James Temple thank you for joining me today on acquiring minds yeah thanks for having me I really appreciate it James you're the owner of 19 locations of the Mathnasium franchise Mathnasium is a brick and mortar math learning center you'll tell us more about it but with 19 locations and over 10 years under your belt doing this you've been very successful and we want to hear your story what I'd like to do is spend the first part of our conversation on your story and then take the second part to talk about franchising generally you're one of my first guests who is an acquisition entrepreneur in a franchise system but I'm getting more and more requests from people uh for stories like yours and in fact two other interviews that'll air around the same time as this one also have to do with franchising so it is a topic I'm starting to cover more uh and so today we'll do a deep dive and it'll be great so to the first part of the interview James what started you on this path to building a Mathnasium Empire yeah well um I had been interested in owning my own business for a long time I was in the Air Force I was an Air Force officer for seven years uh studied math as an undergrad at the University of Virginia and I didn't know what that business would be or when it would come around um but I knew I I didn't want to spend the rest of my career in the military I wanted to go to business school I wanted to learn business perhaps have a career and then um own my own business after I'd learned a bit about business so I thought it was some number of years out well while I was in business school my dad passed away suddenly and that left my mom needing to figure out what her future looked like and it left me feeling like life was short and if I really didn't want to go do a traditional MBA job after business school then I really ought to seriously think about getting into my own business now and that could be a way to secure my mom's future as well so we explored the opportunity of Mathnasium I came across Mathnasium in a magazine some number of years before we started I did a project on it while I was in business school probably because I um I've always really liked math as I said and studied it in college and so you know one thing led to another after my dad passed away we got to know one of the Mathnasium franchisees in Virginia at the time and she became a good friend and educated us well on the business and so we were moving right right down that that path of um seriously considering Mathnasium and part of the franchising process is what's called Discovery day so you often go wherever the franchisor is located you spend the day with them they evaluate you you further evaluate them so Mathnasium is in Los Angeles and we were on a flight um getting ready to get on a flight to go to Los Angeles and this woman who owned one of the mathnasiums of Virginia had been mentoring us asked us if we would be interested in buying her business instead of starting our own and uh the answer to that was yes and in September of 2009 we closed on our first location great so you all were seriously considering going the traditional way into the franchise system meaning you know paying the franchisor and starting your own franchise location territory yourselves um before getting this call from the woman who'd been mentoring you and then you acquired her existing location and territory right there were only two mathnasiums in Virginia at the time there are about 40 now and so I didn't I didn't think to pursue acquiring one of those two locations there was plenty of opportunity to open a new location and so that was where we defaulted until she posed that question to us and what magazine did you see Mathnasium written up up in and it must have really struck you yeah if you did a project on it and yeah and ultimately it's it's you know the business that you got serious about when you and your mom kind of put your heads together so but just curious like where did you first hear about it what magazine you know I I uh I couldn't tell you what magazine it was an ad you know franchises are in the business of selling franchises and um they have to advertise just like we have to advertise for customers and so it was in a magazine advertising the sale of franchises I don't remember which one but oddly enough I was getting my hair cut uh on Sundays um I don't know maybe this was something like 2006 2007 uh and it it stuck with me because of how much I have enjoyed math and I prior to starting Mathnasium I had tutored some math really just for fun um so it resonated with me because of that so so you love math and you actually have experience teaching math to students so and here was this business opportunity so yeah I can see why I would have grabbed your attention um cool so So the plan is that you're going to go into business with your mom one way or the other are you all business partners what did that look like yeah I mean so we really honed in on the Mathnasium idea and didn't explore too many other options and we we certainly were going to do that together you know her experience was in early childhood education she'd been doing that for about 30 years at that point and I had uh finished up a business degree and and knew the new the technical aspects of math and so we thought it'd be a great partnership um but beyond that it's just something we wanted to do personally we wanted to spend that time together uh and you know go on this journey we both didn't know much about uh together and it wasn't always that we would you know both be in the business uh working it full time for me minimal level of success would have been getting her started and something she could have done with her time and to generate income and that would have probably just been one location and um and I would have gone and gotten a job uh like of many of my uh MBA classmates but we had sex success with uh first location and I uh I really enjoyed uh enjoyed it and so we opened second location on our own and and really from from there have just been committed to doing it together since cool okay so so the initial Vision wasn't the Empire um but after that the success of the first location that kind of did start to to uh take shape in your minds that this could be this could be the path continuing men with Mathnasium that I had contemplated that it may take more than one location to make this um worth dedicating all my time to and so I had sketched out what it would look like to own four or five of these but I had never sketched out what it would look like to own 19 of these and so that that was a gradual progression um that we've been on for the last it'll be 13 years in September 13 years and so your your taste for Mathnasium as you've explained I mean it really um dovetailed beautifully with kind of the combined skill sets that you and your your mother brought to brought to the tables and so you didn't so my question would have been like how to evaluate um how you evaluated this one as a good franchise opportunity versus others sounds like you it was more just kind of like following your interests and where you're where your skills lay then it was oh this is going to be a better franchise than I don't know some quick service restaurant or something um let me put a pin in that question because we'll probably get back to you helping us think through what makes a good franchisor not later in the conversation uh but talk to me about this with this woman who's mentoring the two of you and um you're seeing her business you're liking what you're seeing you dive into a little bit more detail about you know that relationship and then why she wanted to sell and in your decision to indeed buy her out yeah we were liking the fundamentals of the business in particular I like how math is taught at Mathnasium it resonated with me from the very beginning it's how I naturally become uh came to think about math and uh just a a minute on that you know at Mathnasium we really are focused on kids understanding how the math Works we're focused on creating problem solvers and not just problems that you've seen and repeated over and over again but giving you such a great fundamental level of math and then great problem solving skills that you can begin to solve problems that you've never seen not only because you have those technical skills but you also have the confidence to attack them and do all that in a way that kids enjoy math and so that that way of approaching math really resonated with me as opposed to let's just drill and memorize our way through math which is not very enjoyable and and not very productive for foremost students so we we learned during this time we were getting to know Mathnasium with this owner we got to know that about Mathnasium all the advertising material says that but you don't really get to know it until you can feel it and touch it for yourself so um that that was one thing that really solidified that Mathnasium would be we would approve of the educational philosophy you know but but going into Mathnasium um you know just fundamentally math is important important for kids and we saw that that that could be done in a an enjoyable way that that owner was implementing Mathnasium in a way that kids were really enjoying the process but she wasn't growing um and she had some personal which is often the case when somebody's ready to sell they have personal things going on which are preventing them from uh implementing the vision that they've had for their business and those personal things weren't going to go away for her and so and and I think she really liked us and we really liked her and she felt like she could she trusted us with what she had started and the kids that she had in the business at that point and um and we we didn't know much about that Market at the time because we were in Charlottesville where the University of Virginia is in Richmond about an hour a little more than an hour away and I'm not from either of those places so we didn't know the market that well but we got to know the market well and it's a it's a tremendous market and so for all those reasons and for the reasons that we saw room for improvement we thought this acquisition um would be a good idea and let me just add that we're we're incredibly grateful to her and the trust that she placed in us and the opportunity she gave us because that started this whole journey sure sure can you talk about what that first deal with her looked like when she sold to you uh yeah I can talk a little bit about it um so the it was certainly underperforming the last 12 months Revenue was under a hundred thousand dollars I think that's important too because a lot of times when especially um I think the listeners of of your podcast are really focused on finding the big deals um we we found a quite small deal um and so it wasn't it maybe it was breaking even for her or losing a little bit of money so there really wasn't a multiple to talk about in the end we paid about thirty and forty thousand dollars for the business um she was willing to sell her Finance some of that so that we could have additional Capital to grow in the future if we needed it um and it all in all it was a fairly small and simple deal I would say yeah yeah and you and actually so again forgive my ignorance about all things franchising but buying a business for forty thousand dollars um that sounds like that's less than the the startup franchise fee that a lot of franchises cost so were you able to buy her out for more for less than it would have cost to do one from scratch am I is that is that the question even make sense yep it does and so you're right there's a usually a franchise fee when you get into a franchise in Mathnasium that's a per location franchise fee it currently is more than 40 at that time it was less than 40. but there's there's many more expenses to getting started as you as you know um and so I would say we paid less than what it would have start of cost to start it from scratch and you had this existing clientele so it was it was a kind of a slam dunk tiny a tiny deal uh for you know the average acquiring minds listener and what they're considering for themselves but still it was a it was a kind of a screaming deal recognizing that you really had a good relationship with her and there was all this qualitative value to it as well but just numerically it seems like it was a no-brainer well I would say it didn't necessarily feel like that at the time but it felt low risk in that we didn't have a lot of capital in it that I had the confidence that I could always leave and earn income if we needed that because the business wasn't earning income and you know while we had some money in it the what would keep us in the business is that we were taking over the lease and at some point that lease would expire and we could walk away from the business not having lost a lot of money and lost some time of some opportunity so for those reasons it was a fairly easy decision but we you know by no means did we certain we were going to make uh money and certainly not the kinds of of money we would need to make uh to keep us both engaged in it but you did feel obviously that you'd be able to improve upon what she had because if she wasn't even she was barely breaking even or maybe even losing money then you know that's not that's not worth anything and unless you you figure that you can turn it around and turn it around you did so um so kind of give us a picture of that first year um after acquisition yeah the needle moved um what we thought was quickly back then um we have been able to move the needle much further than that but in the first year um I you know I would have to it's been a little while so I'd have to actually look up the numbers but I'm sure we doubled if not tripled uh Revenue since we were running it ourselves and not paying ourselves it was certainly uh profitable and it was able to finance the opening of location number two which we opened ourselves from scratch about 10 months 10 months later so it was putting off enough cash that we felt confident to take the risk on another one and that it would pay for it and also in those 10 months as I as you said a few minutes ago you started to see that this could really be something that was worth your while to continue with full-time and not go back to corporate life or get it get some other job those those 10 months kind of demonstrated that to you it did a piece I left out is when um I graduated from Darden in the summer of 2009 I did take a a job um it was with Target as a manager in their warehouse and what was particularly attractive about that job is it allowed me to work Friday Saturday and Sunday 14 hour days and have Monday through Thursday available to work in the business so the business was open Monday through Thursday and Saturday so it would just be one day that it was open that I wasn't there and it allowed some income to come into the business so the part of getting the confidence to open number two is getting the confidence to quit that job as well which I did and so I'm grateful for Target and what they were able to to do for us at that time um but when we opened the second one I was going to go run that one and uh and that that had to go which increased the risk because because now all the income needs to come from the business um but yeah that's further evidence that we had confidence in in moving forward and and so so for those first 10 months-ish you were effectively working two jobs you were working you were bringing bringing home the paying the bills with the target job and then every other waking hour you were in at your Mathnasium Center yourself right so it was essentially two full-time jobs and it was rigorous and uh that's another reason why it had to yeah it had to stop at some point yeah well maybe you look back at those those 10 months those that those are your founding months those were the you know when it all started got off the ground so probably uh you might be nostalgic for them even now okay so um number two location you've gotten confidence you you've um but there's more on the line because you quit your day job and why do you choose to um start start a Mathnasium location from scratch rather than find another willing seller well you have to know that in that time frame Mathnasium was a really immature franchise we were there were probably 120 units when we got involved there's almost a thousand units now there were two in Virginia and they're probably I I don't know if we were number three or if we were number four or five but there weren't a lot of opportunity and everyone was still just a few years into it so I would say there weren't opportunities at least um none that I saw to acquire additional mathnasiums we're limited geography and we still are we've limited ourselves geographically um even even today and so there were only four or five options and my guess is there were only four or five options at the time and it didn't seem like any of those people were interested in selling but there was also a lot of available territory and good territory so um we you know we opened in a neighboring territory the second best territory in Richmond Virginia and I think that was that was the right decision and okay we're you know we have you have 19 locations now so we're not going to be able to get into the story of each one but um you told me that your your first what was it the first one was the acquisition and then the subsequent seven were all open from scratch or eight yeah I can walk through this quickly in buckets so number one and two you have that story we decided to then um secure the rest of the market in Richmond Virginia and that was four additional ones so we got our first six were all in Richmond Virginia and that's how many are still in Richmond Virginia then an opportunity came to acquire another location in McLean Virginia which is a tremendous Market again in underperforming Mathnasium story very similar uh to the first location and so we we took that opportunity and now we're in two regions and there's some inefficiency to that so we say well let's let's figure out how we can grow in this uh north of Virginia or DC Metro Area market and we began to look for new locations there's still a significant amount of availability we begin to look for new locations and we we map a plan for that and and then acquisition opportunities started to come our way as as well and so that's really where the acquisition activity uh started to accelerate we entered our third Market which is Hampton Roads the same way with an acquisition and then there was an available market and we opened there um I count the DC Metro area as Maryland as well but we we entered that market through two Acquisitions we have so we have 17 in Virginia and two in Maryland both of the marylands are our acquisition opportunities so it was a great way for us to enter our market and then grow by um opening new locations at this point they're really in this in this area there really aren't any new locations available so we continue to just be in an acquisition mindset okay so in total we have nine Acquisitions and and 10 locations that we've opened ourselves great and so now um so you started all this and it was 2009 was the first acquisition where in 2022 so give us a sense of scale today yeah so the 19 locations will do uh seven million dollars of Revenue this year um and they they the locations uh range from um our underperforming locations at about 200k of Revenue and then we in 2021 we recognized as having the top location in um in the U.S at over a million dollars of Revenue and that happens to be our very first location oh wow so cool congratulations for being number one that's great so that that gives us that gives us a range of kind of what a Mathnasium franchise might um might do 200 to to a million at the million would be basically the ceiling if you were number one if that was the number one location in the entire us and maybe 200 maybe it can be probably perform even worse than 200 it was it when you first acquired it it was only doing 100 I think you said so um so do you consider that kind of the range 100 to a million yeah so there's a document that comes with all franchisees called the franchise just franchise disclosure document and item 19 of that franchise disclosure document at the franchisors option uh will usually provide financial performance information and while you don't always get profit and loss type information you usually at least get Top Line information and so if you pulled the 2021 version of that you would see that it spans from the 100ks up to our location at just over a million dollars with the average being somewhere in the 260 to 270 K per year okay wow so your your Million Dollar location that's really um well outside the median and average yeah is my math right am I using the the median average math right on that you are I prefer median but um but yeah yeah you um you are and you know our seventh location which was our second acquisition was the top Mathnasium at over a million dollars uh before the pandemic and so we have two of those Elite Class mathnasiums that were Acquisitions which you know ghosts to a point that that I want listeners to understand is that there can be tremendous opportunity in buying small especially in a franchise because they there are so many opportunities to add on so if you think about our first um location or maybe just our district of of Richmond as a platform we've been able to add on to that and in some cases find grossly underperforming locations and and buy them with little capital and turn them around and create what is now a seven million dollar business yeah I uh I mean I I certainly that certainly sounds very appealing I'm I'm always wary of turnaround opportunities um just because from everything that I've ever heard you really got to know what you're doing you really gotta yeah that basically I mean you know turnarounds by definition are are suffering underperforming businesses um so you gotta there's enough there's risk enough in buying any business let alone one that has already demonstrated its ability to fail or underperform so um so you know I maybe well I don't know what can you address that yeah I think the you know a lot of the risk is in the first one but you understand the business well and you understand why once you have one or six or whatever the number is you you understand why what makes a location successful or not successful and that significantly decreases your risk and if there are a thousand units across the U.S you have lots of opportunities to find these you don't have to go find a new business underperforming business every time you want to grow you have to go find more of what you're doing already that's underperforming that that given what you've proven you can do you can acquire and make a difference yeah yep um so would the advice be then to not but not acquire an underperforming one as your first one buy a solid one and then you know get your get your feet wet understand the business operate for a while and then maybe treat these um underperforming locations as opportunity well just just not what you did yeah by the way I think just like most of the those that are searching for business yeah I mean it'd be great to buy the the well-performing business that's it's worth the investment of more money it gives you the cash flow right away and it's stable and then you can add on to that I think what a lot of people are finding difficult right now is finding those uh it's a competitive market despite the the discussion around more businesses for sale uh than ever as I interact with with you know all these people searching whether it be on search funder or or listening to their stories on or podcasts or just meeting them individually they're having a hard time finding that that perfect business and um there there is an alternate path while maybe a little uh more risky um could be as equally as or or more so rewarding great well let's um tie up your story and then get into some of these more um intellectual questions around franchising um so just to in case people miss the numbers you and your your mother uh acquired that first location for about 40 000 but seller financed so you probably brought to the table even less cash than forty thousand and today your business is doing seven million dollars in Revenue can you give us a uh any kind of sense of margins yeah let me add to the so um my mom and I each put ten thousand dollars into the business and that's what we have in the business today uh while we've left a significant a significant amount of cash in the business um to grow we haven't put any more capital in so um that's amazing you know I talk to people thank you I talk to people all the time who you know say they they just don't have the money to buy a business and um not only are there resources like the SBA but you there are opportunities to buy small under the right conditions using whatever money you have in terms of margins uh you know they can very widely Buy location um because uh you know there's a lot of fixed costs but once you overcome them the margins are good as a portfolio I'll just say that we're somewhere between 10 to 20 percent margins and and they're getting better um as we perform and a lot of our recent growth is to the credit of um our CEO who started with us as an instructor who has worked through uh every position and uh it runs the business for us at this point and um NN isn't an owner now as well she has a minority stake in the business um and so I just want to give credit where where credit is due for the numbers that I'm throwing out no that's great I'm glad you did that and to that point what did your own trajectory of working in the business versus on the business uh look like from our pre-call you and what you just said it's clear that you're not you're not teaching students math at this point and probably haven't been for a while so give us that picture please yeah in the beginning was everything you know we had a team of it three or four instructors and except for them teaching kids everything else was done by my mom and I including we we taught as well which was enjoyable but not a way to scale the business I quickly took on the the back office uh type activities of figuring out what our marketing should be how are we going to do billing hiring um and that role evolved over time you know I ran our second location but eventually hired someone to run it as we opened uh three four and five and had to step out it just wasn't feasible to to manage a team that were in different places and be running a location myself day to day and then we just continued on a journey of you know I would take on task figure them out create a system for them and then we would find someone else to do them often in a part-time role maybe even they had another role in the business and then as we got larger and larger had the scale the resources and the demand we would centralize functions into um a a full-time position so I I the Evolution for me became supervising Center Director Center directors are the managers at each of the locations and doing some of the back office stuff but trying to move back off stuff to other people eventually it migrated to okay our Nikki is her name our Co would manage the center directors directly and I would manage back office and and Mentor her then it became so large that she needed district managers between her and the center directors and then she eventually took the back office as well and we hired a back office manager and so now she has three direct reports um and they're two district managers and a back office manager all that detail to say it gives me the time I need to think about bigger picture things and work on the business and think about acquisition opportunities growth opportunities while we're doing well uh and what what we're not doing well and and what guidance to give Nikki as she manages the business and frankly getting a little ahead of ourselves but to think about you know what's next mm-hmm no that was a tempting thing to dangle out there what what is next well I I um you know I originally thought my plan was on a portfolio of companies uh and um you know have a great operator in each but still have a an operational flavor to what I I did but I'm taking much more of an investor mindset uh these days and with the cash that we generate from Mathnasium looking at ways to put it to work um probably certainly other places maybe in the Mathnasium space but certainly using my expertise in the franchise space doing some startup investing um and toying with the idea of of helping some of these Searchers fund um what they want to do so it's it's uh it's a young idea but but I think I I uh my time will be much more advising and investing going forward rather than operating and and why spend your time doing that James rather than um continue doing what you do so well which is acquiring more mathnasiums I mean why not go colonize North Carolina and Tennessee and um you know for every every hour you spend learning how to invest in in Searchers you know that hour probably would go further and you know acquiring more Mathnasium since you you are probably one of the top three experts on the franchise in the whole country well I I think I can do both it's not giving up on Mathnasium growth uh it's it's pursuing that but um you know it's counting on the great team we have in place um to manage that business and to manage the growth and I can still work Mathnasium opportunities um as they come available so it I can do both I think I have my cake and eat it too all right ah I love that phrase and concept and to see and to see it happening to people it's so great um and your mom so mom um has had many roles in the business uh you know she ran a center for six or seven years which is that same one that is number one was number one in 2021 um she stepped out of a center and took on hiring and training um and eventually we decided that she could move to an inactive status and focus on spending time with grandchildren which is a wonderful accomplishment for us and the business that she is financially secure and her time is her own and that she can spend it with the things that are most meaningful in life so she's inactive at this point and all from flipping through a magazine while getting your hair cut yeah I mean maybe I should spend more time advertising in magazine since the moral of that story and this is your her your grandkids are your kids or do you have siblings no my husband and I don't have kids but um all of my other siblings do I have three brothers and they have they have kids so cool and they're they're in Missouri and Pennsylvania so she has to travel a bit and it's nice that she has the freedom to do that and you're sitting in Richmond now you live in Richmond yeah I live just west of Richmond and Powhatan oh okay sure um and is there what is um headquarters look like for you guys is there you're not fully remote or are you nobody sent the central locations obviously but like what is what is headquarters yeah the the only uh team members that that work out of a a company location or the the centers the the teams that are in the centers everything else is remote so I I work out of um my home um and Nikki and her her direct reports do as well in our entire back office team does as well and was that how it always was or is that because of covet like in you made that change because no it's how it always has been I have fought hard against uh renting an office and having us all show up every day um you know we were able to pull Talent from many different places people appreciate the freedom you know pre-covet as well to do this and one of one of the things we've accomplished is to figure out how our Center directors can spend some of their time working remotely some of their non-customer facing time working remotely and and that's the quality of life that we would like for them um so we we fully have fully embraced uh as much as possible um remote work and during the pandemic we had to teach online and even today we're still teaching some of our students online and that's all remote people are doing that from their homes and it works well wow it so it works well because everything that we you know all the headlines said during covet that everyone's um educational um the education quality was was plummeting because kids couldn't learn as well via Zoom as you know in person yeah that I mean was that not devastating to the business just give us give us a minute or two on on Mathnasium and covid the hardest part of covid was the um emotional and mental tour uh it took on on all the team to get this right um you know we shut down in March of uh 2020 it just eventually had to shut completely down we did not have an online solution to that the franchise had an online solution they were testing so thank goodness we were part of a franchise at that point because we had tremendous support not only from our peer franchisees but from the franchise or to figure out how to do this yeah and so within two weeks when we took our 2000 students online completely and um you know just had to figure out how to do it and it was hard on everybody because it didn't work great at that time and it wasn't just our 2000 students it was the hundred thousand students throughout the franchise system that had to get on but from our perspective two thousand students and the system wasn't you know set up for that we were going to incrementally move people to online the pandemic happened we had to do it all at once so it was a tremendous effort and it had lots of bumps and we got lots of bruises from it but we um we were able to you know keep all the customers that that wanted to stay with us and and then after some amount of time give them the option of coming back in Center if if that was what they wanted to do the reason our students had a different experience than the one you're talking about being advertised is because we provide individualized instruction in a small group setting what and so that's all we had to replicate online we still just needed an instructor with three or four kids instead of a classroom uh trying to be moved online a classroom of 20 to 30 kids with a teacher trying to you know keep everybody together and productive and learning and in that large of a group in a classroom it's really hard to get feedback on what kids are learning and what they're not you put that online it's even harder to understand yeah what they're doing classroom management is really hard in person it's a lot harder online when you throw in less supervision but also the technical difficulties that came with it so we were we just had a we just had an easier problem to solve than the school systems and so that's why our customers had a different experience than they were having while they were in school but you must have felt a revenue decline I mean there must have been some parents who yeah yeah yeah I mean I think at our worst we were about 25 down okay okay and have you recovered since are you back to pre-covered levels not yet yeah so 2019 we were um around 6 million uh we did one acquisition since then and now we're over seven but that acquisition doesn't account for that million dollar difference so um yes Revenue levels for the portfolio are um have recovered there are individual locations that haven't recovered okay and just one more personal thing James so you are a I mean you majored in math so that tells me you're a math kind of whiz um yeah I mean to go to a great University and and major math you get into some pretty abstract stuff probably by your sophomore year anyway so um and you like math that was one of the things that uh Drew you to the franchise but you actually haven't and you like teaching math but you actually haven't been doing that for years so that actually isn't a big part of the story it's kind of how things got kicked off but one doesn't need to be a math whiz who likes teaching math to have done what you did a couple things I would want to say about that um yeah you know I I am I am good at math um but I realize how much I get to compare myself to the team that we have hired to teach the kids math and they are better at math than I am which is uh which is really what you want every situation you know as as the owner and CEO of the business I don't want to be the smartest person in the room and I certainly don't want to be the person best at math since I'm not doing it so we have a very talented math team um that's fun to be around you know the business is is a lot of fun um for that reason because we get to be around math all day and we get to hire mathemathy people but that's you you don't I'm convinced you don't need that in a business uh if if there's a next business for me it you know it I I don't feel like I'm gonna have to have the same passion for it at the end of the day what I have learned about myself is I enjoy the game of business um it's a serious game I don't I don't call it a game to be um nonchalant about it it's serious there's a lot of people that count on uh me and my mom and Nikki for their paychecks and that's serious and there's a lot of parents who've entrusted us to teach their kids math but if you think about business as a puzzle um or a game there's a lot of enjoyment to be had in playing the game and and that's what that's what gets me up um and working on it every day now is that enjoyment and I can find that enjoyment in a different kind of business too that's very well put and I feel very similarly which is how I how I'm able to get so excited about people who are you know buying whatever all different sorts of businesses they're all they're all uniquely interesting to me very cool James okay let's get into um franchising and um you know generally so you teach a uh so there's kind of the ETA course at UVA Darden Darden is the business school at UVA um and it's not called ETA but it's effectively the ETA course and you teach the day on franchising um and you this is all from our pre-call you had told me that the that the students are always kind of like I don't want to do franchising or buy a franchise for X Y and Z reason which acquiring minds listeners can can guess what those reasons are but tell us what those reasons are and then tell us what your what your answer to the students is sure the course of Darwin is called acquisition of closely held Enterprises could easily be named ate um and been doing that for a few years was invited to help out with a mentor of mine and eventually took over the class myself and you know you go to business school and you think about all the let's just call them sexy opportunities that that you foresee having coming out of business school some of those are finance jobs consulting jobs great marketing jobs great General management jobs and when you start about you think about starting your own business it defaults to startups right Tech startups these you know sexy high-risk uh High reward doing something new kinds of businesses but what what seems to be the reality is that most people a few years out of business school want to go buy a business instead um and what we want to do in this class is help them understand that franchising is is an opportunity where you can accomplish uh that same goal what what we're pushing up against are all the things I just mentioned about the sexy opportunities and and so the things that they often cite besides just sort of their identity around you know I'm a startup kind of guy or or um or something like that is that uh there's just a number of things so one is control you know you are partnered with a franchisor and you definitely do not have full control over what you can do um you can look at that from a negative side of things especially if you're someone who wants a lot of freedom and who's very creative and doesn't follow rules well but on the flip side of that that control is purposeful in that there's a system that has been designed for success and the reason there's control is because they want people following the system so they can be successful and also said that the brand can be consistent but that's one thing that we hear usually the first is control the next um one is around scalability so and if I buy a franchise they're often brick and mortar but regardless they are bound by a territory you know the franchisors aren't just saying here's the US go be our franchise or they're saying here's the part of the your part of the U.S or internationally um and and so go be a franchisor in your part that we're giving you and and therefore there is some limit to scale because you can only serve that population but scalability comes through multi-unit franchising instead of just one unit now there are still bounds on scale you know those territories still only add up to being able to access a certain population in my case of kids whereas if I you know was an e-commerce business or a SAS business then the world is my oyster right so yep um but if you from my perspective you know I I can well I did I built a seven million dollar business that uh profit margins are 10 to 20 percent um and that you know while yeah there certainly are larger businesses businesses out there you start to think about the the risk associated with the opportunities and I would say because I've chose this franchising opportunity I've decreased the risk yeah I've limited some scalability but still plenty scalable to to generate a return on our investment and the income we would want want to see so control scalability and then there's you know paying the franchisor so margins you know profitability isn't the argument is that profitability isn't as good as it could be because you're going to play the franchisor franchise fee to get in and then royalties and other fees to operate and so a minute on mathnasium's fees just to give people context we remarked on Mathnasium franchise fees again there's some right now somewhere in the Forty thousand dollar per location range there's Opera discounts for additional locations and then for top performing franchisees there's incentives that reduce that as well and then on an ongoing basis we pay 10 of Revenue as a variable royalty uh two percent of Revenue as a marketing fee marketing royalty and then there's a 500 dollar uh per owner fixed royalty so I only pay 500 a month and so does someone who has one location and then there's a 250 dollar per month per location marketing fee as well so if you have one location you know that that can add up um for me it you know there's also some rebates if you're top performing so I for me at our scale we're about 10 to the franchisor but we couldn't we we couldn't do what we do without them uh and not only probably the biggest item is the curriculum our curriculum is fantastic is the the brainchild of Larry martinek who people could look at online um and we could not reproduce that on our own and that so that's worth its weight in gold but then all of the systems that have been built software systems and otherwise that have been built so that we can operate a Mathnasium are things that would be have been really expensive to do on our own and would have required a much larger scale in order to justify investing in and so uh that that money most days I feel like that money is well spent uh and you want to evaluate that as you're thinking about a franchisor yeah you're gonna you're gonna have lower margins because you need to pay the franchise or what are you getting for that and how much of those costs would you have had anyway and again I go back to you know I think a lot about risk adjusted returns I might be paying the franchise or but because we have a proven system and a proven model my likelihood of profitability is much higher than someone who is going to uh start start something like this from scratch well those are the big three ones um shoot I just have so many okay um let me just the just just to um to emphasize the point you made about the royalty fee yeah I I do feel like people kind of treat that as like a toll or a tax just a cost of being part of uh being part of the franchise system and you know just kind of taken off the top but you are getting something for it and not just being part of the franchise you're getting whatever depends on the business the CRM system you're getting all of this support you're I assume you're getting um you know access to data from the other the other um the other units in the system there's probably a lot of big things I'm forgetting because because I'm I'm naive um but I mean it's not just money off the top it's money in exchange for services and value back right well that's what you should expect right I mean not all franchises are created equal as you evaluate entering a franchise you not only have to you know if you're if you're buying a privately held business that's not a franchise you just have to evaluate that business when you're buying a franchise you have to evaluate that location but you also to evaluate the franchisor and one of the things you have to evaluate is what you're getting for the money you're going to be paying them and you know we've come to a good conclusion in Mathnasium that we're getting what we need for what we're paying but there I'm sure there are franchises where that is not the case and and you have to evaluate that okay and the thing that you just said about um you know um kind of there's a system there the market demand is kind of proven because you're buying into an existing franchise brand so that kind of by definition it's already it's already have some some Market acceptance but there's also the difference between a very very very established franchise like a McDonald's that's been around for decades and is more than proven it's iconic versus like what you did so Mathnasium was a young as you've said now a couple of times a very young franchise uh and so it wasn't correct me if I'm wrong but it it wasn't a foregone conclusion that it would go from a hundred to a thousand units over the next 13 years right so how do you think how does how does somebody entertaining a franchise consider that how do they you know yeah yeah so it's interesting to to consider the the spectrum of uh franchise maturity and you have to think about that in terms of what you want to get out of business and also what you want to contribute yes I entered Mathnasium when it was a young franchise I feel like I took an appropriate amount of risk financially I might have taken a little more risk with my time than I should have um it's hard to think about it that way since you know how it's worked out but I you know my time was very valuable and so that was probably the bigger risk than the money but because it was low risk and it was young and I felt like I could influence the franchise uh it was the right opportunity for me at the time it would not be the right opportunity for me right now like entering as I think about what's next starting um with that young of a franchise is probably not what I'm looking for um because I have more of an investor mindset now than an operational mindset unless I was partnered with the right operational partner and the Financial Risk was appropriate I'm looking for something probably more mature and you know the other end of the spectrum of course is the annuity that is McDonald's um you know you're really an investor if you want to get into that franchise and you can own hundreds of them if if that's what you want to do and I'm not sure that's what I'm looking for either but but you have the whole Spectrum to work with and so just you have to find the one that has the right level of maturity for you where you're taking the right Financial Risk and you can contribute in the way that you want to if you want to be part of the the ground floor and help really figure out what this franchise looks like then you want a young one and you want a franchisor who's open to that level of contribution if you want to benefit from that already having been figured out then you want to be further up in the spectrum of maturity how do you decide uh or how how would you advise folks to Think Through buying an existing franchise versus starting a a location or a unit themselves from scratch we've already talked about your experience doing this and and thought about it some but is there are there best practices here or is it is it very Case by case um you know I would lean towards by an existing location um and you know so if I had if the world of opportunity the one I would pick is a proven um franchise a location that is successful maybe not the most successful although if the numbers are right that works too but a successful location that is going to be profitable and and can generate in the short term enough income for you to do what you want to do to learn the business and then quickly add on and grow from there that that would be the best situation um but you know there might not be that exact opportunity and so you have to decide where you are willing to accept more risk and opportunity and where you're not so certainly starting a new location of a more mature franchise uh has its benefits what you have to watch out for you have to ask yourself why is it available right so if there's people like me in that franchise why haven't they already opened that location there are still great Mathnasium locations that have never been opened but they represent a minority in in the in the um in the inventory of territories that are left so you have to do the extra work so that comes with pursuing a more mature franchise too is less opportunity to open um from scratch on the other end of that Spectrum a younger franchise if you know a territory is good like I understand Virginia and Maryland and the kids space right and so if I was going to open another franchise in this area um that was kids related I would I could predict how well at least compared to other locations that would open how well it's going to do because I understand the kids space and I understand um the areas that I operate in now and so there is opportunity at the low uh the the immature in end of the spectrum as well um because there could be so many great Opera great territories that are still available sorry we're not giving I'm not giving you the answer and that's because um I I think there's opportunity in all quality franchises regardless of maturity and you have to match it with one what's available to what experience do you want to have yeah when we were talking about the range of Revenue that you see for at your units from from 200 000 all the way up to a million and you said even that you know you have some in your portfolio that that continue to underperform um or that are underperforming now um How can there be such a range of performance when this you know franchise is their reputation and in fact their value proposition is that it should be pretty formulaic you know you do with the franchisor the you play you do the Playbook that the franchisor has given you you can talk to all these other uh your your you know your colleagues in the franchise and learn best practices from them so I just I wouldn't think there'd be such such uh wide swings and performance can you can you talk to that a little bit yeah I mean the the first answer is not all territories are created equal there's not the same number of kids in every territory there's not the same level of affluence there's not the same priority on math education so that's one point but I've seen territories that aren't great do really well and I've seen the opposite uh as well and that's because it comes down to the person if the operator in general but also the person that's there every day and you're interacting um with parents and with students you know it's a very Hands-On relationship driven business the more people um like uh the center director the more they feel like they're competent and doing the right things for their students the more they're going to tell other people about it the longer they're going to stay and um you know like any business it is difficult um to get um the right people in every seat all the time and and so that that's really the the biggest factor is is who's running the business um day to day now we increase the reason our average is above the system average is because we've done the work to take a franchise system and even add additional systems and support to it so that that person that's there every day so the average Mathnasium owner is there every day and does everything but instruction and even some instruction our managers there there every day have many things that they don't have to be concerned with they they really need to be focused on parent relationships working with their schools and communities and serving those students they don't need to worry about payroll they don't worry need to worry about marketing that isn't in the community if they have a question on something we have a resource to help them figure it out um there's there's just the billing they don't have to worry about billing there's just a lot that they don't have to worry about so that increases the focus they can have on the things that drive success revenue and profitability and that's that's why we um we're doing better than than the average uh franchisee so the system still needs to continue to evolve so that the everyday owner can have as similar experience to that as possible that they can focus on the things that grow their business rather than the administrative things uh in the business and we've made a lot of Headway in Mathnasium to the credit of the franchisor and those of us that contribute to helping them figure those things out we were Mathnasium was just acquired by Rourke Capital which is a very large private Equity franchising firm and that relationship is going well and they seem quite motivated to continue on this path of improving systems and processes to do exactly what you're observing is to bring everyone up a level so that we have more consistent resources available for every Mathnasium instead of having to depend on a rock star owner or rock star Center Director being at all 1000 mathnasiums yeah yeah um I I don't think one of the three things that was said by the students going back now to the the reasons people don't like the idea of buying a franchise did you say that kind of you use the phrase that you're partnering with the franchisor at some point and um was one of the reasons that there's that there's kind of a lot of in some ways there's a lot of risk um as highlighted by what you just said it's like okay so this PE firm has acquired Mathnasium um so now you're dealing with different owners um so far so good but you know you you gotta hope that they continue to care about the the Enterprises much in the brand and the direction things are going so so there is this actually this quite a big risk element that you are yeah you are effectively partnered with the franchisor um and so you got to really believe that they know what they're doing and have your best interests at heart and if they sell out that whoever requires them in this case a PE firm same thing so um is that is that a fair point yeah so you have a risk that you don't have uh if you buy you buy a non-franchise business is this partner um and you you know you have to be serious about doing your due diligence on the partner but also understand that the partner can change so we we have had we have wonderful Founders um and you know after it'll be 20 years math he's gonna be 20 years old um in October I think it is and you know they've decided to exit which is certainly appropriate um but and sort of their their last Act was to put us in good hands um and so we're grateful for them and and what they've done but that that could go a different way right now I would it would be an odd thing for a private Equity Firm um who has investors to come into a business and operated try to operate in a way away from what has proven it successful you know if it's a turnaround that's one thing Mathnasium wasn't a turnaround um and so you would expect that they would continue that trend of of operating in a similar way and continue to try to improve it and they have every action so far uh has said they that they have so I'm thankful that the founders made a good choice that we have a great relationship with our new owners um and uh some people should think about that as they they enter a franchise that additional risk there's also risk there's just legal risk you're signing a franchise agreement there's all of these rules associated with that agreement and you ought to understand them most of them only come into play if the the partnership breaks down in some other way um but the franchisor is definitely in the driver's seat when it comes to franchise agreements and you you need to assess that risk as well I I suspect that in this world of franchising there are lawyers and attorneys who specialize in franchising um and cons certainly I know there's such thing as a franchise consultant so there are people out there who can help you digest the FDD and and all of the all of the considerations right yeah so that yes there are many um attorneys who specialize in franchising and I would encourage you to reach out to one of those if you were considering franchising while you're you know everyday attorney will have some knowledge there's just a depth of knowledge that comes from working with someone who who lives and Brees it the franchise Consultants um they tend to be people who will help you think about which brands you should pursue they have a portfolio of brands that they can facilitate a sale of but they get paid by the franchisor so just understand the nature of that relationship we used one to help us figure out um to look at some other opportunities and then came back to Mathnasium early on um and they can be quite helpful and that they tend to have a depth of experience as well just understand that they have a portfolio of things they can sell you and that they will get paid by the franchise or when they sell them yeah yeah key key Point um another point about the reason the students and and the reasons people might not want a franchise um I don't think you said vanity and that strikes me as a huge one you said creativity and the control which is kind of related but just you know um the idea that you're not operating under your own your own brand um do people articulate that well I think I um I I thought of vanity as sort of that conversation before we started listing the three control you know it was that whole it's not sexy so yeah absolutely vanity um you know there there are wonderful businesses uh there's a dog um waste removal based business you know pet waste for your business it's a good business but I mean too many people won't do it because they just don't want to be known as the um right and yeah I I'm you know there's some business that ethically I just don't align with but in terms of being too proud to operate a business um that Scoops dog poop that's just not how I'm I'm made up it's a service that people value you can employ great people doing it and you can get a return on your investment and make great income doing that and all kinds of other business and um you know I don't have any problem having a world-class MBA and thinking about owning a dog poop scooping business so perhaps I'm wired differently I would encourage other people to think about it that way too yeah although in your case I would say that there was an aspect you were drawn to the brand or you were drawn to the concept I mean that it grabbed your attention and so you know you you've probably felt really kind of you probably have some emotional connection or emotional draw to Mathnasium as a brand it's not just the numbers um You probably you're probably like this seems like a cool concept that I want to be associated with well and it's a purpose-driven business we we really do make a difference for these kids lives you know it's it's really something to see a kid that's in let's say second grade and is already frustrated with math because the only way they can do math is by using their fingers and they run out of fingers quickly and and using your fingers you often end up with the wrong number and you can never tell someone how you got the answer and it's that experience in first and second grade that creates a lifetime of I'm not a math person how many people have you heard say that I'm not a math person and but yet you know but yet you still have many years of math that you have to pursue we can change that trajectory and you don't have to be in second grade for us to change that directory we we've had high schoolers come in using the same example of where they can't do anything but but count on their fingers to get basic addition and subtraction done and that has defined their math experience and we can really we can help them specifically with that and then that just opens up um the idea that I could be a math person and I could pursue a career in math it's really quite unfortunate that the majority of kids you know if this is all the opportunities you have in the world and maybe 60 percent of them require some proficiency with math or at least the problem-solving skills developed through a good math education that at ages of five six seven eight nine ten they're eliminating all of those opportunities that require math and and really creating their identity around the opportunities that are left and it doesn't have to be that way and so I'm absolutely passionate about doing that and we we build a team around that passion and that's authentic I just got back from Las Vegas from the Mathnasium convention and that passion is authentic it's why so many of us got into it and part of the satisfaction we get out of the business yeah but I go back to my point you know that doesn't have to be the case yeah to own a business there's a lot of I mean almost every business employs people there's a tremendous satisfaction I get from being a business owner that employs people uh and that that helps them reach their financial goals and in some cases have dramatically changed their financial future as a result of them being part of our business and that we can provide great benefits and a great work experience and a positive culture those things have tremendous value and you have the opportunity to do those in every business that has employees so there's there's lots of room to find passion in business and and that doesn't have to be at the expense of uh being and having an investor mindset and want to return on your investment and generating income very well put James I couldn't agree more with everything you just said that's great um okay I think let's wrap it um franchising is a vast topic so we're not going to touch on everything today but is there anything from that I about the concept of buying an existing franchise or that the acquisition entrepreneurs Searchers who are listening to this um who either haven't considered franchising or kind of are maybe considering it that you think they need to hear that we haven't already set I guess a couple things one there is a franchise out there for everything there are many more franchises than you think there are thousands of them the entrepreneur 500 list is a good place to start uh to start thinking about them if you find a brand that you like and you are interested in acquiring an existing location getting involved in that franchise Community could be valuable just waiting for one to come up on Biz by cell is not going to be the way to go you know the mathnasiums that I want to buy often never make it the Best Buy sell yeah they're bought before they they end up there and one of the things that you will have to do and you should do is get to know the franchise development teams at those franchises so the franchise development teams are the sales teams but they are also aware of the resale opportunities they are often part of that approval process of allowing someone to um to come up for sale so just in the same way you would let a broker know hey I'm interested in Opportunities let me know if you have anything specifically for a given franchise that you're interested building a relationship with a franchise development team could be really useful and in building a relationship with some of the more successful franchisees could be useful and all every franchisee's name is listed in the FDD including I think their contact information at least an address or something it's required in those disclosures so by getting access to ftds you can learn a lot about a franchise and if you this is not sponsored but um if you don't mind me mentioning fddexchange.com is um is a service where you can get access to ftds fairly easily without having to go through the franchise development process they can get one free one a day or you can subscribe and get more than that so there are opportunities to learn about a franchise through the fdds so I would say um I would say you know those those things um are important and then you know just make sure you do your due diligence just because other people have made a decision doesn't mean it's a good decision so make sure you do your due diligence to make sure it's the right decision for you James one thing you just touched on that I had meant to ask and didn't was just about how we've been circling around this your whole story is around this but like as an acquisition entrepreneur um buying so let's say I get I own a single franchise uh location the path to buying more um is I I mean I feel like I could argue this both ways is uh there's more it's easier or it's it's not as easy I mean it's easier in that they're all these locations you can quickly reach out to any of these folks who are who who might want to sell their location or you know they're going to come to you first if somebody in the neighboring territory wants to sell their location or they're going to come to you or you know some of the other close-by territories so it seems like it would be from that perspective it would probably be easier on the flip side if you yourself are looking to sell I I'm not going to project you why don't you just why don't you just answer answer for me like on on looking for it at a path of acquisition to grow your Empire um do you think being in a franchise network is more conducive to that or being an independent if you take the example of let's say rolling up Landscaping businesses yeah or rolling up mathnasiums or another franchise I would think that the rolling of the franchise is easier because you understand the system you have a relationship once you're in the system with with all of these different owners um so I you know I would I would tend to say uh it would be easier to find the opportunities and if you have a good reputation in the community to close on the opportunities one risk that we haven't really talked about is if you underperform the franchisor is not going to let you grow uh and inquire so you need to get you need to show them that early on in the process earlier on in your first couple locations that you are someone that should own additional location so there's that additional risk you know if you're rolling up landscaping business the the next landscaping business isn't going to stop you because your other ones aren't performing well you may stop yourself but they're not going to stop you but the franchisor will stop you if if you're not successful so something something to consider um but I would think it's uh I would think it's easier in the franchise base um but that's also all I've ever done so all right well let's leave it there James what what uh what a great story and um what uh you know a privilege to have somebody who's so so familiar with acquisition um in a franchise system on to share uh share with us so uh thank you very much congratulations again on on a spectacular run um and and I guess we should also say uh to Searchers out there who might be looking for investors in their deal that you are somebody that they should reach out to yeah if especially if you're in the franchising space um or any of my fellow darn Alum are are listening uh those are two areas that I would definitely be interested in in um talking about so and happy people how can people reach you James the best way is probably LinkedIn um yeah it shouldn't be that hard to find me James Temple um just search for Mathnasium and James Temple it'll come up yep then and of course link is always in the show notes there you go James thank you very much sir this has been great yeah I really appreciate it thanks for giving the opportunity to share my story and and hopefully help someone else who's thinking about doing something similar absolutely