Darden -> BCG -> Self-Funded Search -> Buying 10 territories for a franchise

I spoke with Jacob Lee on the Tracer Franchising podcast about how he chose to leave the search route and invest in 10 brand new territories in an emerging franchise called Scenthound. Below are the top 5 take-aways for the search community who are considering opening a new franchise location. He also co-founded SBA Source which shops your loan around for good terms. Super cool platform to check out as well! Want to listen to the whole episode? YouTube- https://youtu.be/KMtGF8FTR0c Spotify- https://open.spotify.com/episode/2TF27LyDlmPZv8oXkX5uhM?si=l6oHyl-ERHOaa_4dl-Ituw 1) Franchising can beat “search” on speed-to-close and probability of getting a deal done. He paused a self-funded search partly because he saw credible people spend years searching and still not close, which implied a real risk of spending 1–2 unpaid years and ending up with nothing. Franchising lowers the “close risk” because if you are a capable person, financially qualified, and the territory is open then you will likely be able to buy that location. 2) Startup franchise can be a lower-risk learning curve than buying an existing business with 50 employees and big debt. This even applies when you purchase multiple territories up front because you open them one at a time. He explicitly liked starting with one unit, one manager hire, one smaller loan, and learning the operating cadence before scaling. For first-time owners who have never managed people, that “progressive exposure” is a legitimate advantage versus jumping straight into a larger acquisition. 3) “No revenue” isn’t automatically the scary part if the capital at risk is bounded and demand is obvious. His reasoning was basically: demand exists (people own dogs), the model works elsewhere with similar demographics, and the first unit is a test. If it fails, you can hit the brakes with a smaller loss than a large acquisition with a large loan. (I found his views here surprising since most people don't want to start a new location for a franchise because there is no revenue.) 4) Your first big filter should be unit economics: Item 19 vs Item 7, consistently compared His practical method: - If Item 19 is weak or missing, it’s hard to proceed unless you have a strong validator. - Compare Item 19 performance to Item 7 total investment to estimate return on invested capital. - He used a threshold of roughly 25%+ ROI to narrow the universe fast. - He preferred using the high end of Item 7 (because the low end is often unrealistic). - He emphasized consistency so you can compare brands “apples to apples.” - He also warned that franchisors present Item 19 in the best possible light, so you should interpret it skeptically. 5) Financial considerations: You won't get paid if all your profit goes to opening the next store + your financial model needs to account for the non-store level expenses. He made two points that people often miss: - He does not take cash distributions because he can cover bills elsewhere, letting him reinvest and grow faster. He has outside income that allows him to pay his bills as he grows his 20 unit empire- this is also probably why he was less concerned about a business that is making revenue day 1. - As you scale, you add overhead (area managers, dev manager, call center) that is not in the store-level FDD economics. He also argues that having more units can reduce enterprise risk (one weak store is less material when you have ten vs three), but only if you can keep executing. Love to hear thoughts on these points and other considerations for searchers who are considering the franchise route.