https://www.youtube.com/watch?v=O1As2zxy0es

1 00:00:00.000 --\> 00:01:00.000 mossy nation the other day i was
approached by service-based brick and mortar business and they have a
very profitable single location model and they wanted to figure out a
way or what path was going to be the best vehicle for them to make the
most money and so we had a really good conversation about this and they
broke down the different paths they could take um and for them it was
really valuable and they were very happy about it and so what i wanted
to do was break down this exact same process for you so if you have a
service-based business or something where you have labor of some sort
that you rent out at a profit to other people to provide value then this
video is for you and if you want to figure out a way to package those
services in a way that is that is uh that has a lot of enterprise value
that has a lot of cash flow while you're growing then this video is for
you okay so i'm gonna break down the only four ways that i know of that
you can package your service and the labor and knowledge that you have
into a profitable business now some of these have pros in terms they
provide more cash flow have higher margin or lower operational drag
others provide more

2 00:01:00.000 --\> 00:02:00.000 enterprise value but a little bit more
difficult to create so i'm going to show you the pros and cons of each
of them i have businesses i own businesses that have three in three of
these four categories right so i feel like i can speak to these with a
decent amount of knowledge and not with a bias towards one or the other
all right so the first is a privately held chain all right so i'll put
private chain everyone uh you know keep your pg hats on so a private
chain is basically like you have one location and then you open a second
and a third and the specific business i was talking to was a person who
had a salon concept so they did a concept around hair uh and he was
doing very well and they were like man you know we're thinking about
opening more locations and we want to figure out the best way to do this
or ultimately make money with this model all right so the first is is
just you open another location then another location another location
you return you return retain all the ownership rights you take all the
risk you front all the capital you hire all the labor you control the
brand um but you own everything end to end all right so this is a
privately held chain all right this is the first of the four vehicles
that you can use to ultimately build your wealth all right at the end
i'll show you the pros and cons of each

3 00:02:00.000 --\> 00:03:00.000 of them the second some of you may be
familiar with hopefully you've definitely frequented one of these
businesses as a franchise so subway mcdonald's you know jiffy lube you
know all of these are franchises right they are they are a single model
that has been franchised out people buy in investors typically so this
is a different person here an investor who's outside who just wants to
find a good return of capital will buy into a franchise model and
typically because franchises have far lower uh failure rates than
starting your own business and so that's the advantage of this is that
in theory there's lower risk now i could talk about the actuality behind
that which is very different i could also tell you about the tons and
tons and tons of franchises don't actually make money i think it's like
90 or 95 of franchises never get past 100 locations which candidly if
you're doing a franchise model you need to get past 100 to make any real
money and you were like how is that even possible i'll break it down in
a second all right so that is the second vehicle that you can use in a
service-based business to make a fortune now number three number three
is a licensing model and i'll tell you some of the pros of

4 00:03:00.000 --\> 00:04:00.000 this one a licensing model you might
not be as familiar with the businesses that use licensing because
depending on how they structure the license to you have to differentiate
from what a franchise is a franchise has three components you have name
business systems and fee all right so if you have all three of those
things and people are using your brand your business systems and your
fee then you are a franchise and if you're operating as a license and
you're using those three components then you are an illegal franchise
all right then you can get tat you can get fined and you can shut down
and all that kind of stuff it's paying the butt i'll talk about the pros
and cons of licensing in a second but that is the third vehicle all
right so in a licensing vehicle you're typically gonna have two of those
three things so you could have for example crossfit is a licensing right
they give you the name and they have a fee but they don't have business
systems a different version would be let's say you had a model that
worked really well you license all the stuff but it's white labeled all
right so you have a fee and you have business systems but you don't have
a name or a brand that they have to adhere to all right that would be a
licensing model so there's different versions of this um but that is
essentially what a third way that you could package your existing

5 00:04:00.000 --\> 00:05:00.000 knowledge or ip uh in a way that scales
to multiple locations and ultimately make an enterprise that is very
valuable the fourth and it's felt worth mentioning is software and i and
i bring this up because it depends on the type of service you offer now
if you're cutting hair you probably can't replace it with software right
but if you are providing some sort of service that software can do um
then this would be software attack enabled service all right hopefully
you can read that tech enabled service all right so i'd say number four
is is either of those for most people who have a service based business
it will probably be one through three and the reason i bring that up is
because if you're not already really good at software and have a
software co-founder who knows how to code knows user experience knows
how to build engineering teams if you don't have something like that do
not try and outsource it to a third party team i promise you it will
probably not work all right now you i promise you it won't work all
right just please just two million three million dollars of development
later i've made the mistakes let me give you a three million dollar gift
don't do it i told you that i have three of these four and so let's go
through the advantages or disadvantages

6 00:05:00.000 --\> 00:06:00.000 that i walk through with this
particular business all right so a private chain is gonna have the
highest costs of opening each location so there's incremental cost every
new location you have to do the build out you have to negotiate you have
to find the location you have to negotiate the leases you have to you
have to build everything out and then you have the risk of the lease for
the duration of the time on top of that you have to staff it you control
the employees etc now when is a private chain uh something that is
worthwhile so i would say i'm looking at two main things where a private
chain would be worth considering first is that they have low costs of
build out right so if it doesn't cost a lot of money to build a new
location so let's say if it costs less than you know forty or fifty
thousand dollars to build a location now that's an absolute number but
relative to the income that it generates let's say it generates four
hundred thousand a year in profit if it costs you i should probably put
a percentage on this but i would say if it costs you less than six
months worth of profit in the first year to open a new location then it
would be it would make sense to open a private chain so a great example
of this would be insomnia cookies all right these tiny little locations
they just had i think

7 00:06:00.000 --\> 00:07:00.000 they were like 800 square feet on
average they're tiny they just have to put an oven in there and a front
door window and they have lots of delivery and for them they had tons of
margin because it was cookies they were selling flour and sugar for big
margins and the amount that a location could make it was tremendous
compared to the cost all right and so here it's very low to build very
high profit and so it's worth owning the entire thing all right that's a
private chain so some of the biggest brands in the world start as
private chains and then they go direct to consumers so chanel louis
vuitton christian dior you know i mean all of these are brands they had
brick and mortar locations they owned everything because the amounts of
to build out a store compared to the amount of profit it made was almost
nothing now that is a product business not a service business but i'm
still at least explaining the point the third piece is that um it's low
service requirements so the more specialized you are in terms of the
types of skills that are required to do the business or provide the
value the more difficult it is to scale in a private setting all right
and that is because it is inconsistency of service will be a problem so
if you're very good at your thing and you have your location and it
works well if if you are required

8 00:07:00.000 --\> 00:08:00.000 to make that level of value provided to
the end consumer that it's not going to be a scalable model all right
the reason that subway for example works is because anybody can make a
sandwich that tastes the same way if you use the same recipes and use
the same process right now if you can productize your service in such a
way that you minimize the variability and you can decrease the skill
requirements of the labor that is is required to work that system then
you have a very scalable model which is the goal so private chain so for
example for us just as a side note we have one of our businesses that is
a private chain and they were actually they were in a licensing model
right and when they came in as acquisition.com portfolio company i
actually moved them over here because candidly their licensees were
making so much money using their system and it cost so little to open
new locations that i was like we should just be owning all this revenue
it's not worth just giving all the revenue away and giving all the trade
secrets right and so we transitioned the business over and in the last
uh 14 months took it from a half a million dollar your business to a 12
million a year business pretty cool right so that is number one the
second

9 00:08:00.000 --\> 00:09:00.000 is franchise right so pros and cons of
franchises cons very very litigious very expensive to start it usually
costs about 750 000 uh to start a franchise just in terms of the setup
fees and legal and and filings and all that kind of stuff that you have
to do in order and that's just if that's just to get started that's not
even to get it going and to really build a franchise the right way most
times it takes one to two years to really start seeing profits because
you'll sell locations but the cost of selling franchisees that franchise
upfront fee will typically only cover the cost of acquisition all right
so what it costs you to get franchise leads from franchise brokers or
people who want to buy investments it'll usually cost you almost the
entire upfront fee which is usually about 50 grand for many franchises
and so you're only going to make money once they open off of royalties
from top line all right so it's a very slow model but the enterprise
value of a franchise is extremely high so enterprise value the ev on
both of these is very good all right for private chain and franchise
both of them are very good but the franchise multiple only comes off of
the

10 00:09:00.000 --\> 00:10:00.000 corporate franchise revenue because
technically you're selling llc's to other people so other people are the
owners of the vast majority of the profit of the business right so
you're only making your money off of the royalties that are coming in
and then you still have all of your costs of running your actual
franchise helping the franchisees succeed etc now when you would start a
franchise would be something where you have very very high build up
costs right if a new location costs a ton of money like mcdonald's right
costs whatever a million bucks to open mcdonald's that's a lot of
capital right and so you would want to give you want to give that risk
that capital risk to other people you basically crowdsource for lack of
a term the ownership of these new locations and then you take a piece
off the top now mcdonald's obviously owns the real estate too because
they're very smart cookies that is uh the franchise model in a nutshell
right you're running on a very small percentage of top line and you have
to have lots and lots of locations and if you guys want a rule of thumb
you usually need to have 100 plus locations for a franchise really to
make sense and here's a fun fact for you 90 to 95 percent of franchises
don't hit over 100

11 00:10:00.000 --\> 00:11:00.000 locations all right so as much as
people have service-based business and think that the ultimate goal is
to build a franchise so that someday they can franchise their business
the franchise is not the end goal it is the beginning of the next
journey all right you have not yet succeeded you might impress your
parents and your friends but you will not impress your bank accounts or
the players in the game who really understand how it works all right so
number one private chain number two franchise opportunity number three
licensing all right the advantage here is that it it it's the lowest
cost so almost no cost to license out a model typically you have super
high margins just like franchising does the margins are high in
franchising it just costs a lot to start so high margins now the
problems with this is that it's not that defensible it's very hard to
defend and there's very little enterprise value so very low multiples
when you sell unless you have a ridiculously sticky licensing agreement
all right so for you for an idea if anyone's curious you would want to
have 80 plus yearly retention on licensees for for

12 00:11:00.000 --\> 00:12:00.000 you to get a real really attractive uh
exit multiple right so we're talking you know six plus multiple on the
exit all right and so now the advantage of licensing is that it doesn't
cost you any money it's very high cash flow throughout the process and
you can pretty much make money day one right and so when you're newer
sometimes licensing makes the most sense right so uh gym launch that
business is a licensing business right and it was my first business i
didn't have tons of money um you know to get it going and i wanted to
start generating cash flow sooner and so that was why i did that the
business that we have um i won't i won't sure what it is because we try
not to get people to copy what we're doing um but in uh in one of our
niches uh like i said earlier we went from having a licensing model to
owning a ton of locations right now we have 12 locations and we open a
new location every month which is pretty cool number four software so if
you have a way and this requires a ton of cost to build lots of time
very low cash flow you're like why would i do software it's because the
enterprise value on the exit is usually the highest but again everyone
likes to hear that oh

13 00:12:00.000 --\> 00:13:00.000 i heard you can exit software for a
ton yeah but the same requirement of churn is still 80 or higher yearly
uh retention right and the higher you make that retention it's got to be
above 80 percent or no one's even consider you a software they're just
going to consider you a normal service that just has some tech element
to it all right and so each of these has pros and cons and so if you're
thinking about scaling your service based business i'll think of which
of these four buckets do you fit in and which of these strategies makes
the most sense for you all right and so this is how i look at
service-based businesses if i'm going to come in as an investor and i
want to help them scale or triple or or 5x in you know five year period
i'm going to say which of these vehicles is going to make most sense for
the ip and the value that we're providing based on the model that exists
the cash flow that i require the amount of upfront investment the time
to go and a lot of times just the appetite risk of the entrepreneur and
how unbel and how structurally sound the return is on the model so if we
know beyond a shadow of a debt that when we enter a mark we're

14 00:13:00.000 --\> 00:14:00.000 gonna freaking murder it and it costs
us not a lot of money to open it then we're gonna own the whole thing
privately now same thing if we know we're going to kill it but it costs
a million bucks to open a location then we might franchise right and if
it costs no money right and we don't think that it's a really
protectable ip right let's say it's a more offer based business like jim
launch for example in the beginning was a very offer driven business
offer is very easy to copy right and so it was how quickly can we take
as much market share as we possibly can so for licensing it's speed
right you can you can you can absolutely outpace anyone else in the
market on speed and you make lots of cash flow but you're going to
sacrifice a lot of money on the exit right and so with licensing you
make money throughout the process rather than having a big lump at the
end and probably the exact opposite with that would be like a software
type thing so if you take the time develop the software you put the
cache up front to develop it you figure out a way to do it and then
ultimately figure out a way to make it as valuable as as you have to
achieve this 80 or higher uh yearly retention on the customers that you
are selling or it will not be valuable at all and it will be valued like
the other ones except you just wasted a bunch of

15 00:14:00.000 --\> 00:15:00.000 money and time so i hope this uh
provided value for you if you're if you're thinking about how to
ultimately create your enterprise in a way that has the most value then
i would think through each of these four different vehicles um as
monetization structures uh for the opportunity all right so lots of
mozzie nation if you don't know who i am my name is oxford mozilla and
acquisition.com our portfolio is about 85 million a year in revenue and
i have nothing to sell you so if you like this hit subscribe and if you
did i love you either way i'll catch you guys next video bye
