White Paper Wealth30

Wealth 3.0
The Magic of Compound Businesses
A Franchise Consulting White Paper

By Robert A. Needham, JD

© December 2008

Contents
Summary ...................................................................................................................................... 3
The Entrepreneurial Tsunami ........................................................................................... 4
About This Analysis............................................................................................................ 4
Choosing A New Strategy......................................................................................................... 6
Background ........................................................................................................................... 6
Approaches............................................................................................................................ 9
Compounding For Growth............................................................................................... 10
Okay, It Sounds Too Good To Be True ......................................................................... 11
MCOC Owner Rational........................................................................................................... 12
No Guarantees – This Is A Business .............................................................................. 12
A Hypothetical MCOC Model......................................................................................... 12
Inquirers Welcome ................................................................................................................... 14
Thoughts & Conclusions......................................................................................................... 14

About the Author—Robert A. Needham, JD
Robert A. Needham, JD is President of FranchiseInc!, LLC an international franchise consulting firm
based in Pelham, Alabama (Near Birmingham).  FranchiseInc! offers a wide variety of services to the
franchise community including: 1) franchise development of new business concepts, 2) strategic
planning and business coaching, and 3) as a Franchise Consultant Network (our franchisees), we
assist consumers match their goals to a variety of franchise concepts.

After completing a highly decorated military career that included being a member of the National
Aeronautics and Space Administration (NASA) National Space Transportation System (Space
Shuttle) Powered Flight and Assent Design Team, Dr. Needham has spent over 20 years assisting
hundreds of small to large business owners develop their strategic business plans, product and
service offerings, home office operations concepts, technology, as well as sales and marketing
strategies. With a BS in Mathematics and Computer Science and a Juris Doctor, Dr. Needham has
authored several books on franchising, business, financial, personal and life planning; numerous
manuals, white papers, seminars, training materials and texts and is often sought as a public speaker,
university guest lecturer, and concept advocate.

Dr. Needham’s most recent book, Solving The Puzzle Of Owning A Franchise has met with
tremendous consumer interest. Dr. Needham has presented his ideas and concepts on television,
more than 400 talk radio stations in the United States, and numerous business publication articles.
Often seen as an industry innovator he has assisted in the development other brands such as
FranTools.com, NewMediaLeads.com, CollectRoyalty.com, FranTrends.com and others for client
companies.

December 2008 Page 2 ©FranchiseInc!, LLC

1
Section

Summary

“Things are as good or as bad as you think they are!”
Moral of the Hot Dog Story1

HEADLINE NEWS: AMERICA IN FINANCIAL CRISIS… In
October of 2008, Americans watched in shock as the meltdown of
the global financial markets combined with the U.S. mortgage and
credit markets collapsed resulting in the worst financial conditions
in this country since the Great Depression. The U.S. Senate, in a
hasty response, appropriated $700 Billion in “bail‐out” funds in an
attempt to stop the bleeding as financial institution after financial
institution filed for bankruptcy, closed their doors, or were gobbled
up by other industry leaders.
In December 2008, record unemployment began to set in as more
than 500,000 American workers lost their jobs. As we witness the
collapse of our nation’s corporate infrastructure, companies like
General Motors (GM), Ford and Chrysler are seeking funds from
the government in order to survive too.  Despite the holiday season
crowds, the retail sector is suffering with predictions of even more
store closures in 2009.
Those earning above $75,000 a year are having difficulty finding
jobs in their communities without significant pay cuts. Housing
prices are tumbling as much as 30% in some markets; the prospect
of selling the family home to take a new job could mean financial
suicide.  Either families must split up until the house is sold or find
a new direction.
Baby‐boomers continue to age. The 401(k) and IRA were the
trusted solutions for retirement, but recent record reductions in
equity (some in excess of 35%) has left Baby‐boomers seeking post‐
retirement jobs or better yields. Where will the funds come from to
replace these losses? An estimated $1‐Trillion of this retirement


capital is seeking diversification away from more traditional
investments such as mutual funds, stocks and bonds. Where should
it go?  A number of new programs have been reviewed by the IRS
and today non‐traditional alternatives such as the Entrepreneur
Retirement Stock Option Plan (ERSOP) exist.

The Entrepreneurial Tsunami
Looking back to just before the industrial revolution (Circa 1750),
over 90% of our citizens owned a family business and 10% worked
for someone else.   By the 20th Century, big business had perfected
the employment model with salaries and benefits and only about
10% now owned their own business. Our schools are teaching us
how to “get a good job”, rarely how to benefit from owning a
business.  Who would have ever thought that now, just eight years
into the 21st Century that owning your own business in America
might be a better investment than saving at a bank, owning stocks,
bonds and even real estate?  The truth is: it has always been a better
choice!
We call this current return to owning a business: “The
Entrepreneurial Tsunami”.  Hundreds of thousands have left their
jobs or their jobs have left them.  The depressed real estate market
is making selling a home today almost impossible – if a buyer can
get financing. Americans are in debt at alarming rates. It is
projected that thousands of new small businesses will spring up to
fill the void of jobs.  This will lead to economic recovery faster than
bailouts.
In this white paper, I will present the facts as why “The Magic Of
Compounding Businesses” may be superior to “The Magic Of
Compound Interest” and how strategies like Wealth 3.0 may lead
to economic recovery in a way not expected by those who think the
sky is falling!  Bottom‐line, there is HOPE!

About This Analysis
I have chosen to study the impact of the current economic
conditions by using data from the past 5 years of performance of
bank interest rates, the Dow Jones Average Index performance,
growth in real estate median housing market and owning select


franchise concepts. This analysis should be viewed as general
trends and not for any specific bank, stock, real estate market or
franchise concept. Certainly, depending on whose data you trust
going forward, performance could be worse.  There are exceptions
to my trend analysis, but I believe that the numbers I present will
give a conservative, fair, and balanced view of each investment in
these economic times. In writing this White Paper, I am not
attempting to render any legal, accounting or investment advice;
rather, to present strategies the reader might use when making
future choices. The reader is instructed to seek the advice of a
professional when making such decisions. There is no perfect
investment, so do your due diligence.
For my research, I considered data readily obtainable through a
Google® or Yahoo!® Internet search. I considered data for the
period of December 2003 through December 2008, where possible,
allowing for a 5‐year‐look‐back.  If we have learned anything in the
last few months economic changes, past performance is not a
guarantee of future performance and the reader is cautioned –
Buyer Beware!
I began by looking at the average 5‐yr Bank CD rate2 for my interest
rate assumptions. These rates represent the likely highest yield in
each year during the analysis period.
For my indicator of stock performance, I used the Dow Jones
Industrial Average Index3 over the same period of time.
For real estate I used the Average Median Price of Existing Homes
Sold4, again over a similar 5 year period.
Lastly, in considering businesses, I used my own composite of
select franchise concepts fitting my own criteria that is further
detailed in this Wealth 3.0 White Paper.

http://quotes.wordpress.com/2008/04/06/the‐man‐who‐sold‐hot‐dogs/
1

Chart of Estimated 5‐Yr CD rates from www.bankrate.com December 2008.
2

3 Yahoo!® Finance website DJI 5‐year history chart December 2003 – December 2008 dated 12/13/2008

@ 11:19 am ET.

http://www.scribd.com/doc/3675699/US‐National‐Association‐of‐Realtor‐Statistics‐19682008‐
4

Median‐Price‐on‐Home‐Sales‐62508  Assumption: Payment and/or net rental income are neutral.


2
Section

Choosing A New Strategy

Background
The coming Entrepreneur Tsunami will require a new strategy.
Old ways may not work in the new economy.  Before I show you
what I believe is the answer, I would like to give you some
background knowledge.
First let’s agree on some assumptions:
1. That you have or can raise $100,000 to invest.
2. That we are going to look back 5 years to compare strategies.
3. That the strategy that makes the most money, makes the most sense
going forward.

Model 1: Bank CDs.
For this analysis, I considered annual renewing Certificates of
Deposit (CDs) based on 5‐Yr CD Rates.2

BankRate.com 5 Yr CD Est. Interest Rate Difference % Growth Dollar Value Investment Value
Week of December 8, 2003 3.90% $ 100,000.00
Week of December 6, 2004 4.10% 0.20% 3.90% $ 3,900.00 $ 103,900.00
Week of December 5, 2005 4.80% 0.70% 8.16% $ 4,259.90 $ 108,159.90
Week of December 4, 2006 5.00% 0.20% 13.35% $ 5,191.68 $ 113,351.58
Week of December 3, 2007 4.80% -0.20% 19.02% $ 5,667.58 $ 119,019.15
Week of December 8, 2008 4.10% -0.70% 24.73% $ 5,712.92 $ 124,732.07
As you can see in the table, over the past five years the rate varied
from 5.00% to 3.90%. So the investment of $100,000 grew over 5
years to $124,732.07.  The advantage is that the funds are backed by
the Federal Deposit Insurance Corporation (FDIC), the
disadvantages are that your funds are tied up and subject to
penalties for early withdrawal and have inflation risk.
Model 2: Stock Market.
For this analysis, I considered the Dow Jones Industrial Average
Index.3 Beginning with $100,000, I took the appreciation of the
index and applied that growth to the funds.


Dow Jone Average Index Index Value Difference % Growth Dollar Value Investment Value
Week of December 8, 2003 10,042 $ 100,000.00
Week of December 6, 2004 10,543 501 4.99% $ 4,989.05 $ 104,989.05
Week of December 5, 2005 10,778 235 2.23% $ 2,340.17 $ 107,329.22
Week of December 4, 2006 12,307 1529 14.19% $ 15,226.05 $ 122,555.27
Week of December 3, 2007 13,339 1032 8.39% $ 10,276.84 $ 132,832.11
Week of December 8, 2008 8,629 -4710 -35.31% $ (46,903.01) $ 85,929.10
from 14.19% to ‐35.31%.  So the investment of $100,000 over 5 years
lost principal down to $85,929.10.  The advantage is that your funds
are liquid.  The disadvantages are market and inflation risks.
Model 3: Real Estate.

For this analysis, I considered the average median price of an
existing home sold4 (from all markets) during the period in the U.S.
During this period, the markets in Florida, California, Arizona and
Nevada each enjoyed significant rise in their home prices, but now
with current economic and credit conditions they have all but lost
any profits if these properties were held the entire period.
Beginning with $100,000, I took advantage of the fact that I could
place 20% down and leverage my growth on $500,000 not $100,000.

Real Estate Est Growth Med Price Gr Difference Equity Growth Dollar Value Investment Value
2003 $180,200 7.51% $ 500,000.00
2004 $195,200 8.32% 0.81% $ 41,600.00 $ 41,600.00 $ 541,600.00
2005 $218,000 11.68% 3.36% $ 104,858.88 $ 63,258.88 $ 604,858.88
2006 $221,900 1.78% -9.90% $ 115,625.37 $ 10,766.49 $ 615,625.37
2007 $217,900 -1.80% -3.58% $ 104,544.11 $ (11,081.26) $ 604,544.11

2008 est $213,880 -1.80% 0.00% $ 93,662.32 $ (10,881.79) $ 593,662.32

from 11.68% to ‐1.80%.  So the investment of $100,000 over 5 years
grew in equity to $93,662.32 plus my $100,000 for a total of
$193,662.32.  The advantage is the leverage.  The disadvantages are
market and inflation risks.
Model 4: Wealth 3.0 – The Magic Of Compounding Businesses
At FranchiseInc!, we specialize in franchises. There are several
ways to buy a business depending on where you stand between
Employee, Franchisee, and Entrepreneur.


If you are more like an Employee, you will want a business with
very little risk where you “work in the business” and have
someone tell you what to do.  In a sense, “you are buying a job!”
If you are a typical Franchisee, you want a business where you can
use the goodwill of the Franchisor’s Brand, the proven business
system, and the benefits of quality training. If you are leaning to
the side toward the Employee, you will want a business you can
“work in” as we discussed before. If you are more on the side
toward Entrepreneur, then you will want a strategy to “work on”
the business.  “Here you desire to be the CEO!”
If you are more like an Entrepreneur, you may want to start your
own business from scratch or buy a business opportunity and don’t
want any input.  “You usually don’t buy franchises.”
For my analysis, I assumed you were a Franchisee on the side
toward Entrepreneur wanting a strategy where you could “work
on” the business and be your own CEO.
In the Approach section that follows, I will show you how with the
same $100,000 in the same five years you could have up to $3.2
Million in assets and potentially $1,600,000 in income per year!
That’s right, let’s compare Models:
Model   Type Invest   Est. Value in 5 Years
1 Bank CDs $100,000 $  124,732.07
2 Stocks (DJI) $100,000 $    85,929.10
3 Real Estate $100,000 $  193,662.32
4 Wealth 3.0 $100,000 $3,200,000.00*
* With this Wealth 3.0 Strategy you could earn up to $1,600,000.00
per year!  Businesses often sell for 2 times earnings before tax.
Hard to believe?  It is really all about choices.
You can “rent your life to your employer” and save the traditional
way, or you can “own your life and start a business”.
This Wealth 3.0 Strategy does not work for every business!  You
must choose wisely, in the next section, I will show you how.
Ask your CPA about the tax consequences.  There may or may not
be income over the $50,000 per business per year that you can
spend. There are risks; this is not a guarantee of income.


Approaches
Let’s begin with a strategy we call the Multi‐Concept Operating
Company (MCOC). The MCOC is a Wealth 3.0 Strategy that selects
certain franchise concepts based on very specific criteria that allows
the investor/owner to manage the business “Pactively”. Pactive
means that you must “work on” your business about 8‐20 hours
per week, but not “work in” your business(es). You will hire
managers to run the businesses.  Let’s examine the specific criteria
for the MCOC:
1. Must own simple businesses without many moving parts.
In particular, you must be able to find employees from the
available work force in your area. You do not want a
business where the skills of your employees would hold you
hostage (i.e. certified mechanic).
2. Must have a low cost of entry for each, preferably $50,000 to
$100,000, simple real estate solution or home‐based and very
little build‐out costs, if any.
3. Must have products and services that are in high demand
and recession resistant.
4. Must allow Pactive Ownership by the Franchisee.
5. Must generate a high net margin such that the Return on
Investment (ROI) occurs within 6‐18 months, desired within
12 months.
There are two approaches to the MCOC:
The Simple MCOC. This approach operates franchise concepts
from the same type of business (i.e. B2C Services), typically in the
form of a limited liability company (LLC) holding each franchise
concept. Almost always a single investor/owner acts as
president/CEO with Concept Managers (CM) as LLC employees
providing daily operations of each concept – meaning the
Franchisor will have to approve this form of layered
ownership/operation in lieu of the more common owner/operator
format. Each CM falls under the direct supervision of the CEO.
This can be likened to development of chain stores where there is a


common owner and local store managers operating each store.
This approach is often referred to as a “multi‐unit operator”.
The Complex MCOC. This approach operates franchise concepts
from diversified types of businesses (i.e. B2C Services + B2B
Services +Retail).   It is advantageous for the diversified businesses
to service similar client bases to achieve cross marketing and
synergy, although not required.  This approach is often referred to
as a “multi‐concept operator”. Note that this operator may also
operate multi‐units of one franchise while only having single units
of another.  This is a very flexible and diversified strategy.

Compounding For Growth
For this study, I used the same $100,000 to start and then
reinvested the assumed net profit per year over the 5 years.
Basically, keeping the principal and earnings working the same as
with the CD, stock and real estate models we discussed earlier.
I started with two companies each costing $50,000 to open and
initially operate.  This strategy seeks to be able to remove $50,000 of
net earnings before tax from each business and reinvest into two
more business and so on as follows:
Year 1: Buy two businesses and generate at least $100,000 in net
profit.
Year 2:  Buy two more businesses – 4 total and generate $200,000 in
net profit.
Year 3:  Buy four more businesses – 8 total and generate $400,000 in
net profit.
Year 4:  Buy eight more businesses – 16 total and generate $800,000
in net profit.
Year 5: Buy sixteen more businesses – 32 total and generate $1.6
Million in net profit.
You invest the same $100,000 as with the bank, stock, and real
estate, but you build a business worth up to $3.2 Million in assets
that could earn you $1.6 Million in income every year. Now you
hire a CEO to replace you for a nice salary and keep your over $1
Million a year in income and enjoy your life.


You choose – a job for the next 5 years or own a business and
capture this potential wealth for you and your family! 6

Okay, It Sounds Too Good To Be True
What are the risks?  This strategy does not work with all franchise
concepts or all business forms.
You must choose your operating units carefully.
You must hire your Concept Managers and pay them well so they
don’t quit.
You must be involved with the business at least a couple days a
week.
You must follow your plan.
Consider if you did nothing but start the first two businesses and
earned $100,000 before tax each year years 2 – 5; you could have
earned $400,000 and it would be better than either of the other
models!

6 This is a business strategy; there are risks as with any investment.  This is not an offer to sell a

particular franchise; it is for education purposes only. No representations or implied or expressed
warranties that you will earn any guaranteed amount of money in any particular timeframe.  Before
investing in a business you should seek the advice of professionals, do your due diligence, assess
your risks, market conditions, and your commitment.  If buying a franchise or franchises always
obtain a copy of the FDD at least 14 days prior to making any purchase.  Always validate your
assumptions with existing franchisees.


3
Section

MCOC Owner Rational

No Guarantees – This Is A Business
While there are no guarantees in business, suitable
owners/investors are encouraged to evaluate if the potential cash
flow and diversification of the MCOC concept meets their risk‐
reward objectives as a potential franchise owner. 6  Franchising has
historically been recognized as a safer choice than new business
start‐up.  Widely quoted statistics indicate that about 80 to 90% of
all franchises are still in business after the first 5 years as compared
to about 20 ‐ 40% for new start‐ups.  Franchises require individual
attention and the MCOC strategy is no exception. While the
MCOC proposes that the individual operating units will be
managed on a daily basis by the Concept Managers, the MCOC
owner, acting as president, will need to oversee these managers to
ensure budgets, sales, and compliance requirements are
maintained.

A Hypothetical MCOC Model
As a franchise consultant I cannot hypothecate earnings from a
particular franchise concept per FTC regulation.6 The concepts
that follow do not represent any particular company, rather the
combined elements from several companies that we know meet the
five (5) basic criteria mention in Section 2. These are fictitious
examples for concept explanation only.
According to most industry sources, there are more than 3,000
franchise concepts sold in the United States today with a total of
750,000 operating units. You are not the first person to consider
franchising as a wealth building strategy. In fact, it is expected
over 30,000 new franchise units will be sold in 2009 alone.


Let’s consider 3 business scenarios that could work for this
wealth building strategy:

Expense Company Company Company
Type A B C
Franchise Fee $30,000 $25,000 $29,500
Start Up Expenses $20,000 $25,000 $20,500
All In Costs (Item 7 FDD) $50,000 $50,000 $50,000
Est. of Daily Sales $487 $1037 $386
Est. of Monthly Sales $14,620 $31,095 $11,574
Est. of Annual Sales $175,439 $373,134 $138,889
Cost of Goods/Year $8,772 $123,134 $20,883

Operating Cost/Year $116,667 $200,000 $68,006
Net Earning Pre Tax $50,000 $50,000 $50,000

As you can see, all three companies are quite different, they each
cost $50,000 to open and each could earn $50,000 in net earnings
before tax.  All 3 would meet the criteria; all 3 would work in one
MCOC.  Operating Costs/Year include paying a Concept Manager.
Choosing the right company (ies) for you is a process.  In my book,
Solving the Puzzle of Owning a Franchise, I discuss the process fully
and we would be happy to provide you an e‐Book for free if you
call us at 800‐961‐0420. Also one of our experienced Franchise
Consultants can work with you through your purchase process at
no charge to you.
In all cases, you must obtain a Franchise Disclosure Document
(FDD) and a copy of the Franchise Agreement at least 14 days
before making a purchase.  If you do not receive the FDD, then do
not buy the business. You are encouraged to speak with existing
franchisees to validate representations made by the franchisor to
you. 6 If you are using my book, sample questions for contacting
franchisees are located on pages 97‐99.


4
Section

Inquirers Welcome
We welcome your inquiry into this Wealth 3.0 Strategy – The MCOC. If it is right for you, you
can contact us as follows:
Web:  www.franchiseinc.com
Phone: 800‐961‐0420
Email: support@franchiseinc.com

Thoughts & Conclusions
This is not theory; we have active owners and franchisors participating in these well
thought‐out business strategies.
Consider: The real estate and the stock markets have demonstrated their up and down nature.
Management of these organizations has demonstrated a complete lack of integrity with their
practices and proven these investments to be risky at best and outright illegal or dishonest at
worst.  Franchising remains a safe and proven method to grow a business.  Ninety percent (90%)
of business owners in our nationʹs history have not placed their blood, sweat, tears, and faith in
national bailouts, they have invested in themselves and their communities.  What makes America
great and unique is not our ability to invest in other peopleʹs businesses, what makes America
great is our ability to “OWN” our own businesses, enjoy the profits, and pass on a legacy of
wealth to our children.
This is why so many immigrants come to America and start businesses! They don't come here to
by our mutual funds. They come here for the opportunity to own a business and engage in free
enterprise – they don’t think opportunity is dead in America yet! Perhaps America does not need
to create a new innovative solution to our financial quot;crisisquot;… we just need to go back to the basics
this country was founded on – small business ownership and freedom!

THIS WHITE PAPER IS FOR INFORMATIONAL PURPOSES ONLY, AND MAY CONTAIN TYPOGRAPHICAL ERRORS AND
TECHNICAL INACCURACIES. THE CONTENT IS PROVIDED AS IS, WITHOUT EXPRESS OR IMPLIED WARRANTIES OF ANY
KIND. INDPENDENT USE OF ANY OF THESE CONCEPTS IS DONE SO AT YOUR OWN RISK. NO PURCHASE OF A
FRANCHISE SHOULD BE MADE WITHOUT A FRANCHISE DISCLOSURE DOCUMENT (FDD).  ALWAYS SEEK THE ADVICE OF
YOUR LAWYER AND CPA WHEN BUYING A BUISNESS. NOTHING CONTAINED HEREIN IS INTENDED TO OFFER LEGAL
OR ACCOUNTING ADVICE.

FranchiseInc!SM is the service mark of FranchiseInc!, LLC.

No names of sources or data are disclosed. Any trademarks used belong to their respective owners and are provided for reference only and
do not imply endorsement by their owners.

This document does not contemplate the sales of any particular franchise or business opportunity but is a discussion of one strategy in the
franchise industry.  Not all franchise concepts will work with this strategy, due diligence is required.

©Copyright 2007‐2009 FranchiseInc!, LLC All rights reserved. Reproduction in any manner whatsoever without the express written
permission of FranchiseInc! is strictly forbidden.

For more information, contact FranchiseInc!, LLC at 800‐961‐0420 or you may write us at FranchiseInc!, 2148 Pelham Parkway,
Building 300, Pelham, Alabama 35124.  Information in this document is subject to change or may be withdrawn without notice.


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