Michael Horowitz welcome to acquiring minds great to be here thanks for having me Michael you're the owner of 20 Wing Stop locations in Ohio you were a conventional Searcher in New York to begin with that search kind of stalled out then you took a job but also a few months later circled back around to the idea of buying a portfolio of franchise locations in one Fell Swoop which is what you did and so we are going to hear the story of that early search the progression into what you did do and how you've now grown from that first batch that you bought of 7 to 20. uh and in the process learn about the business and the operations of Quick Service restaurants qsrs which of course to the layperson are fast food chains so Michael to start us off please a little background on you yeah um so thanks for the intro um background wise I started getting interested in search a couple years out of undergrad I began my career in venture capital I did a lot of cold calling and sourcing for Venture Capital Investments but learned about search somewhere along the way and started to think wait a minute I just talked to a business that has no business model no Revenue some users and is going to get valued at tens and tens of millions of dollars you're telling me for that same pool of capital I could go buy several businesses worth and millions and millions of dollars of cash flow that seems like a much better bed so I went to grad school got an MBA focused on doing that and launched a search out of uh out of the MBA program in 2015. that search was not a funded search but I was looking for a larger business to buy that looks more like what a traditional funded Searcher would probably have targeted but I really wanted to buy that business around New York where I wanted to live so with that Geographic constraint searching for 18 months uh was pretty challenging you couldn't really develop an industry thesis and flush it out fully because once you added the geographic constraint on top of all of the other things you were looking for there were just not too many businesses to to look at in any particular area and eventually as you said felt that that search stalled out I wanted to actually be making money took a job in real estate investing and got approached soon after taking that job by some buddies who said we've seen some other people with our kind of investment backgrounds buying franchises and having a lot of success we know you searched we'd love to talk to you about what we're thinking of doing and I ended up teaming back up with those people to search for a franchise business to buy specifically on the side while the three of us worked that's great thanks Michael I have a bunch of follow-ups here okay going back to the VC so I assume if you're working in VC you're working it and you use the word users you were working in Tech as most VC is Tech VC um were you were based in New York I was at the time as well and um how do you I always like to people who like to ask people who come from Tech it's usually people who have been employees within Tech businesses not necessarily the VC side but how they see Tech now from a distance and now that they've gotten into search or small business ownership that that kind of insight that you had like hold on a second you know the economics are terrible and VC and yet it's flush with cash and over here in small business less cash but great economics like um comment now on that Insight stronger weaker same so I sort of felt this would have been 2010 to 2013 that even over that three-year period as a completely green unsophisticated investor that things were getting progressively crazier every year in terms of valuations and even that early on sort of felt that it had shifted from an investing role to a selling and chasing momentum role because there was so much Capital looking to invest in these companies it was still a really fun job I mean you're meeting incredibly smart talented people you're learning about all sorts of new markets and products and niches um but it was much more hey the price is going to be the price can we even get them to take our money at this price and that was a lot less appealing than studying a business on the merits and figuring out if that price actually made sense so I think that only escalated in the past 10 years obviously had I stayed in that industry there was 10 more years of amazing boom times before uh the Bell started to toll but um you know still have great friends great admiration for the firm that I was at and think it's a great space it's just not the way I like to think about the world and then you also as you said you saw uh the a world from a real estate investing perspective so I assume that was your in New York kind of High Finance very large real estate investing we're not talking about you know the the loan house flipper um but but still you started thinking about thing you started kind of probably seeing the world through real estate uh the real estate lens how does that inform how you see small business acquisition and ownership yeah great question um there are a lot of parallels so the specific Niche that I focused on were older uh residential apartment buildings around New York and that's its whole asset class that could have its whole entire podcast dedicated to it but it's operationally intensive um but there is certainly an investing Focus you're modeling you're looking at cash flow you're borrowing money all these different elements um it's very cookie cutter so in that way kind of has some similarities to franchises every building is pretty much the same and you're going to fit it into your model of what are the rents what are the costs to renovate what's the potential of that location and that sub Market over time um and so it was a good transitional step maybe from Venture investing to real estate investing to full-on search fund operating business investing I'd say okay and then going back to the challenges of uh searching in New York were you looking in just Manhattan all five boroughs or the larger what I call it Tri-State including what Jersey Connecticut and New York what what was your what were your actual boundaries is the tri-state area you know could I live somewhere in Manhattan and commute to this business so there are plenty of trade lines going out to Connecticut New Jersey et cetera that was all all in bounds and that seems like an enormous uh I mean obviously the the the population of that entire metropolitan area the tri-state area must be 15 million because because Newark itself is 8 million right or is that is that just Manhattan New York City proper is 8 million right uh yeah that's the five boroughs the five boroughs are eight million so I I imagine you could double that if you threw in Connecticut the close-in Connecticut in Jersey so 15 million Metropolitan centers reasonable yeah so it's interesting as as we as I was reflecting on our conversation like it's so rare that I have had a guest on who searched in New York in fact I'm not sure I ever have and it's like why I mean you know just walking down I mean part of the charm of of Manhattan at least is that it feels like it still has this kind of small businessy vibe that are you know around on every block you know tucked up in the you know tucked up on the second and third floor are are these little Mom and Pops um just everywhere and then also like the density means that you you know you're gonna be able to cut the travel times down if you're in a kind of a a business that's going to require field uh field work so anyway respond to all that please yeah so I think most people would tell you that the ideal way to to do a search is develop a thesis around some industry that you think has attractive characteristics become really smart in that industry and that'll have two effects the first is that you'll develop an expertise in evaluating businesses in that industry you'll know what good margins are or bad margins you'll know what different industry Dynamics are going on and ask sellers more sophisticated questions and also you'll be plugged in if you continue down that path to people who are networked in that industry who may introduce you to the next company the next deal the next thing um that's all much harder when you have a geographic constraint so the three businesses that I would say came closest to buying during my New York Focus search all completely different all found at random um and Oh I thought were interesting but I don't think there were more than one or two businesses doing that specific thing in the New York City area there might have been another dozen doing the same thing across the country but if I wasn't going to move to Columbus or Houston or St Louis at the time none of those were on my radar and so that just made it much harder every business you discovered you kind of had to start from scratch and that that actually so what you just said there is sort of that's intrinsic to your Geographic constraint not New York specifically so if you had been searching in just Dallas that you would have had the same problem is that you know the you hit the ceiling of a particular industry if you're only willing to be in a single Geographic Market quickly yeah and also again I was not looking for the maybe more typical self-funded deal that's happening today where someone's buying a smaller business in a stable but maybe not growing industry at a really good price so I wanted a business with some more scale and more growth potential not just the hey this is an outstanding landscaping business but the Market's mature and the only way to grow is acquisition and that wasn't really what I was focused on okay and and then why were did you not do a traditional search fund where you did raise the four hundred thousand dollars to fund your search yeah I felt that I could get by without that capital and that was fairly expensive Capital given that it steps up when you make an acquisition um I also hoped although wasn't sure and wasn't really able to figure out beforehand that if I found a really great deal I could go back to that pool of investors and say hey this deal is so good good I'd like to get slightly better terms than the traditional search would otherwise give and worst case scenario was I figured I could get the traditional search economics but at least I had a shot at better um but I never got to figure out if that was true or not that's a phenomenal kind of Insider hypothetical is that something that you had seen other people do um I had not seen a ton of people do that at least with any specifics around oh I know someone who didn't take self fund or didn't take traditional money found a deal negotiated better terms I did anecdotally know that there were lots of people out there who maybe looked more like independent sponsors who are coming up with all sorts of different structures and terms for their deals yeah so that was sort of the broader universe that I figured I could play and you know maybe there's a family office that loves you and just says great you can have 35 carry off the top and we'll take your whole deal maybe not I don't know yeah yeah yeah okay um well before we move off of your search there was an interesting business I heard you mention on another podcast and I should say that uh you got on my radar wolf of franchise The Wolf of franchises was on the Pod um back in January I think and he mentioned you and then because he had actually interviewed for you for his pop which of course I've listened to and I will put that in the show notes it's a great listen um and in that conversation with wolf you mentioned one of the one of the businesses that you looked at in New York which ultimately you did not close on uh the Christmas decoration business just just for fun tell us a little bit about that business yeah so again found it completely by chance I had an industry list of hospitality vendors and I thought maybe that would be a fun space to own a business in so contacted a business that has been around for 40 years and is responsible for almost every major uh Christmas decoration display you see when you walk down the streets of Manhattan during Christmas time so these aren't store window displays at retailers but these are Lobby installations and Office Buildings these are huge exterior projects on Fifth Avenue Retail buildings some of the Marquee things that they're known for is Cartier wraps their entire six-story mansion in a giant red bow Saks Fifth Avenue has a light show on the entire facade of their historic building that plays music and has a whole scape across it Rockefeller Center they don't do the Christmas tree there but has all sorts of stuff going on through their pedestrian Plaza and it turns out it's one company that's sort of built the reputation for doing this over many decades and it was just a great business you think about well wait they sell everything one day a year isn't that the definition of a cyclical terrible business and my answer is well hey Christmas comes every year there's no weather there's there's nothing else that's going to affect that b when you looked at the historic performance of this business it was really durable even through tough economic times and I think the couple reasons for that are on the retail side retailers make a huge chunk of their annual sales during the holiday season and so the Investments they make to drive those sales are some of the most important ones they make and on the commercial side if you're a million square feet office building and you decide to be the Grinch Who literally Steals Christmas and doesn't put up the Christmas tree and the wreath and the little display maybe you save each tenant 50 cents like it's not a big cost amortized over the entire set of the office but it's a huge emotional thing that you don't want to necessarily give up um and then last but not least given that this business had been around for so long and had such a great reputation you know their specialized things to install on historic building facades and shut a street down to have a crane come in someone can't just walk off the street and do this they actually got their customers to pay up front and sign up to do multi-year installations so they had a much better cash flow cycle than you might have expected yeah yeah well and on that point as well like a a great moat I mean this is this is an entrenched business I wouldn't maybe go so far as a monopoly but I assume you know they're they're kind of the yeah the only game in town uh for the for the really big guys that's what a neat business totally I love it yeah um okay well um now catch us up on the story so you looked at that business you looked at a couple others got got kind of close none of them came to fruition um and so you go back to real estate and to get you get a um a W-2 in real estate investing and then are approached by these buddies who have seen people in their world buying franchises uh and doing really well there what what is their pitch to you uh expand on that a little bit uh they're two of my best friends still to this day and the pitch was hey we kind of want to do something entrepreneurial and we're thinking about doing this ourselves but we know this is an area you really like and you've spent some time in and maybe you can either team up with us or just give us some advice and honestly I didn't want to be a solo Searcher I would have loved to search with a partner I think it would have given me a longer Runway and some more support and motivation through the tougher times but none of the people I wanted to search with were ready to do that when we graduated so I was really gung-ho on let me do this with you I'd love to work with the two of you um we expected to do a much larger acquisition initially so we wanted all three of us to be operators in this business we wanted to start with many millions of dollars of ebitda and grow it to tens of millions of dollars of Evita and we were talking to potential investors really as independent sponsors at that point saying we're going to go do this we'll all move to whatever the city is and we'll build a great big business foreign and just for those uh who don't know give us a definition of independent sponsor versus versus kind of what you're doing what you were doing before where you search you find a deal and then you take it to investors and kind of negotiate terms on a one-off basis what's the difference between that and an independent sponsor yeah so I think of and use the term independent sponsor really to mean someone who is not funded by any investors to look for a business is planning on sponsoring the acquisition of a business as the person doing the sourcing the due diligence the execution um and then that model typically buying a larger company that a private Equity Firm might also Target and getting similar compensation the 2 and 20 or close to that that a private Equity Firm would charge their LPS to do that individual deal I would say independent sponsor probably more often is referring to someone who is buying the company but not running it and an independent sponsor might sponsor several investments in separate vehicles um I use the term to refer to what we were doing even though we intended to run the business just to distinguish that we weren't self-funded Searchers looking to buy a much smaller company but we weren't traditionally funded Searchers either great thank you Okay so so what happens because these these two friends of yours approach you you love it and yet they don't they don't quit their job so so keep going with your story yeah so none of us quit our jobs one of the positives of looking to acquire a franchise business is that once you've decided on a franchisor or a handful of franchisors that you're interested in they publish what are called fdds franchise disclosure documents and one of the required attributes of that document is a listing of all of your franchise locations and who owns that location so all of your sourcing is done for you if you want to try to acquire something in a brand you know every person and every location that brand has so it makes it a lot easier to search on the side than trying to do some build and outbound sourcing program and process all of the responses you get back and whatnot you can be much much more targeted we got some really great advice so one of the groups of people that we were aspiring to to replicate were some classmates of ours from business school Alex Sloan and Matt Pearlman who had bought a group of Burger King restaurants actually while we were students and they grew that business from 20 something units in 2014 to I think close to 250 by 2019 and sold that and they now run a full-fledged private Equity Firm I think they just raised 900 million dollars for their last fund there were phenomenal um when we called them and said hey you know we'd like to do what you did what advice do you have for us and the biggest and best advice they gave us up front is you got to start with the brand it's not worth your time to go find a franchise deal from a willing seller do all of your homework spend all of your money and then show up on the franchisor's doorstep with them not having any idea who you are and say hey we have a deal to buy this business and enter your system you got to do it the other way of introducing yourself to the brands you're interested in explaining why you're interested in them and what your plans are making sure they give you their blessing and then going to hunt for Acquisitions in that brand so you get an explicit blessing you needed no it wasn't just kind of a you know I want you to know who I am and you know let me talk to you a little bit it's actually like you get a clear green light red light you say please if I bring you a deal will you will you let me into the system in an Ideal World you get that very clear light um I'd say the first thing you're doing is just saving yourself the time on the ones who will give you an upright red light um there are a couple Brands who are notoriously very selective if not exclusive and have criteria for new franchisees that are just going to be impossible to meet so the two examples would be McDonald's and Domino's are not going to take any new franchisees just walking it off the street regardless of you know how much Financial sophistication they have um you don't necessarily get a green light from every brand in that meeting but hopefully you can at least leave the meeting with the yeah that sounds interesting it looks like you fit our criteria you know when you find a deal we'd love to to dig in and really hear more about your plans and that I think is good enough but you just want to make sure you don't leave the meeting with the feeling of they're not sold on us we're going to waste a lot of time if we have to try to convince these people to take us a few months from now when we find a deal yeah yeah and so just to really um distill kind of the pro and the con of of quote unquote searching within a within franchise networks the very strong Pro is as you said you have your contact list just just spoon fed to you and all the fdds you can see all the owners you can just dump them into your CRM and start reaching out like no uh gritty search work really um on the other and then the big con of course is that there is the there is a gatekeeper in the form of the franchisor who will give you a thumbs up or thumbs down and if it's McDonald's and dominoes we'll simply just not let you in um okay um and uh give us a little bit Michael on so you so you were quite pedigreed went to Great Schools you'd worked in you know VC and real estate investing in in New York so you had um kind of great pedigree from that perspective but no operational experience I guess I'm trying to understand from the franchisor's perspective what are they looking for um what are you up against when they're evaluating maybe you versus other interested would-be franchisees obviously I know the ideal would be like somebody with you know 20 years of experience operating fast fast food restaurants but short of that I assume a lot of people come to them who don't have direct industry experience because that's kind of part of the pitch of being a franchisee is you know hey person who's always wanted to be an entrepreneur come be a franchisee and you know and it may be your first time being a small business owner so um what are they looking for and and how did how do you think you measured up versus versus who you know the franchisee the ideal franchisee that they would want yeah every franchisor is looking for something different and figuring that out is is a key part of it so on one end of the spectrum Chick-fil-A they really are not a franchisor but they're looking for someone to take one unit be in that business as the owner every day share some religious values all of these other things um if you look at Pizza Hut for example they've been a struggling system a lot of their franchisees were quite large they were much more interested in franchisees who are going to come in and help them kind of get from the older casual dining big dining room model to more of a Domino's like small box delivery focused and so they needed more private Equity or financially sophisticated Capital who could do large deals and make those kinds of transitions on the real estate side um so each brand is looking for something different and figuring that out is is important Wing Stop when we first approach them and still to this day the majority of Wingstop franchisees own one two or three units there were very few people who owned double-digit numbers but Wingstop has over time been looking to increase the number of people who are multi-unit operators and decrease the number of people who own one two or three so I don't know what year it changed officially but let's say 10 years ago you could have walked in off the street and said I want to open One Wing Stop in my neighborhood and they would have said great today I don't think you can uh get a development agreement with Wingstop unless you're willing to open at least three and they're probably looking for someone who will continue on past that so that's a huge piece of the puzzle the other thing I'll say on selling yourself is the the franchisee base in each group is different and how they evaluate franchisees is different so two ends of the spectrum that we experienced during the surge you have Burger King which had been purchased by a firm called RBI which is owned by a private Equity Firm called 3G Capital the whole culture at Burger King had shifted to Young host MBA aggressively incentivized employees and all really really sharp so the Burger King attitude was very numbers driven of we're going to evaluate this deal you're proposing to do we're going to see what the returns are for us as a franchise system and if you can help deliver value on our end we're good to approve you in pretty much any scenario Wendy's on the other end felt much more like you were dating somebody and trying to like become a member of the family so they wanted to spend time with you just getting to know you they wanted to visit your existing operations like they never said this but it kind of felt like they wanted to meet my wife and my dog like that kind of vibe um and so everyone is is different and you got to kind of feel like whether that fits for you and adjust your your sales pitch to whatever that Vibe is if if it's the brand you're going to go for well I'm glad you keep emphasizing your sales pitch because uh Searchers all almost all Searchers eventually realize that it's a selling process to get an owner to be you know not only to find the business but once you've found a good business getting the owner to choose you to be the successor um and in and that's much more that's even more explicit in this world of franchising because the franchise or as we keep saying is kind of a gatekeeper is going to give you the thumbs up or thumb down so it's it's it's very clearly a sales process from the beginning so so anybody who who might be entertaining this path um gotta get good at selling themselves um and and a big part of selling of course is empathy and figuring out what the person across the table from you what they want and you packaging yourself to be the puzzle piece that fits that um let's let's back up just a little bit uh Michael because we didn't so why qsrs and not any of the other Myriad franchise uh franchise Concepts that are out there yeah um we started the conversation around we want to buy and start with a decently scaled business that we can grow too much larger scale and so that necessitated entering a franchise system that already had a lot of scale so we really didn't look at any brands that didn't already have 500 plus units across the country and that pretty much quickly pushes you into qsr there are a ton of other super scale franchisors of that level in other Industries there are some um and second was the the trends to us of qsr were really attractive so there's been a multi-decade trend of gradually dining out taking share from dining in so that was providing a Tailwind on sales growth in restaurants and you also had a bunch of potential levers that were continuing to accelerate that in you know delivery third-party delivery from like doordash and Uber was still a a very new thing online ordering was picking up a lot so there were some more Trends we thought would accelerate that and then the second point is that uh restaurant brands have performed super well in the qsr industry during recession times because they're lower priced and so people trade down into them uh when times get tough so looking at it from a hey we want to build a firm that we own you know when we're 60 and our kids maybe take over one day kind of thing um having a business that we knew was going to be durable for a really long time was very important so those were the two things that led us into qsr you had said that uh in across all these industries where franchises play that uh it's very very few Industries where a franchise might have 500 units or more but there are a couple of others outside fast food what are those others um I'm not remembering off the top of my head we didn't really dig into those so much I I'd say the other ones I don't know unit counts but that we kind of considered for time periods where some of the auto chains um so Midas finicky those kinds of places and then some of the Fitness Concepts uh I don't think there are 500 Planet fitnesses but Planet fitnesses are also much larger volume boxes than a than a qsr is um orange theory it was a decently scaled one things like that okay we'll just do some of this stuff quickly because you did cover it with wolf as I said I'll link to that that interview as well but um getting in front of these Brands so so you guys basically you know had this pretty tight criteria qsr is only the best mature lots of units um so that narrowed the list down to I think it was like 20 Brands yeah I don't know that we ever had like a actual piece of paper list with with 20 but you know maybe more broadly there was like a universe of let's call it 50 that we probably would have looked at not all of those were appealing to us you know Subway is a huge system but we have no interest in Subway as an example so 20 might have realistically been like the the number of ones that we were particularly interested in but we didn't have a quite that systematic okay but you had some sort of loose list that you were basically working your way through exactly yeah and and what did it look like to reach out to these to people to get a conversation yeah so we all the companies will have franchising contact stuff on their website that's the worst way I think to to go in because you're just dumping some information into an email inbox who knows who's picking it up so every time we could we tried to get introductions to somebody a little more senior on the sales or franchise development side and we got those from a couple different sources sometimes it was just mining LinkedIn and connection of a connection or somebody who could make an intro for us my two partners like I mentioned were both hedge fund investors and one of them actually covered the restaurant industry among other areas so he in some cases reached out to his contacts on like the investor relations side and said hey can you you know tell me who's the head of development or whatnot um we did go to um one conference in New York a franchise conference where franchisors will send um sales representatives and you can kind of meet them in person walk in the floor and they'll be getting the pictures for their brands and um then even just doing cold direct email Outreach sometimes once you've found the name of the person that you want to talk to as opposed to cold emailing in through the website I still think as a as a step better because it lets you kind of capture their attention a little more clearly than just showing up in this massive inbox yeah you know this this sounds like basically doing a job search in a savvier way than just like applying on the webs you know like don't go to the careers thinking about it yeah try to work your connections warm intros okay so so um that's really helpful but essentially it boils down to like all of the all of the many ways you might get a warm intro in any context same thing here get the get get some the warmer the better so work your network if you got it a cold email um as worst case scenario but still better than just a form on a website yeah great and and in these meetings I assume were basically virtual Zoom meetings a lot of times even phone calls this you know was pre-covered where I feel like the Zoom meeting was like a level up of uh engagement so um yeah a lot of times it was just you know slipping out at a coffee break and standing on the sidewalk in New York trying to keep my phone muted as traffic came by and make it sound like we were really working from a prestigious office or something so um I want to work in here kind of some contrasts to your first search which was like a conventional search um we've already kind of touched on it like the the list of of your targets is is very well defined in in this second version of your search um and to the point where you're able to do it on the side while you basically as a side thing while you have a W-2 um any other like reflecting back um any other thoughts differences on on that search like is it were you just like oh this is so much easier than my first search sort of thing or or I don't know anything yeah I think the two things that pop into my back to the point about how hard it is to search in a geography and get multiple reps at a particular type of business um I got a lot of wasted time for people who responded to my Outreach which made it clear that I was looking for businesses of a certain size and said yep we make you know two million bucks a year and then you met with them and oh well we don't make any money right now but we could make two million bucks a year if you just come in and it's like okay well you've wasted a bunch of both of our time now so with franchises you have a general sense of what a typical unit should do in sales and so if somebody's got three units you have a pretty good idea where their size is um and you can kind of filter pretty quickly on whether you want to talk to those people or not uh second would be you get the pattern recognition so if you look at three Deals in a brand the P L's are all buying the exact same stuff they're all Staffing you know for the same type of business they're all having the same uh you know controllable and non-controllable expenses and so you can get a pretty quick sense of hey wait a minute this group was doing a million seven in average unit volumes at a 15 margin and this group was doing a million five at a 18 margin like hmm which is one of them over performing is one of them underperforming and the more reps you get the quicker you can kind of come to a viewpoint on where that should be so that's enormously helpful for making a good investment and not a big mistake sounds like it's better in every way it's better in every way on the search side I I think honestly um you know once you get into the system then there's all the kind of downsides uh that we can get into of running a franchise business versus running a more independent business I guess I should caveat the better than every way the franchisor approval process is is a big deal it can work certainly in your favor um if the franchisor calls the seller and says hey all else equal we'd love to see these guys become part of our system and if you decide to sell to them we'll make it a super quick and easy process that's a big positive if the franchisor says hey sorry we really want you to sell to the guy in the market next to you um we will approve them but they're not our favorite so that's much worse for everybody so that's that's definitely a challenging element at close but up until then it's uh it's much smoother sailing I fell yeah yeah well and and also that's giving you an early taste of what it's going to be like to have this if you buy into a network to have this third partner effectively in the franchisor that can kind of you know veto anything anything you want to do which is of course you know one of the really big risks and and I would I would probably say downsides of of being in a franchise Network although of course in a good healthy franchise Network the franchisor also provides a lot of value yep and I'll I'll just throw in on that real quick you know companies at the end of the day are collections of people and franchisors are no different and so the culture of the franchisor is largely set by the executives and the people who are running that business and those people change so you may experience it in a good way of you join a brand and the CEO changes out and the new people you have a better relationship with and things are great but you could experience it also in the bad way a new person comes in and wants to put their stamp on the business and it's not what you kind of signed up for or wanted to get out of it and you clash and you know their their ups and downs in that yeah right and of course you know kind of Trends change like you were saying about Pizza Hut it's a it's a it's a struggling Network and you know used to you know in my youth was I assume a very healthy Network I mean it was where every kid wanted to go um although you could say that about any business Trends change and your business is gonna be yeah caught up in that no matter what um I'm actually I'm reminded of James Temple uh who bought night who acquired and started a few mathnasiums in the Mathnasium um Network here in in Virginia and Maryland and um as we talked last fall he that Mathnasium the franchisor had had somehow recently been sold been acquired by a PE firm and so franchisor is now going to have all new people at the top and he was optimistic but it represented risk in in change and you know who knew who knew what that meant absolutely great point okay well so that's a that this is all a great segue into now so so well let's hear about the the deal itself so you yeah to basically take us through the story finding the seven Wing Stops that you start with including any numbers that you can share yeah so the Wingstop deal we were actually connected to by Wingstop's development team we said you know we'd love to start with an acquisition and we'll sign a development agreement to build more in that market and they said well there's a guy in Columbus who's willing to sell his restaurant so why don't you reach out to him so we spoke we negotiated for a while we made an offer and he actually took somebody else's offer so we were back at the drawing board and a couple months later we kept in touch with him on how things were going he reached back out and said actually it turns out the person I was going to sell it to did not end up getting approved by corporate our two guys still interested and we said absolutely and managed to work out a deal from there so we bought seven restaurants that at the time were doing about 5.6 million of Revenue and somewhere around uh 700 000 of evenida we paid in the low 4 Millions for it uh used a lot of debt managed to do it without taking outside Equity because the three of us um were able to to fill the equity portion together and Off to the Races we signed a five unit agreement to develop more restaurants that gave us exclusivity for Columbus and we started doing that within the first year we had the business uh the lots of debt was in an SBA deal it actually was not we thought we were going to have an SBA loan for the longest time and we had just shopped around not really knowing who or what banks would be the right fits and it just so happened that another lender came in on terms almost identical to the SBA loan with the trade-off of no upfront fees or much smaller upfront fees for the loan origination but a couple seemingly quite light covenants on the back end and we thought that was a worthwhile trade the interest rate was the same term was the same personal guarantee was the same so we ended up going with them partly for the lower fees and partly because they were A lender that we felt if we quickly found another 10 or 20 units that we wanted to buy would be all over that whereas we'd have run out of of limit on the SBA cap the SBA cap of of 5 million total and and just a little bit more on the covenants what what do you mean by that and contrast that with the SBA loan yeah so SBA Loans don't have any covenants as far as your financial performance of the business the loan that we took up had two covenants the first is a debt service coverage so just measuring hey each year you have to pay x amount of money on your loans the business needs to be making x times 1.2 1.15 1.25 whatever the numbers are that was the first one and then the second one is called least adjusted leverage it's a common Covenant for restaurant Industries so it's basically looking at treating your your rent payments as debt and saying okay you're obligated to pay back x million dollars of debt plus you're obligated to pay X millions or hundreds of thousands of dollars in rent over the next several years compare that to the income the business is generating and make sure that it doesn't exceed five times five and a half times something like that debt to Evita after adjusting for your leases and by contrast so so these covenants are basically stipulations that post getting the loan you still have to adhere to and if you do not it's a tripwire and and what happens you're you're basically in violation of the loan and your Bankers say hey fix this or else sort of thing correct yeah if you miss either of those covenants which are tested every quarter then you're technically in default the bank doesn't necessarily jump down your throat right away and say oh my God you know we're gonna go claim your house or use our personal guarantee they don't want to do that yeah but it does give them some leverage to say okay you know we're gonna get a little more Hands-On with you why did this happen what are you doing to fix it we're going to check in with you more frequently to make sure our loan is still looking okay and we felt that that was a really reasonable trade-off both of those covenants we would never have wanted to take so much debt that we felt that either of those was going to be in danger for us and again contrasting to the SBA Loans so SBA Loans don't have covenants so for the listeners who are probably do know what debt service coverage ratio is all of that talk in SBA land is just about the business like when you buy it and kind of historically and um and it needs you know there needs to that needs to be maintained when you get the loan but then after you've bought the business and gotten a loan you don't have to adhere to that although you're you know you would hope that you would yeah you have to pay your loan yeah it's it's all right so it's the only criteria is that you're paying your loan and on an SBA loan okay great um so seven hundred thousand dollars in ebitda for these seven these seven Wing Stops so that's roughly a hundred you know average 100 per location that's smaller than what you said you you three had kind of ideally wanted to get which was something which was a which was a pool of uh of um locations in a franchise that were doing Millions uh in ebitda to grow to then to hopefully tens of millions so how did you why were you willing to buy something smaller than you'd set out to do yeah good question I really skipped over that so that was the biggest challenge for us on whether we wanted to do the Wing Stop deal um like I mentioned Wingstop has a lot of one two and three unit franchisees not very many large multi-units so we knew going in that the opportunity to buy 50 or 100 of these in the next couple years is not really there like it is at other brands but what we did like is that Wingstop at the time had maybe 1100 units uh they're closer to 1600 now so they were growing at a really really good rate and part of that was because the development opportunity both in just white space across the country where there are not Wing Stops and should be as well as the financial opportunity of what it costs to open a Wing Stop versus what you should expect that location to make were both really best in class so we felt that if you just got into Wingstop you could grow pretty quickly by building units and then all of the ones that you could purchase along the way would just sort of be gravy um the biggest downside to starting small was obviously it was going to be a longer path to getting the scale and the potential dollar opportunity that we were hoping for but it also meant that all three of us were not going to quit and run this business we bought it with a single area manager who kind of oversaw the day-to-day operations in the restaurants he worked with the managers on schedules he helped do repairs he helped train people um didn't do any of these sort of office administrative stuff of scheduling vendors paying bills running payroll checking bank statements Etc um but all of that work for seven restaurants does not require three NBA hedge fund guys it doesn't really even require one once you know what you're doing so I all three of us actually sat down and basically said look who's going to go run this which one of the three of us is it that's going to go out to Columbus and be CEO of this thing and each of us made a proposal to the other two hey if I do it I want a guaranteed salary of X I want to charge Carrie to you on the money until you come and do this or whatever it may be and for better or worse I thought of myself as the low bidder in that I didn't ask for much in terms of financial compensation but I asked that if my two buddies did not quit their jobs in two years and come join me in the business full-time I have the right to buy their shares back and I could truly own this thing myself and we all agreed with that because we really hoped that in two years I would grow it really fast and my two buddies would get to a point where they were ready to quit and come do it no matter what the amount we could pay him was and that's kind of what we went in expecting um that's not how it turned out they ended up staying at their jobs and I did buy them out but um yeah that was a tricky part of the equation whether we wanted to start so small and not have that big company with the three of us running it together but the the opportunity in Wingstop outweighed it yeah really interesting and can I ask what you propose that you would make uh I basically said I want to sweep all of the excess cash so if the business is you know generating 300 000 bucks a year after death service I get that but I'll also take the risk that if the business you know isn't working out the way we expected and makes 20K I get 20. mm-hmm but wait why wouldn't you be incentivized to have the business underperform by taking all as a dividend all of the profit rather than reinvesting and then have the business not grow so you can buy them out at a cheap cheap rate and then Kickstart growth one day after two years yeah we we negotiated an insanely and unnecessarily complex operating agreement to like address all of these potential conflicts that could come up uh in retrospect it was probably far far too much that we specified all of these Corner if Michael opens a restaurant and it does X but Michael didn't do why blah blah blah um yeah you know I think you need contracts they're super important but at the end of the day like you shouldn't go into business with someone where you feel the need to document all of that stuff so granularly and you don't just trust them to do the right thing and and we all trusted each other we did the contract anyway because we were newbies and and being silly but um that's kind of how I ended up viewing it like either you trust me to do this or you don't um yeah I trust you to do it or I don't yeah and and so basically the sweep structure of just taking out as a dividend your salary was effectively going to be whatever was left over was incentivizing you to make it as profitable as possible exactly the the amount that I had to buy them out on was was not based at all on it was based on the pre-distributions to me of course there was no fixed amount that I got to charge fascinating and and then just going back to one other thing you said Michael the in how in Wingstop where there are a lot of one two and three unit owners um and that makes it a less hospitable system to roll up did I hear you first of all was that correct um no I would say it makes it a less hospitable like that actually was a a positive in our mind because yeah what what I think made it a more challenging space was just doing it one two and three units at a time when your goal is to be at 50 or 100 units is a long slog like that that takes a lot of work a lot of time um you know there are people who got into Pizza Hut with similar kind of young Finance professional backgrounds and we're at 200 units in a couple years because you do three Deals in Pizza Hut at 70 and it's each and boom you're there so we didn't have that kind of opportunity in front of us but we liked the brand a lot more yeah well I would just have thought that in it like the example you just gave with Pizza Hut that if there are these other owners who own dozens and dozens of units that you you can't assume you can just buy them out because they're your kind of your competition within the system and they're probably doing very well thank you very much and if if they have the maturity and expertise to get to 70 units they probably want to get to 250 units so I don't know it feels like the more fragmented actually actually very similar to you know independent small business land like the more fragmented the better yeah maybe yes but also a lot of these qsr brands have been around for a long time and so the franchisees who have gotten to 50 plus units have probably been in it for a really long time um and so a lot of those people are you know getting into their 50s 60s 70s their kids don't want to run that business and so they're it's the same you know baby boomer generation selling trend maybe in the last 10 years or even five years there's been a lot more private Equity Capital behind the platforms that have grown really big and they still want to grow but at the time there wasn't quite as much of that and we specifically thought within Wingstop when you looked at the largest franchisees uh there was only one that had private Equity backing all of the others were just individual entrepreneurs who had been doing it for however long they've been doing it and while some of them were absolutely still growing by acquisition you know an individual entrepreneur in the restaurant industry by and large is not going and raising outside Capital to to take down deals they're waiting until they build up a certain amount of cash and deploy that into their next acquisition wait a few years buy some more they're not opportunistically responding to oh my God this unit's for sale let me figure out where I can raise 10 million bucks to buy it great just uh to the point about the franchisor and them being a gatekeeper and also um putting certain requirements on you so you had said that they would let you in but but yeah I guess you had to agree one of the stipulations was that you would also develop five units seems like that didn't bother you at all in fact that was kind of going to be part of your playbook anyway but still it does introduce risk because you have now agreed to do this to build out five um locations and and oh by the way like you are somebody who came at this from ETA so like starting a business from scratch even though it's a franchise and there's a system and so on um is something that you kind of had decided you you kind of didn't want to do at least a few years ago so um care to comment on that yeah um two thoughts so signing a development agreement to open more units is kind of table Stakes to make an acquisition and enter a brand if you show up on the door of a franchisor and say hey I want to buy these 20 units but I'm not interested in building any more they're kind of going to look at you and say what does that do for us why would we want you in the system if you're not interested in helping to grow it we'd rather see these get acquired by somebody who thinks that there's opportunity to build another 20. um so if you are to the the idea of selling yourself to the franchise or if you're not showing up on their doorstep saying hey we want to grow both by new unit builds and acquisition your odds of them being interested in working with you plummet so fortunately with Wingstop we thought the development opportunity was Best in Class and we were truly excited to to sign that agreement and build more units there were other brands where we would have been willing if not excited to build more units but some of them were asking for more way more units to be built than we felt were reasonable and that was a really good signal to us of hey they're not as balanced on the what's in it for us what's in it for them equation they're too far to the side of we just care what's in it for us and you know if you don't make money on these it's your problem so that was a good signal to stay away from a brand that said hey we want you to buy 25 units and build 45 more which one brand did so as far as the idea of like opening a franchise as starting a new business uh I really didn't look at it that way because our development territory was the broader Columbus area where the existing restaurants were and so you've got a Playbook with the franchise for how to build the thing in fact they have architectural teams that are going to review your plans and potentially argue with you about the way you might want to do it versus how they want to see it done um but from day one we had 100 something employees that if we needed to run somebody over to train a new team member or fill in a shift or whatnot we could hop in an Uber or drive over a bus over or whatever we had product at all the other restaurants so if we miss ordered on the first restaurant and we're running out of food somebody could drive over some extra chicken or extra french fries or whatever and we had a whole infrastructure of vendors so we knew who we wanted to hire to deliver our bar towels and our mops we knew who we were going to use to do our repairs and maintenance we knew who was going to do our grease recycling all these different things so it was a really Plug and Play you know within two weeks of opening you forget that it's your new restaurant and it's just another one of your existing ones that's that's um really valuable to understand yeah okay well Michael I want to get into what it has been like to operate these businesses um but we haven't finished the story so can we do an accelerated you buy the seven and then you're now at 20 take us up to 20 and then of course tell us what happened with your then partners yeah so I had that five unit development agreement I opened two restaurants within uh the first like 14 months after we bought the seven uh those went well we were working on development for our next two locations um you know you have a couple months of lead time to find the lease sign the lease get the permits approved get the construction done so um in the two-year Mark came up uh May 2020 so covet has been raging for two months now the restaurant industry is in chaos and I call my partners and say hey do you want to quit your headstone shops and come work with me in the restaurant industry understandably they say thanks but no thanks so bought them out um had the next two units uh open later in 2020 and between buying my partners out opening a couple more units and really fortunately for us Wingstop was maybe one of the biggest beneficiaries of covid and that our sales volumes were going through the roof as people were increasingly ordering delivery and pickup since they couldn't dine out and so those factors combined with interest rates have been cut massively um stimulus money flowing out there all this sort of stuff we got a really attractive offer to refinance our loans and take some more debt to pay for the restaurants reflect that the business was larger by my partners Etc so did that open two more units the next year one of which was a ghost kitchen it was an experiment it did not go great I closed it after a year uh and then in late 2021 bought seven restaurants in Cincinnati which was our big acquisition and then last year in July 22 bought a single restaurant in Dayton which is geographically kind of in between Columbus and Cincinnati so fit nicely into our footprint the so I was laughing about your your then Partners not wanting to to jump in during you know the peak of covet um but was it not but then you proceeded to say how you you were it was very a very coveted friendly business you were thriving did they not see that they they were still kind of risk-averse about the whole coveted question uh I think they saw it but it was still even though the sales were crazy it was still a tremendously stressful and scary time I mean we were trying to adjust our operations to socially distance we had Health Inspectors threatening to close us because people were standing too close to each other on the cooking line um you know we closed restaurants fairly aggressively to stop the spread of covet if somebody tested positive sent everybody home for a week and the restaurant's making no money so there was a lot of stuff going on that was frightening at the same time yeah for sure yeah right of course now we look and have the hindsight of retrospect it's like oh you know the classic you know this was a classic covet bump business but um it wasn't clear that the coveted bump would be a thing yet uh in May 2020. um so ghost kitchen just a little bit on that because that sounds like an experiment and tying it into like the franchise and how like what what the franchisor will allow or not allow um this seems like you know way off of the outside of the the parameters of what a franchisor would allow so tell us that yeah so ghost kitchen is basically a restaurant that doesn't have a storefront where someone can walk up and order from it so it works really well for a brand like Wingstop where the majority of your customers are placing their order online anyway either on wingstop.com or through a delivery app so a facility had opened up in Columbus they were going to have 50 little kitchens for all sorts of different brands the kitchen would just receive an order on the computer they'd make it they'd set it outside somebody would come grab it bring it up to a central Hub and a delivery driver or a customer but in this case almost all delivery drivers would swing by this Warehouse kind of in the middle of industrial Columbus pick up the food and deliver it so it was interesting because almost all the construction work was done already each little kitchen facility had a sink had a hood had electric hookups you just touch a roll in your equipment and bring in your food and start cooking so it's considered a non-traditional restaurant which means my development agreement didn't explicitly give me the rights to experiment with something like this but Wingstop as a delivery heavy brand was very interested in seeing how this model would work uh gave me a call and said hey there's a place open in Columbus if you wanted to open one of your restaurants as one of these models we'd be interested in having you do that and the general 60 second on the experience was that it works really well for delivery focused Brands so the sales were decent um and I think could have improved the operations were insanely difficult because the kitchen was super small and we just didn't have enough space to operate effectively and the amount that the ghost kitchen was charging us for that space was really disproportionately high so my feeling was for the amount of money just the total dollar opportunity of what we could make at a slightly lower volume but lower cost location with a really high rent was just not worth it and we should just open a traditional location because it's not that much more money it's much easier to operate in um and so we closed it we rolled all our equipment back out and we weren't out very much money at all and given that experience and your one-time experience in in as a VC or a VC analyst what would you say how do you feel about ghost kitchens as a category bullish bearish um I'm fairly bearish on it from an operator perspective in that I don't know what the profit margins this business was making on our rent were but if they weren't astronomical then I wouldn't be very excited because I think those rents were just not sustainable and what I would assume most people would do is similar to me you open in that space for a very low upfront investment you find out if that general area has enough demand to support a restaurant and if it does you just go and open your own restaurant in that area at a much lower cost and you've already kind of de-risked it by finding out what the demand is like if you could run a ghost kitchen operation and charge a much more reasonable rent and still have a profitable business then it's great because it does make it pretty easy to get open and get started but I'm not sure what the numbers look like on their end great thank you and uh Michael we haven't really touched on um your move from NYC to to uh to Ohio so so you guys had agreed you know one of the three of you was going to go do it you did it but just talk to me a little bit about that did you completely uproot yourself from New York or were you back and forth or what yeah I got rid of my apartment in New York I moved out to Ohio I ended up the first week there meeting my now wife which was great so that solved all of my social problems fairly quickly of moving to a city where you didn't know anyone um so we lived there for a while and then um when covid hit and we quarantined for longer than we expected to uh down with my folks in Florida we expected to be there for two weeks and stayed a lot longer than that I realized you know hey I've built an infrastructure with this company that can actually manage the business on the ground without me having to be in the stores every day maybe this frees me up now to spend a little bit more time going back and forth my wife's family is from New Jersey so a lot of friends in the New York area as well um and that freed us up to start taking some trips back to New York uh over the last couple years for for longer periods so are you kind of back and forth now great okay so let's talk about just operationally these businesses you said that first seven you came with a manager not somebody doing back office administrative stuff but um somebody they're really hard operational stuff that you know the the in the field operational stuff but um just an open-ended question what would you tell people who about the operations of a business like this both at the seven unit size and now at your 20 unit size uh I would say the easiest size business to run is the biggest that you can possibly do and the hardest to run is 5 to 20 units um and then the next easiest to run is one so at one unit you as the owner let's say you're not the operator you have a GM there's not a whole lot going on you could handle that individually pretty well you could also hire an overqualified GM who maybe can help do some of those administrative tasks as well and be pretty hands off at 50 plus units you can have a huge team you can have a maintenance guy you can have a construction guy you can have an HR person maybe two HR people you can afford a lot of infrastructure again you could take yourself out of that business pretty significantly at five to twenty twenty five you can afford some really great people but you can't afford every single role that you might otherwise want and so you're still going to be pretty involved as an owner operator in certain aspects of the business um and so that's kind of where we are like I am super lucky that we have an awesome VP Ops who's uh came from running 40 60 something like that restaurants before uh before he came and joined us and I was able to get him to join a much smaller business because he knew that we wanted to grow to that size and we were hiring him as someone who was ahead of the curve on enabling us to have that growth um and he also got super fortunate in in hiring a controller uh HR person who had worked at a larger Network had moved to Columbus for some family reasons and just fit really nicely uh into our brand and operations based on her experience so both of them take an extraordinary amount off my plate but both of them are probably doing things every day that ideally wouldn't be part of their core job description but we just don't have another person uh able to handle right now and when you said that the kind of strata that you're at 5 to 20 units um is the the not good the place to be um but there I assume there was also a difference between uh when you were just at seven units that first year versus 20 that you were had to be much more in the business um when you first moved out there and first bought those first seven um what was that like yeah so this was where like I think ETA is great because I show up on day one I've never managed a single employee before I've never run a payroll I've never had to do bank reconciliation what the heck do I know and so I told the district manager look whatever you did for the previous owner just keep doing exactly that and I will figure out what I want to change over time and what the previous owner did he lived in Columbus was he had each restaurant create a manual paper packet every week with printouts of all of the time clock punches from the team signed by the manager that had been reviewed all of the weekly sales information uh all of the deposit slips from their trips to the bank with cash all the vendor invoices from that week and um that's it so the district manager would drive around and pick those up or I'd pick them up when I was at the restaurants and I would get home on the weekend and I would spread them out on the floor and I would open up the bank account and I would say okay yep I see the credit card deposit came in for this restaurant it matches this report next next all the cash deposits match Yep this vendor invoice is approved and I would just go through them for a couple hours that process didn't really scale or work at seven restaurants it definitely didn't work as we expanded so pretty quickly started thinking about okay you know how do we improve this process well could we get the payroll information imported into a payroll system so I'm not fat fingering and under or overpaying someone massively when I enter their hours wrong which I've done um and just piece by piece chipped away at it figured out what person you needed to to cover that role whether you could afford that person and built up the infrastructure so over 20 restaurants today we have five district managers each oversees four restaurants and we have a VP Ops who oversees those district managers we have a controller she has an admin based in the Philippines who does a lot of the manual data entry tasks and me mm-hmm and so that that sounds pretty great Michael and it sounds like it was stress tested during covet and has been even more stress tested subsequently with you back and forth from New York so um is it pretty great or do you want to disabuse me that life is easy and you're sitting pretty it's both um you know the the team that I've got is awesome and is able to do all of the day-to-day week-to-week stuff without me um so I got married last year I went on a honeymoon for a little over two weeks and I called the team the second I landed uh we went to Asia said how's everything going and they said Michael don't call us for two weeks we've got this don't worry and it was really stressful to do and listen to but I said okay and I didn't talk to them for two and a half weeks and got home and everything was cruising it was awesome so you know that piece is great that said I own this business I don't do anything else at the moment although like I'm trying to do some other search ETA investing activity right now um but I had a lot of money tied up in this business and I wanted to do really well so when I am not on a honeymoon I'm calling and I'm following up on data and I'm negotiating with vendors and I'm doing whatever I can to support the people in the field I'm visiting the restaurant some sending back notes on what I've seen all this other stuff um and I'd say the most frustrating aspect is that the labor market in restaurants is enormously challenging and it's been enormously challenging for a long time but much worse since covid and while I'm no longer maybe the day-to-day person who's gonna talk to an employee who didn't show up for work uh or failed to do some basic essential tasks that we require of them when I talk to any of the above store leadership about what's going on or what problems they have and what we are doing about it that's the subject of all those conversations we failed this inspection because of this we are struggling to get this manager to do that and so you don't really Escape those kinds of Labor challenges you just interact with them in a different way and there's definitely a lot of time where those issues are quite frustrating and I've seen otherwise great managers who work for us actually leave our company and say it's nothing against you guys it's nothing against Wingstop I am burnt out on managing this Workforce and I'm leading the industry and these are people who had done it for decades so it takes a lot of perseverance a lot of grit a lot of um humility a lot of things to to be a good manager in this space and so finding the people that can manage that labor force and come to work energized to do it every day is hard and to be clear um it because of the labor shortage now it's gotten harder which because the the supply of folks to work in these jobs is less and therefore kind of the the the overall quality the average quality of people working the cash register or the friar or whatever in a business like this has gone down because I guess I mean your guy with 40 years of experience I mean he's he he'd been in this for 40 years so I I guess but now things are much worse because of the labor shortage to be clear uh yeah that's that's my sense is that it's been more challenging every year um I'll pull that back a little bit it's gotten a little bit easier in the last six months in terms of the volume of applicants there were periods more in 2021 or early 22 where just nobody was applying um but certainly I think the labor force just gets more challenging each year as other opportunities open up and wage pressures go up and all this other stuff and one um kind of maybe simplistic question to people who have any operational experience you know I we haven't talked about how profitable you are now but I assume there's a lot more ebitda uh going around than there was um when you just had the seven and why is the answer to attracting more Talent OR rotate or better Talent OR retaining the talent you do have not simply you know throwing more money at the problem paying people two dollars an hour more uh yes it's a less profitable business to you and maybe that's the answer maybe it's a trade-off like more profitable more headache or less profitable less headache um so why can't you pay people more to get them to perform better or can you there's certainly an element of that but I think an underappreciated aspect is there the amount that you may need to pay somebody more is not maybe commensurous could measure it with what you think it takes to attract the people and maybe to put an example around it there's a lot of warehouse jobs in Columbus and we'll lose employees to those jobs because oftentimes they pay significantly more than we do but we'll also a lot of times see those same employees come back to us after two four weeks something like that and say hey can I come back and work here because warehouse jobs are really freaking hard you're you know doing manual labor a lot of the warehouses are very um you think of Amazon like performance tracking on every individual and how productive they are and frankly in a restaurant industry like it is a hard job in a lot of ways but you might have an easier time than working in a warehouse in most restaurant Concepts and so there are some people for whom I'd rather make 14 an hour at a restaurant than 18.50 an hour in a warehouse just because I don't like the work but I think there are also a lot of people who don't want to work in a restaurant environment uh at even a much higher wage because they don't like the work uh two other examples you know we fortunately get most of our orders through digital channels um but we still get a decent chunk of orders over the phone and Millennials who our restaurant Workforce tends to be younger don't like talking on the phone and one of the things I found out is they don't like taking orders on the phone either and we have a lot of issues with employees who forget or turn the phone on mute or figure out other ways to not pick up phone calls and not take orders um and so there's some aspects of like people just don't want to do certain parts of what it means to work in a restaurant they'd rather do something else and so unless you're willing to pay them dramatically more um it's just an industry that's that's off their list yeah oh that sounds really difficult um and have you learned now that you're an experienced operator I realize kind of at this point certainly one step removed from all of that but um have you learned anything about how to motivate people who don't want to be there or would rather be somewhere else or is there no silver silver bullet I mean there's no Silver Bullet but is there you know have you learned anything I've gotten better at it yeah I think a lot of times again it's not about money it's about other aspects of the job so hey can we help this job fit your personal life you have child care obligations you have a church thing that's meaningful to you on Sundays whatever it might be and can we help crop the schedule that lets you fulfill that part of your life maybe it's that um you know a lot of people in restaurants are used to not being treated very well and so if we can do little things to just say hey you know this restaurant had a great month like we're gonna send Pizza over or throw a you know donut party in the morning um let people know that they're appreciate you know one of the best parts of the job for me is I'll have a manager call me and say you know this new employee has been just doing amazing and they stepped up and covered this shift and worked a double when somebody was going to go home because they felt ownership of the restaurant and didn't want to see the doors have to close early and you can show up and say you know hey here's a handwritten thank you note and a gift card for a nice dinner like thank you for doing that it meant a lot to us like those moments are great and the more you can find Opportunities to to identify and reward that stuff the better and then also growth opportunities so if you get somebody who comes in at whatever level they come in but is ambitious and wants to grow and develop in their career you've got to figure that out right away and make sure you're presenting them with those opportunities as quickly as you can because if they're don't feel like they're getting them with your company they're gonna go look somewhere else to get it and I've seen um instances where you know we'll get an employee and they're good and after two or three weeks they're saying hey like I want to be an assistant manager now and you've got to figure out how to balance between hold on three weeks of being a great cashier cook does not set you up to be a great assistant manager but we want to recognize that you've been doing what we've asked you and you've shown that potential so let us tell you what a reasonable timeline would be to get you to that role what the check-ins we're going to have along the way look like to make sure you're on track for it what the potential compensation increases are as you move up those tiers and sell you on this is what you can achieve in this amount of time and not just say well you're not ready yet but we like you stay in that job for a while they're gone they're not staying under that situation Michael here's the question would you do that all over again like do you like this path as an acquisition entrepreneur and let me just sprinkle that with one of the things that you and I had talked about in our pre-call was operational complexity or as you put it return on effort so Roe yeah um these are heavy heavy heavy human businesses we just finished talking about all the the challenges they're in so reflects back now on the fact that this was the opportunity that you took yeah uh so the answer is 100 I do it again um you know the inertia to get out of your w2c or get out of your search and actually close the deal buy the business and start running it is really hard to get um or get passed and um you know just once you start doing it things start to happen acquisition opportunities come in front of you expansion opportunities industry connections all this other stuff and so there's a lot of value if we don't do a terrible deal but waiting for perfect is not necessarily the best way to go and on the return on effort idea you know yes if if I could have started with 20 Wing Stops and spent the last five years growing into 50 I would have much preferred to do that but you know in retrospect like this got me into the kind of seat that I wanted to have it was a great financial um investment from from then to now and you know I couldn't ask for for more reasonably um and on the return on effort point I think that's when we were talking about um some other franchise Concepts that that I'd considered and you know I look at it as there was another franchise brand that I liked a lot um that I found out after Wingstop but thought maybe I could get into this brand as a franchisee as well and maybe this is the way one of my two partners could come work with us because he'll work on on this new brand um but it was a much smaller brand with no opportunities for um existing Acquisitions and so when we looked at it we thought hey over five years maybe we could build five to ten of these credibly where would we be in five years on that well five to ten of them we'd be somewhere between probably a million and two million of Evita across the system and like look there's nothing wrong it's pretty damn amazing to build a one or two million dollar Evita business in in five years but when you're also comparing it against we think we could buy a 2 million Eva business and grow it to five or ten like that return on effort of how hard you're going to work to get from zero to one versus one to five is a meaningful calculation and for me that was the overwhelming reason not to to pursue that brand is that the amount of growth I could get can Wingstop or in another bigger brand for starting in that brand from scratch felt like a better return on effort and and just what about fast food as an industry Quick Service restaurants as an industry versus some of the other industries that you looked at there will be a lot of Searchers listening to this who are right in the middle of their search what would you tell them uh about uh like directly about um being in the quick service restaurant industry and whether or not they should consider it yeah um so I would say restaurants are on the higher effort side of operating for sure um they're just a lot of different things that you got to do and you got to do it with a tough labor force um most franchises are employing people at that lower wage end of the workforce and that inherently comes with its own challenges of people not showing up on time and people not acting in the professional way you might expect or hope them to with customers or vendors or what have you um you know restaurants are great as far as the stuff we talked about before the historical Trends the financial opportunity the scale you can have all these other things I think there's a lot of Merit to as a Searcher thinking about what do you want to be doing every day where do you want to be going into an office do you want to be out in the field do you want to be managing a dispersed labor force do you want to be managing a concentrated labor force do you want to be managing a white collar or blue collar all these different things and even within franchises there's a lot of room for you to kind of tailor what you do to that interest so the franchise that I was thinking about that we were just talking about was a doggie daycare franchise and while they absolutely have the same issues around you know Finding qualified people and getting them to do the things that they want them to do show up on time Etc you know your average Doggy Daycare worker is highly likely to be more educated than your average fast food worker because you know it's much more likely you're gonna find a call college student who wants to make some part-time income and go work at a Doggy Daycare than a college student who wants to work at a fry station at Burger King um so there are all sorts of different elements in that I would absolutely tell people go into the restaurant industry if it excites you but go in Eyes Wide Open understanding that you know you're going to get a phone call that what employees sprayed another with the soda hose and what do you do about it yeah yeah maybe maybe get a job at your local Burger King for two months uh you know in the kitchen and just and just really see what it's like um to close us out Michael uh just two questions again asking you to reflect on on how far you've come Indy versus franchise so I think we've kind of beat the um franchisor kind of over your shoulder concept to death but if there's more you want to say there please um but just just the feel of working within a system versus working in an independent business because um that is kind of one of the qualitative differences in uh in those two paths is just you know yeah the the one one is very playbooky guard rails brand National brand kind of cookie cutter um and the other is a little more swashbuckly maybe um I won't put words in your mouth so reflect on that please and then and then I'll close with a question just about search reflecting all the way back on your first search so go ahead on the Indie versus franchise um pros and cons for sure on on either side um I would say for a you know franchisor thinking about the things or for franchisee think about the things that you control and don't control so we control all of our hiring all of our training all of our onboarding the people in our restaurants are 100 ours we control our pricing we control our site selection where we just decide to open new restaurants uh we do not control the menu we do not control any of the cooking procedures we do not control any of the brand standards for Decor cleanliness service Etc and so there are times where you disagree and want to do things another way and can't you know it could be as granular as the brand tells you you've got to use tongs to transfer this product from one vessel to another and we think it's better to use um you know tissue paper like you would at a bakery and you say hey this is the process we want to do we think it works better and they say tough you know we're telling you how to do it our way um and you got to do that so yeah that stuff can be grading but it also takes a lot of stress and headaches out of your head I don't have to worry about if the price is on one of my supplies goes up uh you know do I go find a new supplier and do I negotiate that kind of Wing Stops got it all handled I just get a product I pay the price and I don't have to worry about it and I know that there's a team of people who are out there sourcing and negotiating the best deal that they can so it takes a lot of stress off your hands um yeah so I would say maybe the biggest question is there are some areas where you can't be creative in franchises but it takes a lot of things off your plate and so if you really want to focus on like how do you scale systems and processes franchises can be great because that's the majority of what you do attract people fit them into your systems and processes and try to scale if you want to Tinker with menus and Tinker with different service things and run little experiments and do all this kind of a b testing not at all for you you can't do any of that really that was great and then lastly Michael looking back on at you know you we're doing a conventional search looking at independent small businesses back in New York uh and then went this path um how do you feel about search uh overall these days and you know the the path you started down and then ultimately didn't do how do you reflect back on that now that you've gone down this other path really far down this other path uh still super bullish and excited about entrepreneurship their acquisition and search and think that all the different forms of it that have cropped up are great and help make it more accessible and better for people because not everybody wants to buy and run a three million Eve it up business and try to get it to five or eight or ten some people really want to run the 700 000 landscaper in their Hometown and make hundreds of thousands of dollars a year and have a great lifestyle and like all of those things are valid awesome and can be super financially rewarding um I'm actually trying to spend more of my time investing in ETA stuff as a way of getting a little bit more variety in my day-to-day life so I get really energized talking to Searchers and learning about the new businesses they discover and what they think they can do with them and all these other things and my life for five years has been the exact same process just across more and more and more restaurants so I find uh all the different things people are doing in search really fun and think it's still super early innings for it as a an asset class for investors and for operators beautiful well um perfect segue to ask you how people can how you prefer to be reached out to uh LinkedIn Twitter uh both are great LinkedIn Michael Horowitz uh Twitter at M A Horowitz h-o-r-o-w-i-t-z okay so if somebody's got a deal um they they should feel free to reach out to you absolutely okay Michael thank you very much for for sharing the story what uh what a successful one and an interesting one love talking to somebody who um looked at looked at search uh it still loves it didn't go that path and now has kind of like the benefit of of seeing really you know deep into a different path and um and understanding search from a different New Perspective um so thank you very much for coming on people are going to love this episode I'll put all your contact information in the show notes and uh we'll have to check in with you in 2024 and see where things are at then sounds great thanks so much for having me your podcast is awesome you've had such cool and different people coming on doing all sorts of things so keep doing what you're doing because it's really an awesome contribution to the community appreciate that Michael all right thank you sir take care I hope you enjoyed that interview make sure you subscribe to the acquiring minds Channel below we are now publishing twice a week so tons of new interviews and stories to come stories that will help you along your own path to acquiring a business