes that can be replicated consistently and understood by everyone in the business. We did that for Romeos and as a result of that when it was purchased by Ryan Rose and Robert Strickland about six years ago, Romeo’s went from approximately 30 open locations [00:07:00] to literally none in development where they are today, which is 50 open locations and nearly 200 in development. So they made a leap. That leap was made because they proved out the business model through the development of highly structured processes. Through that experience we learned that we could help entrepreneurs be successful through the franchise model. So we created what is known as Apex Franchise Development Group, which myself, Bob Strickland, Ryan Rose and Ryan Rao are all partners in. We went on a search and the search was let’s find these concepts that might only have one or two locations that have the potential to be franchised. When I say the potential, it means they’re scalable and [00:08:00] there is a demand. People want those services, those products that they offer. And that’s how we eventually found what is now the VIO MedSpa.
Michael: That’s amazing. So what are the disciplines that the four of you bring that help you see what good candidates are and then how to actually implement scaling them.
Randy: So what we look for is a business that is fundamentally sound. So when you think about business today, I think many people believe that they have to come up with some grandiose ideas, some new innovations, something that is slightly different than what’s out there that you really just need to find a business model that is strong. It doesn’t have to be a reinvention of the wheel. A good friend of mine is one of the founders [00:09:00] of this fitness brand that glows orange every day, every night.
Brad: Is there a theory behind that glowing?
Randy: There is. When they were looking at this as a franchise model, they basically had the same idea that we do today. They were a company he and his partner that looked for concepts that they could franchise. Well, think about fitness. Think about what they do. If I came to you today and say, hey, I have this idea. It’s a fitness concept. We’re going to use treadmills, rowers, TRX bands, and dumbbells. You might look at me and say, okay, how are you different than everybody else out there? What they did is they made themselves different. They took tried and true ideas, fitness concepts that work proven to work. And they developed their own processes and systems around it. They incorporated technology [00:10:00] and incorporated a phenomenal experience. And today, as a result, that’s one of the largest and certainly one of the most sought after brands.
Michael: And so when you see like a VIO, are those things in place or do you see how it could do something that would set itself apart?
Randy: So with VIO what happened, there was the franchise development and the group took on about six or eight clients, and this is pre-COVID. Working with them on developing their systems and processes, creating their franchise disclosure documents, the legal agreements, and just helping them develop their operations manuals and so forth. As a result of that, the clients that we brought on or clients that work in spaces that were in industries that had a trajectory of growth. So when you think about the medical [00:11:00] spa industry, the growth trajectory is three years. When we took on this little one location concept in Strongsville, Ohio called Skin Deep MedSpa, we took it from where it was at about a million dollars a year and within about a year or so brought it to 2.25 million through the implementation of systems and processes and foundational operating structure. So for us, what we do is we look at the concept when we say, is this a viable concept and can it be scaled? And if it can, we also look at the ownership structure. And we were fortunate enough that the founder of Skin Deep MedSpa, Joe Stanoszek has said he was willing and able to give up control, which most entrepreneurs struggle with, come in and build the systems and structures to grow VIO med spa where it is today. We even [00:12:00] had to change the name because as you can imagine, the property around Skin Deep. So we changed the name and ended up changing some of the service offerings. One of the most important things you can do is develop your core values, build your business around them and that’s something that we help. All of these entrepreneurs do organizational development, and core values and vision creation.
Brad: Following up on that, Randy, clearly you have this vision of how when you come into a place, how you value it. You then figure out what are the right people there and you put the processes in there. When Michael first introduced you, he talked about all the education that you had. So based on your education, who are some of the authors or books that you’ve read that inspired you to have this knowledge base? For the audience who’s trying to figure out, I mean, obviously they can always hire Randy, but besides that, what are the other [00:13:00] things that you use as resources?
Randy: So for me, education is the key to success. When we talk about VIO med spa and VIO med spas growth and development, it hinges upon education. When people talk about sales, they talk about revenue. You can try your hardest to drive revenues from marketing, but one of the best ways to drive revenue is through educating your team about the products. You offer services or those systems and processes that you engage in education is the key. So for me, when I was going through my educational process moving through various degrees, what really hit me is when I became an educator who started to learn how people learn and then I learned how they gained confidence from [00:14:00] learning. With confidence comes many things. And the biggest thing is the reaching of your full potential. And so when we educate our team members, think of it as petition, but we educate them on all the products and services that we offer and they can speak about it more confidently. They’re better able to make recommendations to meet the needs of the person in front of them. And that’s really what VIO is all about. It’s about meeting the needs of the personal front of them and getting the results that they’re after. If we don’t get the results and meet their needs, we are failing our customers. And that is really what we build our business around. And so when I look at myself, then I’d say what brought me to the business world, It was really a book written years ago by a gentleman by the name of James Collins called Good to Great. And if you look today at a book that really drives what I do operationally, it would be Traction written by Gino Wickman. And if you look at Good To Great, you look Attraction, What Gino Wickman [00:15:00] did is he took the concepts theories, the research that was found by James Collins and Good To Great. And he made it applicable today. And if you follow Traction, the entrepreneurial operating system, which is very difficult to do, because you have to be very disciplined. I promise you, you will be successful. And that’s how we built our businesses that we work in today. That’s how Romeo’s Pizza is built, that’s how VIO Med Spa is built and that’s how I work with franchisees to build their businesses is to follow that.
Brad: I love that you started with the education piece. We at our firm are continuous learners. We’re always trying to understand things. And I think those who realize, and I think you and I have talked about this before, but those books, like Good To Great and other ones that we’ve actually talked about in other podcasts that we’ve read that really inspired us to be better at what we did. And that’s just because I think, as you said, if you’re educating yourself and more importantly, what [00:16:00] you also said and bringing your team with you and educating them, that’s going to help grow everyone. That’s going to allow everyone to succeed together.
Randy: Yeah, no doubt about that. And I would tell you that one of the great lines in Good to Great is good as the enemy, meaning that people tend to settle on good is good enough. And Jim Collins would argue that, you know what? It doesn’t take that much more to be great and sometimes being great is educating your team, holding them accountable, specific teams and processes in place and just pausing and taking your time to hire the right people. Sometimes, especially today in a post pandemic world. It seems like it is the hardest thing to do is hire people, having the discipline to pause and hire the right person is one of the biggest things you can do as an entrepreneur.
Brad: Totally agree with that.
Michael: Well it’s just music to my ears hearing you t [00:17:00] focus on business fundamentals. I mean education and training and the focus on these basic principles are fantastic. If I remember right, I think I read traction several years ago. Is that book that has the big, hairy, audacious plan for setting your vision? Does that ring a bell?
Randy: That would actually go back to Good To Great and Gino Wickman. Ben took that concept a step further to say you have to have a vision for where you’re going and everybody has to buy into the vision. You have to have your core values in place, and people have to understand those core values. And then you have to hire the right people and those people have to get it, want it and are capable of doing.
Brad: Yup. Well, let’s shift a little bit Randy, as you [00:18:00] said, when we started this off, you’re in two completely different industries, the restaurant industry and the healthcare industry, and both do have a service element to it. But as you dove into these industries, what are some of the things that actually surprised you as you learn more about them?
Randy: What surprised me about the restaurant industry and it led me to a level of respect for people who work in and own restaurant businesses. It is a grind. It is hard work every single day. And if you’re not thick-skinned enough and willing to work, it is not the industry for you. Medical spas as you know better than anyone is a very complex business. And if you don’t appreciate and respect the complexity of a medical spa, you need not to get into it because it’ll eat you alive. When you look at VIO med spa, [00:19:00] we essentially have five lanes of business under one roof. We have a retail site, we have the body contouring side and we have a wellness side, we have the spa services side, and then we have the heavily regulated medical side, which covers the injectables and fillers and threads and et cetera. That’s not for the faint of heart. And then a whole trust of meeting the needs of the people in front of you getting the results they demand. And doing it in a way that provides an exceptional experience. That is a tough business model to get your arms around if you’re not appreciative of it.
Michael: And to add a little complexity to what you do, you have all of those things and you’re folding that into a franchise model, which has its own set of things that you need to know. And so for our audience who may [00:20:00] be considering opening a franchise, what are some of the concepts you would recommend they consider?
Randy: Well, certainly the medical spa industry is one that the trajectory is insane. It is growing exponentially. Seems like every day, that’s an industry that certainly is strong however I do believe that that is an industry that over time is going to settle into about three or four big franchise players crossed country. And the reason for that is similar to what happened to the medical industry as a whole. You think about hospitals and how those local physicians, that family practitioner that we used to go to. I’m certainly much older than the two of you, but that has changed. That model has changed, has changed, not because corporate America came in and wanted to take it over and be highly profitable. It [00:21:00] changed the because we learned over time that these bigger entities had the resources, offered the services and the treatments and the education and buy the equipment necessary to provide great healthcare. And these independent practitioners just didn’t have that available to offer that same level of healthcare. And so when you look at what was better for the person in front of them, it was having the resources available to provide the best medicine possible. And I think that same thing’s going to happen in the medical spa industry, where the franchise organizations that evolve are going to be able to offer products and services that in one off or two off locations might not be able to offer. So I think you’re going to see that settle in. I still think health and wellness is a huge industry that is poised to be developed. I do believe that more and more, [00:22:00] we’re going to see people choosing healthier and healthier lives and they’re going to seek out more and more options that meet them where they want to go. Those are great and I still think that the restaurant industry is a great industry, but again, I’m going to go back to one thing that ties everything together and that’s experience. And if you think about medical spas, you think about a carry out to Uber eats, you think about fitness. Anybody can buy treadmills, anybody can buy rowers, and anybody can buy a pizza oven. It’s the experience and the service that’s there that differentiates you beyond your products and services.
Brad: Absolutely. And I think you’ve answered a lot of the stuff that hopefully the audience heard, because there’s so many good nuggets in there that so far I was going to say, if you had one thing, once something’s operational, what’s the biggest mistake you see a franchisee make or a franchise once they are operational? [00:23:00]
Randy: Once you open a business revenue is king, right? You have to push revenue hard to be able to survive. As a matter of survival, once you’re up and running, it is accountability for executing upon the systems and processes that you put in place that get you to where you want to be in the first place. If you don’t hold yourself accountable for staying true to your foundation you’re not going to succeed long term. And the biggest mistake I see is that the owners, the entrepreneurs and franchisees don’t stay involved in the businesses that they start. And over time, they start to fall apart because they lose connection and it all comes back to foundational systems, operational systems and processes.
Michael: That’s amazing, Randy. We have thank you so much for being generous with your time today. We’re [00:24:00] grateful to have you with us on the Legal 123s with ByrdAdatto. We’re going to say goodbye, go into commercial, and on the other side Brad and I will share any legal insights from today’s episode.
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Brad: Welcome back to Legal 123s with ByrdAdatto. I’m your host Brad Adatto with my co-host Michael Byrd. Michael, it was great to spend some time with Randy, hearing how the formula that he’s put [00:25:00] together to help people find their success. And you can tell what an entrepreneur he was, but as part of our zoom out theme, let’s talk about the bigger pictures or franchise.
Michael: I think the first disclaimer we should add is that we’re not franchise attorneys. The franchise world is heavily regulated, kind of like our healthcare world. And so as Randy said, it’s not for the faint of heart you’re entering into two heavily regulated fields. In the medical space we’ve worked with a ton of franchises because you have both disciplines that are needed. And so we’ve worked with a ton of franchise attorneys over the years.
Bead: Yeah. And because of that, we’ve had the opportunity to review a ton of FDDs for our clients over the years and add our own comments, especially on the healthcare regulation deals and sometimes even update the business models to be detailed out in the FDDs.
Michael: Okay Brad [00:26:00] we almost made it through an entire episode without a vocabulary word, but I think we need to talk about FDD because it sounds like it could be problematic. Sounds like an illness, but we’ll clarify for the audience that does not know. A FDD means a franchise disclosure document. It is a legal disclosure document that must be given to individuals interested in buying a United States franchise as part of the whole pre-sale, due diligence process. The document contains a ton of information essential to helping the franchisees understand what they’re buying. And we noted earlier in this episode that the federal trade commission started requiring franchises provide additional details to potential franchisees. And this is ultimately what is it an FDD.
Brad: Yep. Thanks for the additional [00:27:00] background, Michael. And I think the best way I’ve described before is so much our private offering. You’re really basically showing your underwear drawer to someone to make sure they understand what they’re getting them into. But you know, often when we are working with our franchise clients, again, we’re not working on the franchise side of it. We spent a lot of time with them white boarding out their actual model to actually understand the potential health care implications. And this could be as simple as identifying certain laws that we’ve talked about, like corporate practice of medicine or good faith exams, or even getting much more complicated or complex, diving into the federal laws and how that’s going to impact the actual franchise sale or the other conversations that we’re having right now, which is they’re getting ready to do an M&A deal. And they want to figure out how to structure it correctly or get ready to go franchise themselves. So no matter what part it is having that step back, as you said, the zoom out piece is very important to really understand their [00:28:00] model.
Michael: Yeah. Thinking about Randy talking and he just had such a way of talking about the disciplines that go with traditional business and imagine following Randy’s advice, but then not knowing that what you are doing when you’re building out your model is non-compliant and how that could end up causing some major problems. And so as we’ve talked about in other episodes, not everyone in some states can own a medical spa. So if you have a franchise offering that would impact who can own it, then you have got to understand the model so that you can get the people you’re looking for. And then you expand that to staffing. And so understanding the compliance piece in the franchise process is so important.
Brad: Yeah. Michael, we’re almost out of time for this episode. What I loved about Randy said on that he [00:29:00] really did take a good step back and really talk about the franchise industry and especially in the medical industry, what he sees happening. So I’m going to ask you basically the same thing that Randy said when we take a zoom out here, where do you see the franchise growth in the medical industry?
Michael: Well, I think you have two things where the franchise world is going to grow. One is going to be a people that are looking to scale a med spa. So people have this idea. They want to figure out how to scale it and they’re drawn to this concept, the model of the franchise world. And so they may have the understanding of the healthcare world, but they need to learn that and go through that process. And then the flip side is that franchisees are their own animal from an entrepreneurial perspective and they will bounce industries. And if they see that the medical spa space, as Randy alluded to is one that’s attractive. You’re going to have [00:30:00] people that are disciplined in the franchise world and successful in the franchise world want to break into the med spa world. And so they’re going to come at it from that angle and have to learn all the compliance.
Brad: Yeah, totally agree with that statement. I guess this goes back to where you started off this episode, where you were talking about franchises can be great. As you said, your father-in-law owning McDonald’s, it’s a great way for people to make business, to be successful in business, but it goes back to where Randy was very clear is that you have to have great operational processes put in place. And, you know, anyone can just flip a burger, anyone can run on a treadmill, but putting all those together to make it consistent and the way that everyone understands they’ll always receive it. That’s the important piece of a good franchise. Well, Michael that’s all the time we have today. So join us next week on September 29th, when we will actually preview season six of the podcast, Michael.
Michael: Wow. [00:31:00]
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