Million Dollar Monday

How to Avoid Four Common Mistakes: Franchising Advice from Rick Del Sontro

• Greg Muzzillo

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Rick Del Sontro offers expert advice on franchising, including what investors are seeking and common struggles to avoid in starting up a business. As founder of a company that was named to the Fortune 500 List of the Fastest-Growing private companies for six consecutive years, Del Sontro knows what it takes to drive success. 

Chapter Summaries:


Key Takeaways 

  • My advice would be to make sure you have one to three locations where you’re getting it right.  
  • I've always had that entrepreneurial urge in itch. I'd always tell people if you have it, it's not going to go away. So you better deal with it.
  • On your own and all alone is a recipe for disaster. 
  • I figured out what was going wrong was that I was spending too much time working in the business and not enough time working on the business.
  • Inherently young franchise concepts all struggle from the same things:
  • Number one, they're typically under capitalized. They don't understand how expensive it is to really scale the business.
  • Number two, they know everything about that operating business that they built, but they know very little or nothing about franchising, completely different industry. 
  • Number three, They struggle with franchise sales. 
  • Number four, is they're put in this situation where they have to hire certain roles in their business to support their franchise community, no matter how small that might be. But the economics of doing that don't make any sense. We felt like if we could go in and, and eliminate those barriers, we could find really good concepts and help scale them and grow them. 
  • Life's all about learning from previous mistakes. That's franchising is genius because you build a system based not only upon successes, but the elimination of things that didn't work.


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Greg Muzzillo :

Hello and welcome to Million Dollar Monday. I'm your host, Greg Muzzillo bringing you real successful people with real useful advice for people with big dreams. I understand big dreams. I turned an investment of$200 and a lot of great advice from some really successful people into my big dream Proforma. That today is a half billion dollar company. Hello and welcome today. We're going to be talking about everything franchising and I'm joined by a real expert that has spent most of his career in the world of franchising in the sales of franchises. As a founder of a company that for six years was an Inc 500 fastest growing franchise company. And today a company in the CEO of a company that helps franchises both with money, intellectual and financial capital to get going and growing. I am excited to talk with Rick, Rick Del Sontro Rick, thanks for joining us.

Rick Del Sontro:

Hey Greg, it's my pleasure. I'm glad to be here.

Speaker 2:

So one thing that might be interesting because what we're doing here is Million Dollar Monday' is about giving great advice to aspiring entrepreneurs. I think this might be a good point for you because I think many people that want to start a business think someday they might want to franchise that business and be the Ray Kroc, the founder of McDonald's of the world, or you can name what other organizations that are famous and franchising, but it might be helpful here for you to explain the difference between what was Century 21, a conversion franchise and what most people think of when they think of the word franchising.

Rick Del Sontro:

Yeah, sure. And conversion franchising is interesting in that the concept there is you find an operating business that is out there today in the marketplace. And all you're trying to do is convert them from being what I would call independent and unaffiliated to independent plus affiliated, right? So rather than be, Rick Del Sontro real estate, you would be century 21, Rick Del Sontro real estate, taking advantage of really three key components to any good franchise or should deliver, which are brand operating systems and ongoing support the things that help you get, keep and grow your customers. And so that's a conversion. What we deal with in most markets today in most business opportunities are really just true. Franchise, start up businesses where you have an interest or a passion for a specific industry and you get involved and you start that business from the ground up. You're not converting anything over. You're not changing your name. You're starting in as that concept from day one.

Greg Muzzillo :

And so conversion franchising are for people that are already in the business, but want to become a part of something much larger themselves, rather than some people might call it Greenfield franchising or startup franchising, which is, finding people that are unhappy corporate executives or other people looking for a new business about which they may not know anything and start from the ground.

Rick Del Sontro:

Yeah. And again, it's just the basic premise that if you can insert yourself into a system where things have been already thought out for you laid out for you, where there are people that are not thinking about what's happening today and tomorrow, but they're thinking about what's happening next month, next year, five years from now, it gives you an inherent advantage over opening your own business on your own and making some of the beginner mistakes.

Greg Muzzillo :

Yeah. Well, on your own and all alone, as I tell, a lot of people is a recipe for disaster. So do you want to talk a little bit about your experience and sort of how you came through, the Century 21 into some other organizations that sort of look to expand the whole real estate franchising world and tell us how you sort of got to, the Zippy shell founding and, starting and growing Zippy.

Rick Del Sontro:

Yeah, sure. So, yeah, this is all fun stuff, really, when I think back and look back at the, the history of it. But I was working for, Century 21, one of the mid Atlantic states when the, um, corporate office, out in Irvine, California, asked me if I'd take a position there to be director of international franchise sales. And with that would consult the, the domestic franchise sales efforts as well. And so I moved from at the time, the Washington DC area out to, Corona Del Mar in California, we worked in Irvine. It was heaven frankly, and about 60 days into it, a company called HFS, purchased century 21 real estate corporation from metropolitan life. And, at the time we were probably no more than a rounding error on the P and L of metropolitan life. But, and there were about 210 people that worked at the corporate headquarters, I would say roughly 205 of them were let go. And five of them, five of us were asked to move back to New Jersey and go to work there. I was asked to become the vice president of franchise sales and administration and, build out, the infrastructure for what would ultimately be multiple real estate brands. I remember at that time, I was really fortunate. I met a gentleman who was the president of the company, John Snodgrass, and he really mentored me and taught me a lot about the world of business and franchising. And we sat down, we worked hard and we built out something that would later support, also Caldwell banker era, real estate, better homes and gardens, and ultimately Sotheby's as well down the line. And so that was a really, really great experience for me. But I've always had that entrepreneurial urge in itch. And I think that, you know, I'd always tell people if you have it, it's not going to go away. So you better, you better deal with it. Right. And so it was probably, you know I would say, gosh, 2001 that I, decided I was going to start my own business and things, you know, it was, it was interesting. I will share with you that, there's a great book out there. I'm sure you've read it, but if your listeners haven't yet, it's called the E-Myth revisited Why. Most Small Businesses Fail. And, I always tell people, I think that when I started my first business, the book was written about me. They followed me around and just said, okay, you know, because they, you know, all I did for six straight months was revise you know, my revenue numbers downward. And I'm like, what am I doing wrong here? And it was fortunate and a little fortuitous that I figured out what was going wrong was that I was spending too much time working in the business and not enough time working on the business. Right. And when that happened, things changed. But, it was really back in 2008, 2009 that a lifelong business partner, a dear friend of mine, Javier Paraga reached out to me with the idea of, of Zippy Shell here in the United States. And my initial inclination was this is storage and moving it's really, couldn't be any more boring. There's already this concept out there called pods. Like, you know, why do I want to do this? I'm an, emphatic, no. Right. And give them a lot of credit. He constantly kept dripping me with information and, you know, kicking up the discussion and, you know, I finally said, okay. I'll look into it. I'll, we'll spend the next couple of months. We'll see if we can, shoot holes in it. And, and ultimately we got to the point where I said, you know what? This actually does make sense. I like their model. I think it's a better model than what's out there. There's certainly enough space. I think the changing environment of how people store their goods and move their goods is fantastic. And so to condense a time to a short period of time we ultimately launched in 2010 Zippy Shell here, domestically in the United States and began growing it.

Greg Muzzillo :

Can you describe the business model of Zippy Shell? There is just, there's a couple of different models in that, in that industry.

Rick Del Sontro:

Yeah, so there's a couple of things that we did when we first started off, we were strictly a portable storage company. So, um, if you're familiar with, um, like a pods or even a one 800 pack rack, they deliver a large container to your home and they leave it there and you put your things in it. If you want, you can have them pick it up and store it in a facility. But most people like to have it that sense of security its sitting in their driveway, their side of their yard, wherever the case may be sippy shell was going to be different. We were going to deliver a container that was inside a trailer, essentially what we called the Zippy Shell. And because it was, you know, a licensed vehicle, we could bring that and put that in places where you couldn't just leave a container. And so it gave us a competitive advantage. Apartment complex is condos. And I really liked it. It was very lean. It was nimble. It was mobile. The capital costs to get involved were significantly less for a franchisee. And so that was really the initial model, knowing that at some point when we built enough franchise locations, we could actually start shipping these containers around the country. And basically helping people move. So doing what we refer to as containerized moving, we deliver a Zippy Shell trailer with a container in it. 1, 2, 3 of them, people would load their goods or they could hire somebody to professionally load their goods in there. And then we would take these and put them on an enclosed truck and they would be redelivered to another Zippy Shell location, and then redeliver it out to your home when you were, had moved. And what was ingenious about it was that the other models were only shipping their containers on flatbed trucks, which are very expensive to move across the country. But our containers were designed specifically to be the, you know, be shipped inside a enclosed freight truck, which moves 90 plus percent of all of our freight around the country. So we had really some strong economic advantages as well. With that model.

Greg Muzzillo :

You raise a lot of money, for the growth of the company. Want to tell us about that?

Rick Del Sontro:

Well, I think we initially bootstrapped it with, you know, founder money and friends and family, and we probably combined could about$5 million in 2015, we took in our first outside money, what I would call private equity money with a, um, a great group out of California Virgo. And they invested$25 million into the business you know, it, you know, very strong valuation and then later on in 2018, it would have been, invested, in conjunction with some others, you know, roughly another 130 million of equity and about 60 million in debt. So, yeah, it's quite a bit of an investment in, and certainly much appreciated. And frankly it's a large, large part of the reason why the business is where it is today and wildly successful and continuing to grow very, very rapidly. Yeah. Six years on the Inc 5,000 list of fastest growing company is, certainly a wonderful accomplishment and congratulations to you for that. So what led to your leaving there? Yeah, I think ultimately in my mind it was just time you know, I, I think that, for me, the business was much more, large operational, more and less entrepreneurial. I also think that we had just done a merger with a company called one 800 pack rat, and we knew that we were going to have to, for some period of time, slow down our franchise sales growth, not eliminate it, but to slow it down and maybe take a pause on it because there were roughly, I think 75, locations that we would have to operate and so look at, at this point, I think it was safe to say I became a franchising guy and I really loved that. I loved the interaction with the entrepreneurs. And so I I'd seen them all in all. It was just, the timing just felt right.

Greg Muzzillo :

And I think, I think the words slow down our growth are just something that's not in your DNA or mine.

Rick Del Sontro:

Yeah. And I, and I think it look it to be fair. They certainly add accelerated growth. It's, it's slowing down the franchising side of it for me, which was what I was really passionate about. I mean, I was, you know, toward the end, that was the side of the business that I had become really responsible for. I had a business partner, Gareth Taylor, who was responsible for the, what I call the moving side of the business, very, you know, very operational side of the business. And so with, with my side of the business being put on, pause, it just, all things made sense.

Greg Muzzillo :

All right. Well, it's a wonderful background. It's a wonderful story. And you learned a lot about the ups and downs of the franchising business. So tell us about Z Growth Partners.

Rick Del Sontro:

Yeah, so Z Growth Partners, was founded by, again, my business partner Javier Parata. And when Javier, he was part of, Zippy Shell when the first, outside investment came i n 15, he was acting at the time chairman of the board t hat, shifted me thought for the second time in his life, he would retire. And it didn't work out again. So he decided what he was going to do was build out a business that would help young concepts and even experienced ones sell franchises because franchise sales are, it's a very challenging thing to do. And so he said his little twist on it was going to be that they were going to also invest in the c oncepts, very minority investments in the concepts that they were repping, because they w anted to show that, y ou k now, there was a real belief in what they were doing. And when Javier reached out to me, when I'd left Zippy, he asked me to come aboard and I told him, you know, this sounded great, but I would rather change up the structure have us make majority investments in these young concepts and then really get in and help them grow. Because inherently young franchise concepts all struggle from the same thing. Number one, they're typically under capitalized. They don't understand how expensive it is to really scale the business. Number two, they know everything about that operating business that they built, but they know very little or nothing about franchising, completely different industry. They struggle with franchise sales. That's the third thing. And then the fourth thing is they're put in this situation where they have to hire certain roles in their business to support their franchise community, no matter how small that might be. But the economics of doing that don't make any sense. And so we felt like if we could go in and eliminate those barriers, so to speak, we could find really good concepts and help scale them and grow them. And so that's what we decided we would do. We would change the direction of what we were doing and go down that road.

Greg Muzzillo :

Many people I talked to because we're a franchise or that want a franchise almost look at franchising you mentioned being, under-capitalized almost as a source of capital, but I can't afford to hire people. So I'm gonna sell franchises. And these are people that don't even have a proven concept. And I think it helps sometimes those kinds of things can give franchising a bad name, when people are selling franchises and at the same time expecting the franchisees to really prove out the concept so good on you for what you are doing. What advice would you have for people that are listening right now that think they may want to franchise their business, whether they're just getting up and going, or whether they're even thinking about starting and then eventually franchising, what advice would you have for them?

Rick Del Sontro:

Well, I think my basic advice would be, make sure you have one to three locations where you're, getting it right. You know, and, and that's, you have to look it at it always from the, the franchisee's standpoint, we look at things, you know, beyond who the founders are, but we look at, you know, what industry are they in? Is it a growing declining, flat industry? How scalable is that business? What does the competition look like? Is there something unique or different about what they offer? What are the single unit economics always critical? Because you got to remember you as the franchise or are going to charge royalty fees. And so, you know, minus those royalty fees, how much is leftover, we really don't want, we don't look at concepts where we don't believe you can get your initial investment back in more than 24 months, we want to see those types of things. So I would say, you know, look, get it right. First, don't be in a rush. And, when you are, I mean, understand what you know, and what you don't know, don't be afraid to ask for help and, and to do it right. It's not as simple as reaching out to a franchise attorney and saying, can you put an FDD in a franchise agreement? And I see a lot of that, you know, people just, okay, now I'm in franchising, but you're not, you know,

Greg Muzzillo :

Are you guys members of the international franchise association? Of course.

Rick Del Sontro:

Of course. Yeah.

Greg Muzzillo :

And I think that you didn't say it, but I think you, and I will both say number one, join the international franchise association, even if you're thinking about it, because there's just so much wisdom and networking you can get there that, t's unbelievable. All right, Rick, so you've been very successful as the founder, as a CEO, especially in the franchising space you know, you've had a lot of very successful financial transactions. What are the big dreams you have for your business and for the rest of your life, Rick?

Rick Del Sontro:

So one of the things I decided that really motivated me was to help others achieve their aspirations and their goals. And it's, it's just rewarding and I'm sure, you know, there's other people that probably feel similarly. And so we've got all of our concepts and we want to take these concepts to a point where, you know, that those streams are live. Now, sometimes those streams are economic and sometimes they're just, isn't it really cool to see my concept in 150 different markets, right? So whatever that is, we want to do that. And I think from my standpoint, you know, as I think about what the future holds, I'm probably not a good person to retire. I mean, I just don't have a lot of hobbies, but I would love to one day be able to finance, you know, or help my kids start their own business. You know, for me, that's kind of a big deal. I can't think of anything that would be more enjoyable in that.

Greg Muzzillo :

Yeah. I get it. We work with a number, my wife and I together have a collection of his hers and ours. We have 10 children together and, there probably isn't anything, a heck of a lot more fun than working with the next generation, right?

Rick Del Sontro:

It's a blast. And, and to see them sort of, you know, navigate their way and learn the industry and the business. And again, life's all about, you know, learning from previous mistakes. And that's where I think franchising is genius, you know, because, you know, you build a system based not only upon the successes, but the elimination of things that didn't work.

Greg Muzzillo :

Absolutely absolutely. Well, Rick, congratulations on all of your success in your business and in your life. And thank you very much for joining us for Million Dollar Monday.

Speaker 3:

I appreciate it. Thanks for having me and congratulations to you as well.

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