David Nilssen – Guidant Financial


David Nilssen co-founded Guidant Financial in 2003 with $10,000 and a laptop. Since then, Guidant has helped over 18,000 entrepreneurs across the country to secure over $4 billion in small business and franchise financing. On this episode, David shares his findings via an in-depth study of the franchise industry.

Co-Founder of Guidant Financial

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Tom Scarda: This is Tom Scarda. Welcome to another episode of The Franchise Academy, and we have a great show today. A special friend, and my guest is David Nilssen, the founder of Guidant Financial. David, actually started Guidant Financial in 2003 with $10,000 and a laptop. Since then, Guidant has helped more than 18,000 entrepreneur across the country to secure over four billion dollars in small business and franchise financing.

David Nilssen: Guidant, last year, funded about 1800 small businesses, individual small businesses, put about almost a half billion dollars to work so big samples set. The data though, that we got, represented that 49% of the transaction, were happening in an investment category that ranged between $50,000 and $250,000, regardless of whether it was roll overs or business startups or SBA loans, unsecured financing. The 50% of them occurred within that sort of, what I would call, small to medium investment range for a franchise or small business, and I am curious if you're seeing the same sort of trend towards these sorts of small to mid-size investment categories.

Tom Scarda: We talk everything today from financing to how to run a great business and how to even pick a franchise from the financial perspective so, stay tuned. Listen in, and get some great information from one of the top franchise executives in the country.
Recorded voice: It's time to go into business for yourself. Get ready for another episode of The Franchise Academy podcast. Education, insights and inspiration. Here is your host, small business and franchise expert Tom Scarda.

Tom Scarda: David, I really want to thank you being on the show. This is such an honor. It's so great to have you here.

David Nilssen: Yeah, I am glad to be here. I appreciate the invitation.

Tom Scarda: So, Guidant Financial, and this whole finance world, and franchising, and entrepreneurship. How did you get started? What was the impetus for this?

David Nilssen: Well, like lots of entrepreneurs, it was unintentional. I've been in small business for a long period of time, and early on I started a landscaping company. That moved into land development, and actually during the process I was developing land, somebody suggested that I look at retiring assets as way to help fund some of these transactions, and I didn't actually realize that you could invest your retirement assets outside of the stock market, and actually going through that process I realized it wasn't just an opportunity to invest in real estate, but also into things like small business, even lending capital for things like private mortgages.

David Nilssen: Initially we launched Guidant Financial as a firm to help people invest their retirement assets outside the stock market, and to all sorts of investments but what I found is that my business partner and I, who, he and I are equal partners in Guidant, found that we were really interested in helping people open small businesses, and we were drawn toward that small business, and franchising arena and as we were serving more and more they needed additional forms of financing. Things like SBA loans and unsecured credit, portfolio loans, and so we started to build a suite of services around the entrepreneurial client and then over time realized that we needed to move away from any other types of transactions. Early on we made the decision to invest all of our efforts in helping individuals who are starting or buying businesses or franchise establishments to get the capital that they need to do that.
Tom Scarda: So, you do more than just franchising? You can do private businesses or resales or what have you, is that right?

David Nilssen: Yeah, for sure. I mean if you look at the number of customers ... Guidant Financial is one of the largest providers in franchise financing, but we do a lot more than that. About 34% of our business, is helping new franchisees get the capital they need to open their business but the remainder of that is for people that are either starting their own entrepreneurial venture or they're buying an existing business, and that could include franchise resale. We've got a pretty diverse background in terms of the types of businesses that we help capitalize, but I think that's, for me, it's important that we are helping individuals regardless of that, to get the capital that they need. My background, in addition to starting Guidant, I've invested in lots of different companies across many different industries. Things like digital publishing and travel, sass, logistics, and I've even been a franchisee so, got lots of experience in those areas and I can tell you that capital is one of the biggest barriers to entry to all of those areas.

Tom Scarda: Absolutely, and not enough capital is probably the number one reason for failure.

David Nilssen: For sure, 'cause I think what ends up happening is a lot of us are overly optimistic when we first start a business, and don't realize that the runway may be a little bit longer than we anticipated and so that's something we work really hard here to do is make sure that people have enough capital to not only sustain the business but thrive long term.
Tom Scarda: Absolutely, I educate my clients on that day in and day out. There is nothing more important 'cause I got caught in that quagmire of not having enough money and being stuck with a business and a lease that I had to pay for, and it got ugly, and you don't want to be in that place.
David Nilssen: No question.
Tom Scarda: Don't get over extended. I want to really talk about something that I was reading. You did a joint venture with a company called The Lending Club ... before we get into that though, can you just tell people the best way to get to Guidant Financial?
David Nilssen: Yeah, It's Guidantfinancial.com and Guidant is spelled G-U-I-D-A-N-T financial.com. Lots of information on there, calculators, articles. If someone is interested in different financing strategies or just wants to learn a little bit more about how that process works, that's the easiest way to do it.
Tom Scarda: Yeah, and it is a great website by the way, not just saying that, I use it for resource every once in a while. I appreciate all the work that you and your team do. You have an awesome, awesome team back there in Seattle. Tell me about the thing you do with The Lending Club? What was that all about? It's so interesting. I was reading so many things about it in the press.
David Nilssen: Yeah, so The Lending Club is firm that also helps individuals find capital typically in smaller sized transactions and generally for existing businesses however, we partnered together on a data project where we effectively surveyed our client base and theirs and took the thousands of entrepreneurs that responded, and started to parse out that data so we can understand who's opening businesses, who's seeing success, where is their momentum and there's some really interesting data points that came out of the project. There's a lack of real time data available in both small business and franchising. It is certainly gotten a lot of attention.
Tom Scarda: Yeah, I would say so. What was one of the biggest things that surprised you that came out of that project?
David Nilssen: Surprised me? One of the things that stood out to me was that women represented a greater portion of franchising than they do in the overall entrepreneurial category and that would be, like we talked about earlier, small business, startups, existing business transfers and then new franchises, and women represented about a quarter of all the franchise owners that we served, but inside of that there was another interesting [inaudible 00:07:32] that, in the African American category, there was 80% more woman opening small business than outside of it. Seems like the women in the African American community are more entrepreneurial than outside.
Tom Scarda: That's a staggering stat. I mean, wow! I am just speechless.
David Nilssen: Honestly, I can't tell you why that is, but we found that really interesting. Another thing that we thought was interesting, and I guess I shouldn't be surprised by this, but it’s always nice to see the data that backs it up. You and I are really connected to the franchise industry, and typically what I have seen, and I would be curious to know your perspective on this, but typically what I have seen is that people love franchising because they are able to go into business with a support system available to them, and it was represented in the data that franchisees are simply happier in their business than those that are going at it alone, and so not terribly surprised, but I found it nice validation because we do so much work on that space.
Tom Scarda: That's amazing to me and of course it sounds self-serving to say "yeah, of course it is. Franchising is so much better. Buy a franchise." But speaking from my own personal experience, having owned two franchises and three non-franchised businesses, it seems, as you say that, what came to mind is that when I had my own startups, it was like being on an island. I had nobody to talk to. There's nobody I could reach out to. Then when I had my, as an example, my smoothie business, Maui Wowi Smoothies. I sold that business in 2005 and now it's 2019 and several of the franchisees there I still talk to. We're still friends. One guy who is a franchisee still, with that outfit, is here on Long Island where I live, and we used to work together hand in hand. We would do co-op advertising together, and we would share employees, whatever it took, because we were all building equity in the same brand.
Tom Scarda: I think those relationships, more than anything, in franchising, which I don't think anybody speaks about. It's not in their franchise disclosure document about how great the culture is and all that, but I think that's the really, really big thing that I love and actually miss at the moment of owning my own franchise.
David Nilssen: Yeah, There's no question. It's funny when you own your own small business it's all about protecting what you have a lot of times, but when franchising you actually benefit from the brand expanding, so you want to see your individual franchisees that are peers within that system succeed. I was actually thinking about this the other day. I was asked on a different opportunity, what was one of the things that I have done or built into my life that's contributed to some of that success? I said coffees and cocktails with other entrepreneurs because you learn so much by sharing what's working, what's not working, and that exists within the franchise systems. You don't have to exercise that discipline quite as intentionally because its available to you built into that. I think that's highly likely to be one of the big contributors to not only the success, but the happiness levels of the franchisees because they're not alone.
Tom Scarda: Yeah, and not that we were going to go down this road but, I just have to say, it occurred to me after I got out of my franchise and then I started hanging around with the International Franchise Association, I was going to my certified franchise executive classes, I noticed that even between competing business in franchising, those folks would get together and share best practices. As a general example, not exactly true, you'll have the CEO of McDonalds sitting with the CEO of Burger King and saying what did you do that was right this year?, and what did you do that was wrong?, and everyone's so willing to share and it’s all in the name of building franchising in America and actually across the globe so I found that most fascinating as well.
David Nilssen: Yeah, there's no question. It’s interesting, we're talking about sharing best practices and it reminded me. One of the things that came out of the data project that I found really fascinating is, the question we were asking is does education correlate the profit? People that are going into businesses all over the country and all over the world, frankly, who have varying degrees of education, and what we found is that it definitely does not correlate the profit. In fact, the highest percentage of profitable businesses came from those who didn't even have a college degree and it [crosstalk 00:11:59] that the higher the education, the slower the profitability grew. It’s funny when you think about who's right for entrepreneurship, I've often heard people say well, that persons uneducated or Hey I have a masters so In really know how to do this, and the reality it generally doesn't correlate.
Tom Scarda: That is a really interesting thing that I'd love to delve into cause I kind of feel the same way in myself. I mean I don't have MBA, and I barely graduated with a Bachelors, and I got into my business and everybody said I was crazy and all that stuff but I just dug in and I didn't know what I didn't know so I didn't make preconceived judgements about what could be done and what can't be done. I just did it, and I remember specifically when I first got my smoothie franchise, it was really built to be more of a street fair type of selling smoothies on these carts or kiosks at the state fair, but I went and made a phone call to the Jacob Javits Convention Center in Manhattan, and the president of the company, who I am still friends with and I talk to at this point, said to me “man, you're hunting elephants so don't be disappointed.” And I got that gig. It was my very first gig and it was just making a phone call. Simple. Right place, right time, whatever. Nobody told me that I can't do that so I did it.
David Nilssen: Yeah, it’s so funny. One of the best pieces of advice I've ever been given, and I've given this to many people who were thinking about going into a franchise or a business is, that don't overthink it. Trust your gut. Intuition is a very powerful tool and I think the more cerebral you are the more you tend to overthink those decisions and can get paralyzed or not do the simple thing because it just seems out of reach.
Tom Scarda: Right. It's so true, and it is a lot of gut and a lot of instinct, and I always tell people even when you just buying a franchise, you can do spreadsheets and have a whole entire room filled with all your data but at the end of the day it doesn't matter if it doesn't feel right.
David Nilssen: Yeah, that's exactly right.
Tom Scarda: All right. It’s kind of like when you're buying a house for the first time, if you ever had that experience, you're shopping and you're going from house to house and it gets really boring after a while but all of a sudden you walk into a house and you get that feeling that this is home. It's a gut feeling. You can't put it in words but you just know it. As my wife would say “the juju is right.” It’s like that with a business but a lot of times someone who is hardly educated in business and has an MBA or whatever would say but no you can't just go on your gut you got to have all the factors and all this and that and yeah, you got to do your homework and the numbers got to be right but at the end of the day it’s got to be a gut reaction.
David Nilssen: Its got to align with your own personal philosophies. It sounds like your wife would say energy but I think that is absolutely true. Tom, you asked me earlier something that surprised me out of the data project. One that actually surprised me was that 30% of the respondents said that they would go to a family or friend ... These are the perspective business owners that we surveyed. I probably should clarify that we surveyed two different audiences, those that have already financed and are operating a business and those that were thinking about it. And of the group that was thinking about it, no surprise, financing was their biggest bearer to getting started so that's an exciting opportunity for a company like Guidant Financial but one of the things that surprised me, and I would even say concerned me, is that 30% said that they would just go to a family member or a friend to try to fund a business.
David Nilssen: I thought wow, building a professional team and having subject matter experts to help you navigate that process, I think is very important because there are lots of pieces that individuals who don't have experience doing this, need to understand so that's why people like you exist right? To help people walk through that process and analyze or I should say identify, analyze and evaluate these opportunist but 30% said they would just go to a family member or friend.
Tom Scarda: Its funny. You know family members and friends probably try to talk you out of it more often than not. In my personal experience I've found that. There's a great book called The War of Art not the art of war but The War of Art by Steven Pressfield and he talks about resistance. The whole book is about resistance, and resistance comes up in all different ways from procrastination to an unsupportive spouse to your friends and family telling you you're crazy to go into business. You have to do the research and get past the resistance if you really want to do something. You got to get past it, and like I say to folks, it’s not just franchise A or franchise B or an SBA loan or home equity loan but it’s really the choice between uncertainty and unhappiness. That's the choice.
David Nilssen: Yeah, I agree with that wholeheartedly. It’s funny when we first ... I should say with Guidant, but my first entrepreneurial venture I was sensitive to every cost or price and I think my mind shift, my mind has shifted over time to think about in terms of value so now, when I am looking to do something where the investment or, the stakes are high, and I would say for most of our clients, buying their franchise or starting their business, that's going to be one of the largest investments they theoretically make in their lifetime. I now have this perspective of going and finding the very best of the best. Someone whose walked down that path a million times and can tell me where the opportunity is and where the bodies may be buried. I think that's an important lesson for anyone whose thinking about starting a business is not to think about in terms of the cost or the expense I should say but I would think about it in terms of the value their going to drive for the cost of not going down that path.
Tom Scarda: Yeah, so true. I always say when you're sitting on your rocking chair and you're 90 years old or 100 years old maybe even 110 or 20 in our day and age here but you're going to regret the things you didn't do not the things that you did do. We're taught to play to not lose instead of play to win.
Tom Scarda: When you have that kind of mind shift like you've had that makes so much sense to me. It really is all about the value and there is really great third party resources or you can go to franchise attorneys, and get advice from franchise accountants and that's all well and good, and you just have to make sure you're getting value. A lot of people will go to those type of folks looking for validation of the franchise or the business or the idea and can never and they shouldn't anyway give their opinion. Good or bad. It’s just watches out for these potholes. Do you realize when you sign this that means that you're personal guarantee means this. The thing is, a professional, even somebody like me and you can't say yes or no, that doesn't add any value. We got to say hey let’s look at the pros and then really the cons.
David Nilssen: Yeah. One question I would have for you, and I know this is not technically me interviewing you but I would love to get your perspective on this. Guidant, last year, funded about 1800 small businesses, individual small businesses, put about almost a half a billion dollars to work so big sample set. A data though that we got represented that 49% of the transactions were happening in an investment category that ranged between $50,000 and $250,000. Regardless of whether it was roll overs or business startups or SBA loans, unsecured financing, 50% of them occurred within that, what I would call small to medium investment range for a franchise or small business and I am curious if you're seeing the same trend towards these small to mid-sized investment categories.
Tom Scarda: Absolutely. Yes. People think about oh, I can't do a franchise cause I can't afford a McDonalds I don't have a million dollars. Yeah, and that might be the truth but there's the number somewhere around 4000 franchises in 90 different industries, many of them have nothing to do with brick and mortar and food and all of that so you could be in a business that can make a significant income, surpassing the average salary, for a $100,000 investment, and for me I think that it’s just a wonderful deal when you think about building something and then being able to sell it 10 years later for three times your profits.
Tom Scarda: I see that trend very much but typically I always say it's not Joe Smith that's opening up an Applebee's, as an example, that would run $1.5 million. Those are big conglomerates that do those kind of businesses. They're looking for bigger loans and I know that your guys a guy that can handle that but for the average person, that's in a career transition, first of all they wouldn't be approved for a large business like that.
Tom Scarda: The next category is what I call a simple retail category and/or there is also the service based category where in service based the top end of your investments is going to be $150,000, and then when you take the next step up into a brick and mortar, something that is going to be in a strip mall, as an example, two or three thousand square foot store. That's going to be about a $200,000 to $300,000 investment. It totally makes sense what you're saying to me and what that finding has revealed.
David Nilssen: Yeah, and part of that is ... Obviously with us, I am sure this is similar to you, we speak to lots of perspective franchisees and small business owners and generally, more times than not, they choose to go a different path, and that's okay but I think preparing them to find the right concept, things like you do, and then making sure that they are adequately prepared to go through that financing process is really important.
David Nilssen: One of the things that you made a comment about them unlikely to get approved and I am sure you've seen these statistics, approximately three quarters of the people that just go into a bank and try to get a small business loan or a franchise loan are going to get declined and that number actually includes [inaudible 00:22:08] that have an existing business with customers and assets and inventory and things of that nature. For people who are looking to start a business or start a new franchise, it's theoretically higher than that but what we've seen, from our perspective is that 94% of the individuals that seek capital using a system like we use actually get the capital they need to open their business but it takes time and it also requires them to do some thinking up front and some pre work up front to make sure they know what their fanciable for.
David Nilssen: When we first started this business, I remember, coming from the real estate industry, the pre-qualification letter is something that is standard part practice. You don't actually start looking for homes until someone in the mortgage industry has helped you understand what the investment opportunity looks like for you but that discipline didn't exist in small business and so we worked really hard to build a system that allows us to predict, within a very close range, how fanciable an individual is so that their spending their time looking at concepts that are within their own financial capabilities, and I think that alignment is what's driving a lot of that success.
Tom Scarda: Well that's so awesome. I always say to folks, you need to speak to a team at Guidant Financial that can help you quantify what you're looking for. One of my colleagues said to me years ago, when you're talking to somebody, I was in training at FranChoice and somebody said business is the gun, but the financing is the ammunition. Your gun is useless without the ammunition and I thought that was a brilliant analogy. That's what you're talking about here ... it’s interesting and something that I learned from you years ago, actually, whether you realize it or not, is you really need three buckets of money to be successful. You need your initial capital to get the doors open. You need your working capital to keep the doors open and then you need something that nobody ever thinks about which is that home capital, that's what I call it, the money you need to pay your bills, at home. Put food on the table, as you're working towards making a profit cause you're not going to make a profit in the first month in any business I don't care what it is.
David Nilssen: Yeah, grocery money is what we call it. Make sure that you have enough capital upfront so that you can make the appropriate investments to grow the business versus emotional reactions because of personal need. You got to balance both of those things while you're first launching.
Tom Scarda: Absolutely. I want to swing back to the other thing that you were talking about, friends and family for money. People often come to me and they're like yeah, I don't have any money but my uncle, has a lot of money and he was successful in his life and he's willing to finance me and he is a silent partner. What I've found, and I don't know if you have had this kind of experience, and I tell people okay have them fill out my questionnaire, have your uncle fill it out, and then we will go down the road of figuring this out. Almost invariably, almost every single time, I never hear from that person again. I think that a lot of people say yeah, I'll finance yeah but there is no such thing as a silent partner in my book. Once money is involved, they want to have a say. Do you feel that kind of same sentiment?
David Nilssen: Yeah. I think we see the same thing. A lot of times people come here and say hey, I've got someone backing me, but I would say that its uncommon, like you've seen, that those transactions typically happen, the ones that I have seen happen, I would say, there's probably more challenged relationships than good ones. Investors in general want to see return and so it is very uncommon that you'd see someone that provides capital to a transactions and really has no emotional attachment to it. In fact, the personal relationship might even amplify the emotion. I would say that I agree with you that that's typically not a transaction that we see gets completed, but I think there's a lot of other options for people.
David Nilssen: I think that generally what I've seen is that those that are looking for personal investment, from an outside source, is because they have an aversion to debt. One of the things we saw that came from the survey, and it’s no surprise because a big part of our business is built on this human need, is that about a quarter of them said that they were absolutely averse to debt. They just [inaudible 00:26:21] I don't want to do it so if they were going to start a business, they needed to do it with and investment or equity of some sort. As you know, roll overs or business startups is a big part of our operation and this is where people are using their retirement assets to invest in a small business rather than the stock market, and they can do that without taking a taxable distribution, so they're starting the business with equity versus debt.
David Nilssen: I think that aligns with a lot of peoples personal philosophies, which is, they don't want to have to service a monthly payment and have that overhead. I'm drawing to correlation only because I've seen historically what we've found is people are looking for investment because of this personal need and often times when they find out there are other options that can meet that need those investors are not necessary.
Tom Scarda: That is so true and something we didn't really talk about which is Guidant financials strong suite is helping people use their retirement funds to finance a business and its tax free and penalty free and you can use those funds as your own money. You can use those funds tax free and penalty free as long as you're separated from the job in which you created that 401k. Am I saying that right?
David Nilssen: Yeah, that's right. A lot of people invest their retirement assets in stocks like Microsoft or Google, Apple. That is something that is very commonly done within the retirement industry but they do have the option to invest in stock in their own privately held company, assuming that its formed correctly. That is a cornerstone of our business and was really the first vehicle that we took the franchising market when we first started.
David Nilssen: Since then, we've rounded out the portfolio and actually, interestingly enough, over the last two years, the fastest growing segment of our business is SBA loans. In particular SBA loans where the total transaction capital they need is under $250K. We are seeing some really good success in partnering with hundreds of banks across the country and finding individuals that want to consume the type of loans that are being requested by borrowers all over the country.
Tom Scarda: That's a key point. That's a key take away. If you're thinking about franchising, or if you're thinking about starting any business and you need financing, to go into your local Bank of America, Chase, Wells Fargo, you mention it, whatever bank it is, chances of being approved, as you said earlier are slim but when you use a company, Guidant Financial, they have a list of banks across the country and certain banks have, what I believe, and this is out of my league here so correct me if I'm wrong, but they have something called a credit box.
Tom Scarda: There's certain type of loans that their looking to dot that month or that quarter or that year. They have goals. They may be looking at only doing a lot of a lot of home equity line of credits or they may be wanting to do a lot of business, a lot of automobile or whatever it might be. Guidant knows exactly which banks are looking for which kind of loans. When you got somebody with a new start up that needs just $100,000, you know exactly where to go and the likeliness of getting approved goes way up. Is that right?
David Nilssen: Yeah. Not to over simplify your process but at the end of the day, if you walk into your bank, regardless of which bank it is, you have a single plan of failure, right? You're going to put in an application, which an application is not an insignificant process. You put in an application and work with that bank over the next 90 days, there's three out of four, even the most qualified borrowers, three out of four are going to get declined. If you're starting a new business, whether its franchise or non-franchising, that decline rate goes up. The reason why we've seen great success is because we are taking that inquiry, that application early in the process and then taking it out to our network of financing institutions to pair them with one, for purposes of credit box, investment thesis and even geographic proximity are going to be interested in participating in that loan opportunity.
Tom Scarda: Yeah, So awesome! You guys do a great job with that and I appreciate that you've helped many, many of my clients over the years and people rave about Guidant Financial. That's an awesome thing. I wanted to change topics just a little bit and talk more about your personal experience and entrepreneurial experience. Is there any moment in your entrepreneurial career at this point, where you can look back at and say, that was a reason for my success? Or that was a major failure that I learned from. Anything you can share with the budding entrepreneurs that are listening?
David Nilssen: Well, you know it’s funny. We've talked about some of the philosophies and I, again, don't want to over simplify. I think back to what you just asked about the, what I would call the uh-oh moments. 2008 was a tough one right? We all know what happened in 2008 and early 2009 where the real estate market had already collapsed. The stock market was having problems. The economy and unemployment had, the economy had tanked. Unemployment was starting to move much higher. We saw the cracks in the foundation early on. Having been in real estate and tracking it very closely, I saw that happening, but I was too slow to react.
David Nilssen: I look at 2008, and I think we could have put ourselves in a better position, although we navigated just fine. It was a painful time, and I think, I talked earlier about trusting your gut. At the time, I'll call it late 2007 early 2008, every economist in the world was saying hey things are [inaudible 00:31:56] but most were saying things are great. You look at all the analyst in the market saying hey, this is going to continue but intuitively I knew something was off.
David Nilssen: Going back to the comment I made earlier, one of the board members, one of my board members who said trust your gut, its seldom wrong. I think we have to, as business owners, listen to that and understand what that gut is trying to tell us. I think that moments where I look back and I say man, we could've done ourselves a real favor by being a little bit more conservative or even defensive in a period of time where we knew the overall economy was overextended.
Tom Scarda: What made you not make a move? I know for me it would be a little too afraid to look under that particular, open that door, that can of worms.
David Nilssen: I think we were writing such a crazy amount of momentum. I mean, back then, Guidant, we had started this thing in 2003. We launched it really just me and my business partner and we had funded it with very little capital. It was an entrepreneurial start. We had grown that thing, this is just over a five year period of time till were an ink 500 company. We had 110 employees. We were growing at over 100% year over year during that period of time. I think sometimes you look at momentum and it gives you this sense of security. I think at that time that was probably what kept us or prevented us from being a little bit more defensive but, like I've said, we could see what was happening around us and we were just little too late to react and so I think, if I was to reflect on my worst entrepreneurial moment, that's probably the one that I look back on and think yeah, I shoulda done that different.
Tom Scarda: Absolutely. David, what the one best piece of advice you've ever gotten?
David Nilssen: You know what's funny? I think one of the best books that I've ever read was a book, it’s called Organizational physics. An individual, his name is Lex Sisney, who wrote this book, essentially saying there was a way to build a business using the laws of science. I loved the book because obviously I've personally bought in to the concept of franchising, having a blueprint for starting a business and then having some autonomy to build that business. His thesis is that, that same sort of model can apply in your own entrepreneurial venture. I loved the consistence in his beliefs system to mine.
David Nilssen: One of the comments, cause I later reached out to him and have spent considerable time with the author, one of the things that he said to me is that if you're going to make a key decision in your business, you need to involve those individuals upstream that are going to be impacted downstream. If you're going make big decision, you need to make sure that you have those that are going to be impacted by that decision provide feedback in the process. I think that's helped us make much better decisions within our business having those key stakeholders giving you feedback an input earlier to help shape the discussions long term.
David Nilssen: One of the things that I would always tell individuals is that if you're going to operate a business you need to get really effective in involving individuals upstream that are going to be impacted downstream in any decision that you make.
Tom Scarda: Yeah, that's brilliant. That's something that I probably don't do. That was just a little bucket of cold water for me.[inaudible 00:35:17]
David Nilssen: [inaudible 00:35:19] because small business, we're chief, cook and bottle washer. We're operating every day with our hair just a little bit one fire. It often times is difficult to take a step back and be a little bit more disciplined and intentional but sometimes we have to slow down to speed up. That is something that is a difficult lesson but an important one for anyone that's going to operate a business.
Tom Scarda: David, what's one thing that you're really fired up about right now?
David Nilssen: Fired up about. One of the things that we've recently launched a new product through our company, because of the work that we've done in grow over or business start ups, we've had to help our existing business clients. We've got about 8500 existing businesses that we serve today. We have to help them every year value their investment, right? We've been helping them do that through, what we call an estimated business value for a long period of time. We, Recently though, we decided to take that service that we've been providing and productize that for people that are looking to sell their small business or franchise.
David Nilssen: One of the big gaps that we see in the market today is that there are a lot of professionals that are helping people buy new businesses but within the franchising industry there's an opportunity to help people buy resales. We've launched what we're calling sellers suite, which is helping those people that are thinking of selling their franchise to be able to value that so that they've got reasonable expectations on the value, what they should be able to fetch on the market, and what would be finance able then for a buyer coming in, because when you're buying a resale, a franchise resale, the transaction is going to get underwritten from two sides because in a startup scenario we're really underwriting the individual, and their own financial capacity more so than the format. When you're buying a resale, you've got a lot of history there that you also have to finance.
David Nilssen: Our goal with sellers is to make it easier for a franchise resale to transition from a seller to a buyer and make that much more effective. I'm excited about that because approximately 30% of the franchising transactions that occur within the investment range that we specialize in, which is under a million, happen within the resale category.
Tom Scarda: That's amazing! You're right, I believe there is a big opportunity there. Many people come to me and they just want to buy a resale. They want to buy the cash flow.
David Nilssen: Sure.
Tom Scarda: That makes perfect since to me.
David Nilssen: Yeah. Well, If you think about it, there's some people, and I would put myself in this category, I'm an entrepreneurial spirit, right? And that entrepreneurial spirit is probably not going to do as well buying somebody else's business but for someone who is interested in buying the cash flow or performing a turnaround, the challenge of rebuilding a business. There's a lot of opportunities there that go missed. I think that's something that we're trying to help bring light to. Not only those opportunities, but path to getting those transactions completed.
Tom Scarda: Yeah, and that could be a podcast in itself I think. Maybe we should swing back to that on another day.
David Nilssen: Yeah, I would love to do that.
Tom Scarda: Yeah, that would be brilliant actually. I'm definitely going to put that on the books. I'll let you guys know when we're going to book that. What is one myth you would like to bust either about franchising or financing?
David Nilssen: That's a good question. One myth that I think about franchising and then maybe I'll do one about financing because I am an entrepreneur, I'll break the rule and answer two questions.
David Nilssen: I think in terms of franchising, the one thing that I would say is I don't see a disconnect between franchising, small business, entrepreneurship. I think they're all entrepreneurial in general. I would just dispel that myth. I think the process of building a business is very similar regardless and I think the individual will just have to think what do they value more the system, the support, the track record versus freedom and autonomy but knowing that it's a little lonelier. Right? I would just dispel that there is a major difference between those. It just really comes down to personal preference and individual need.
Tom Scarda: Nice.
David Nilssen: In terms of financing, one of the things I talked about earlier is, still till this day people believe that the biggest barrier to them getting into business is going to be financing. I think a lot of people believe that they're going to be blind about that opportunity going through a transaction, and they don't have to be. The myth that I would dispel is that you can actually pre-qualify for financing early and I think that that puts you at a much greater place to be able to successfully buy a business and find the right business for you based on, not only your own personal need but your financial capacity.
Tom Scarda: Absolutely. A personal story comes to mind real quickly, I wanted to say that, the way I got into franchising was that I really, really, really, wanted to buy and open and operate a Cold stone Creamery ice cream store. In the process of trying to find those guys on the internet back in 1999, I ran into FranChoice and the company I work with now. I ended up working with a consultant there who, and I said to her hey, this is what I want to do and she said yeah, that's great but it's about $250,000 more than your budget will allow. Which I would have not known that if I would have had a Guidant Financial pre qual before that maybe I wouldn't have even gone down the road.
Tom Scarda: The cool thing is that she ended up finding me a great business that matched my skills and my personality, and I was the number one franchisee 18 months into it. My point is, is that don't think that you're closed out. There is a lot of opportunity if you really want to do something. If you're just infatuated with a particular concept, you probably shouldn't buy it. That is my personal feeling. If you just love the way these hamburgers taste. You should not buy a business based on the consumer perspective. You'll end up in a lot of trouble that way.
David Nilssen: Yeah, well it seems like you were lucky enough to find a good coach who understood enough about financing to give you good direction, but we see the same thing here. We have thousands of inquiries every single month. A big part of them have no idea what they want to buy but a good portion of them think that they just want to buy an individual concept because they like the product.
David Nilssen: I think back to some of the books that have been written about the baker that wants to buy a bakery because they want to bake all day. You and In both know, when you're running a business, you don't get to do that. You're running the business not creating the product all day long. Finding a business that aligns with your individual and family needs and as a catalyst or vehicle to help you accomplish the things that you want is really important.
Tom Scarda: Right. If you're a vegetarian, you probably shouldn't open a McDonalds but you can because you're never going to be in the store, per se. You're not going to be touching the meat.
David Nilssen: Yeah, as long as there's [inaudible 00:42:25] conflict for you right?
Tom Scarda: Right, right. Exactly. David, I wanted to just tie it up with one great piece of parting advice and a way people can get in touch with you guys.
David Nilssen: Parting advice, I think we talked about it, but I feel really strongly that people that are looking to go into business for themselves, regardless of how, build a great team. In know that sounds like it's a no brainer but I can't tell you how many people I see that feel like they have to go at this alone but there are lots of great professionals, great organizations that are willing to support people on their entrepreneurial venture and it’s not coming at a high cost. If you're looking at starting or buying a business just continue to build that team of good professionals around you that have experience helping people navigate these types of issues. The last thing you asked about Guidant Financial so I will just say again, If someone is interested in learning more about financing a business or just wants great information on the different opportunities there Guidantfinanical.com is our website. Tools, calculators, articles, there's all sorts of stuff there and I encourage people to go check I out.
Tom Scarda: That's awesome. David Nilssen really loved having you on the show. We will maybe do a string of these things cause there's a lot to talk about and you have a lot of information at your fingertips so, I just want to thank you so much for being on.
David Nilssen: Yeah, I really appreciate you having me.
Tom Scarda: All right. Have a great one!
female recorded: This has been another episode of The Franchise Academy podcast. For more info, go to our website thefranchiseacademypodcast.com. Remember to subscribe to Tom Scarda's You Tube channel for educational videos on franchising. Education, insight and inspiration.

About the author, Thomas Scarda

Tom Scarda hosts The Franchise Academy Podcast show on iTunes and is the author of three books: the number 1 bestseller Franchise Savvy: 6 Strategies Pros Use to Pick a Top Performing Franchise, The Road to Franchise Freedom and The Magic of Choosing Uncertainty. A self-made small business expert and Certified Franchise Expert, Tom has owned and operated both franchised and non-franchised businesses.

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