Buying a $200m Franchisor (Not Units, the Whole System)

Great point. You guys were doing this in what year, this exercise?

So we left both of our respective jobs in 2020. So heart of COVID, which actually at the end of the day ended up being a really good catalyst because it forced us to take a step back and just say, hey, if we don't do this now, when are we going to do it? Are we ever going to work together?

And so just to return now to the criteria, basically where when you needed to look further afield, what you landed on was franchising and then within franchising, the longer tail of categories and sectors that were not already getting a lot of attention, namely QSR, gyms, I think you named something else. Home services, yeah. Of course, home services.

Thank you. Okay. So tell us about your discovery then of thrift and let's hear more than you've already shared about the industry.

Yeah, so I would say, thankfully, in the context of franchising, every franchise system, and I know this has been discussed at length on other podcasts that you've hosted, there is a document called an FDD. And that FDD will lay out a fairly wide range of very helpful financial information and other information.

But two particular items, item seven, which would give you information on the cost to develop, in our case, a store, but a territory otherwise. And then item 19, which will give you some insights into the financial performance of individual locations across the system. Now, different franchise concepts will provide more or less information in each of those items and in their FDD more broadly.

And our view generally was, hey, if somebody is not providing the information, it's probably not a great sign. And so probably not a great area to focus. But then for the ones who do provide a lot of information, really the lens that we focused on principally was just unit economics.

So how much does it cost, again, in our context to develop and open a store? And then how much can you reasonably expect to return on a cash-on-cash yield basis? And so that was the initial, I would say, filter.

And so just look at every single industry, every concept that we could come up with and get our hands on and do this evaluation. And I would say as a function of that evaluation... What filtered to the top was our concepts, just in terms of the pure return on investment for a franchisee.

And in our mind in franchising, if you get that right, if your franchisees are happy, they're satisfied and they're making a really attractive return on investment, everything else solves itself. And so that was the lens initially. And then we went from there and did a much more robust and exhaustive analysis on our concepts and the industry and more broadly.

And Tyler, what do good unit economics look like? What are some rules of thumb here?