Jacob Lee·February 2, 2023

Why a Searcher Opened a Franchise Business Instead | Jacob Lee Interview

Jacob Lee, a former BCG management consultant and Darden MBA, partnered with a classmate to pursue self-funded search in Birmingham, Alabama but quickly pivoted to multi-unit franchising after concluding that deal flow in a geographically constrained mid-size market was too uncertain and risky. He and his partner signed a 10-unit development agreement with Scent Hound, a membership-based dog wellness and grooming franchise headquartered in South Florida, with rights to 4 locations in Birmingham and 6 in Nashville. Each store requires roughly $300k to build ($200k SBA loan, $100k equity), and the model is designed to compound: early store profits fund equity for later stores, and the SBA allows higher leverage as the portfolio grows, meaning total equity outlay across all 10 stores could be as low as $400-500k. At the time of recording (early 2023), their first store had already exceeded system averages with 800+ members against a prior benchmark of 500-600, and their second store opened in November 2022 with 300+ members. A key operational decision was hiring an experienced retail manager as GM from day one rather than self-operating, freeing Jacob and his partner from day-to-day management; they also hired a groomer trainer to solve the labor pipeline problem. Neither partner draws a salary yet, and the partners framed this as a long-term hold and compounding business rather than a quick flip, though they noted that private equity roll-up activity in franchise brands could eventually drive exit multiples well above the 3-5x baseline.

Deal facts

sde ebitda: ~$100k EBITDA per mature store (per franchisor FDD at time of signing)
financing structure: ~$200k SBA loan + ~$100k equity per store (~$300k total per store build-out); target 10 stores
notes: Multi-unit franchise development agreement for 10 Scent Hound locations (4 in Birmingham, 6 in Nashville). Franchise rights fee ~$30-50k per unit (counted toward SBA equity requirement). Total projected equity outlay ~$400-500k across all 10 stores with reinvestment of early store cash flows. No salary drawn at time of recording. First store opened February 2022 with 800+ members; second store opened November 2022 with 300+ members.

Why this business

Jacob and his partner evaluated self-funded search but became discouraged by deal flow difficulty in a geographically constrained market (Birmingham, AL) and the risk of spending years searching without finding a deal. They pivoted to franchising after finding the economics comparable to buying an independent business: build 10 Scent Hound stores over 4 years for roughly the same total investment and timeline as a traditional search, but with lower downside risk (SBA loans on $300k stores vs. multi-million dollar acquisition), a stair-step capital model funded by early store cash flows, and exposure to strong secular tailwinds in pet spending. Scent Hound specifically appealed because of its membership-based recurring revenue, differentiated wellness positioning versus Petco/PetSmart, available territories in markets they knew well (Birmingham and Nashville), and an impressive management team at the franchisor.

What's working

Membership-based model generating recurring revenue; first store crossed 800 members against a prior system average of 500-600, suggesting strong market fit
Hired an experienced retail manager (Bobby, 15 years in movie theaters and hotels) as store manager from day one rather than self-managing, enabling the partners to avoid getting stuck in day-to-day operations
Invested in a dedicated groomer trainer with 20 years of experience, allowing them to develop groomers in-house and train 6 groomers in 6 months, solving a key labor bottleneck
Stair-step capital structure: early store profits fund equity for later stores, and SBA loan leverage increases as the portfolio matures, dramatically improving return on equity
Geographic market selection: first two stores placed in high-income, high-density markets in Birmingham and Nashville with limited quality competition
Multi-unit development agreement (10 stores) creates a clear reinvestment compounding path and potential for private equity multiple arbitrage on exit if the brand scales nationally

What's hard

FDD financial projections (based on 5 corporate stores averaging $100k EBITDA at ~500-600 members) proved to be imprecise guides — labor costs are higher now than when those stores were established
Store 1 is only marginally profitable because the groomer trainer and area-manager-level manager are loaded onto its P&L as shared overhead for the whole portfolio; true unit economics only appear at store 2+
Not yet drawing salary; both partners need outside income to sustain themselves during the build phase
Partner returned to full-time employment because there was not enough for two full-time operators while just getting started
Finding and retaining quality hourly workers is identified as the biggest operational risk and barrier to execution
Franchise immaturity at signing: only 5 corporate stores on the FDD when they signed, so franchise-side unit economics were unproven; required taking a leap of faith on management team quality and market potential

Notable quotes

I'm convinced picking the market was the most important part.

The biggest risk and barrier to successful execution is people.

On a side note professionally this has been the most rewarding slash fun thing I have ever done a hundred X better than management consulting even though washing dogs is much less glamorous.

One of my personal goals is to not let the world — not let other people — sort of define what's valuable to me and I think this is an exercise in that.