S3 EP1: Koala Insulation: Meet The Bootstrapped Founder Who Went From 0 to 350 Franchises in 2 Years
Scott Marr is behind Koala Insulation, a franchise brand on the rise. But it’s not his first business success story. Discover how Scott built his highly successful empire.
Mobile businesses are Scott’s area of expertise. Before founding Koala Insulation, he created First Clean USA, acquired by a private equity firm in 2018.
The Wolf and Scott discuss the process of selling 350+ Koala territories, why he gets 9-figure offers for his business almost every week, and what it takes to convert a small business into a successful franchise.
And If you work in franchises, your most precious resource is time. BELAY exists to help you regain control of your time and your focus. They will match you with highly-qualified US-based virtual assistant, accounting, social media, and website contractors. In fact, only about 3% of those who apply to support roles with BELAY are actually accepted. Text WOLF to 55123 to get started.
If you’ve enjoyed listening to Franchise Empires, I’d be so grateful if you could drop me a 5-star review on Rate My Podcast. Thank you so much!
Episode Transcription:
Scott Marr:
I like to really focus on my business and really focus on what’s best for the long term rather than the short term. And just by not having debt, it really allows me to think about the long term rather than debt covenants and, you know, what we have to do to please the bank, you know, next month or the next quarter and, or shareholders, right? So, Or, or, or partners. Yeah. So in a startup environment like this, fine if you want to have partners but they just have to be, you know, along the thinking, along the right mindset as you and you have to be really aligned so that you know, you don’t have differences and things like that.
The Wolf of Franchises:
Welcome to Franchise Empires, where aspiring entrepreneurs learn exactly what it takes to become a successful franchise owner from one location to 10 and beyond. I’m the Wolf of franchises. Hey everyone, it’s The Wolf. Today on the show we have Scott Mar of Koala Insulation kicking off our first season of interviewing franchisors. Scott’s been franchising his insulation business since 2020 and has already grown it to 350 territories. Scott’s the perfect person to kick off this season as he’s only been franchising for two years and has turned his local small business into a national brand worth millions of dollars. Hope you enjoy.
Narrator:
The Wolf of Franchises is the CEO of Wolf Pack Franchising, as well as a creator at Work Week Media. All opinions expressed by the Wolf and podcast guests are solely their own opinions and do not reflect the opinion of Wolf Pack Franchising or Work Week. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. The Wolf Work Week and Wolf Pack Franchising may maintain positions in the franchises discussed on this podcast.
The Wolf of Franchises:
Yeah, so Koala Insulation has been franchising since 2020 and I know the journey started a few years prior to that. You wanna just give a quick rundown of how this Home Services juggernaut came to be?
Scott Marr:
Yeah, absolutely. So I had a prior franchise system prior to Koala, and I ended up selling that business to private equity in 2018, and I knew that I wasn’t gonna be done at that point. So decided to start looking into options in the home services space, knew that I wanted to be in-home services, but just didn’t know exactly where I wanted to land. And I learned about insulation and looked at a few different service offerings and learned about insulation. And the more I learned about insulation, the more I got excited about it. And we decided to get rolling and opened a pilot location to test out the model and learn about installation.
The Wolf of Franchises:
Amazing. And what was that first franchise that you sold private equity, was that in the home services space or a different sector?
Scott Marr:
It was not. It was in, it was a mobile business, so it was the name of that company was Fleet Clean USA. So what we did was we went out to customers that had fleets of vehicles so companies like Coca-Cola, Penske, Waste Management, a lot of companies that you’ve probably heard or worked with at some point or another that was our primary customer base. And whenever I sold the business, we had over 3,500 customers that were similar, you know, similar in size like that. So, so it was a mobile business. I was still very relevant from an experience standpoint to Koala.
The Wolf of Franchises:
I’ll, I’ll get into this a little bit later in the episode, but did you use a franchise sales organization for that brand as well? Or, or did you keep everything in-house and kind of do the development yourself?
Scott Marr:
So we did development in-house okay at Fleet Clean. So we had a franchise developer and so we didn’t use an FSO.
The Wolf of Franchises:
All right. Yeah. And for folks wondering, we’ll get into that a little down the road, but an FSO is essentially kind of like a Bolton franchise sales department, so that, you know, when somebody likes Scott has a franchise that they’re looking to grow. Some brands choose rather than hire professionals who know how to, you know, sell and bring candidates through. What’s a multi-month sales process? There are actually entire companies that kind of just provide that service for brands.
And, you know, some operate on a retainer, some operate on performance-based agreements, but that’s what we’re referring to when we say FSO. And again, that’s a franchise sales organization. So yeah, but so you sell that business you know, why, why’d you end up going into insulation? Was there some specific opportunity that you saw there locally or nationally? You know, what was the thought process?
Scott Marr:
Yeah, good question. So whenever I was looking at what I wanted to do next, I had to look at the competition from a couple of perspectives, right? I had to look at the underlying service competition, so who are franchisees or rather, who are future franchisees were gonna be competing with? But then I also had to look at who we were gonna be competing with as the franchisor. And so we looked at several different service businesses, you know, like with painting, there’s so many different painting concepts out there. That space is congested, it’s a large space, so naturally, there’s gonna be more competition. But looked at a handful of different things. And insulation just really spoke to me. The more I learned about it. At first, I kind of wrote it off and said, well, insulation, that’s really only for new builds, and why would I want to have a business that only focuses on new construction?
That just seems rather cyclical. But that’s really not the case. In fact, the bulk of our business today is made up of retrofit work. So we’re going into existing homes and reins, insulating homes that were built, you know, 30, 40, 50 years ago. And so, you know, long story short, insulation’s really about efficiency and reducing energy waste, right? So the more I learned about insulation, the more I got excited about it because I’m like an efficiency guy. I like efficiency, in all sorts of things, processes, and procedures I mean, who doesn’t like to be efficient?
Right? you know, I, so, so even prior to Koala, you know, I had had, I had renovated two houses myself, and I had insulation installed in both of those. Yeah. So I already knew the benefit of insulation. And so just all the way around, you know, insulation just really spoke to me from an efficiency standpoint.
The Wolf of Franchises:
That’s fascinating. Okay. Yeah, I don’t know how many people would say that insulation spoke to them, but I mean, hey, you’re, you’re the CEO and founder of a massive insulation franchise, so I guess it makes sense. Maybe dumb it down for me, and maybe there’s someone who’s gonna be listening to this who won’t know either when we’re saying insulation, this is like the cotton candy-looking stuff that is behind the walls. And it keeps, you know, it’s supposed to keep the house warm in the winter. And I mean, you’re based in Florida, it’s hot there all the time, but you still need insulation.
Scott Marr:
Absolutely. Yeah. So <laugh>, okay, we all fight a different problem. Doesn’t matter where you’re based, right? If you’re in you can be in la you can be in Pennsylvania or Florida, it doesn’t matter. You’re trying to keep warm in the winter, you’re trying to keep the cold in, in the summer, or vice versa. You’re trying to keep the cold out in the winter and you’re trying to keep the warm out in the summer. So insulation is really good for any environment. And insulation, you know, works the same way. So one of the things that I like to talk a little bit about is insulation specifically. So if you think about it, you know, we’re based in the south but we have a number of franchise partners that are in, you know, what we call cold weather markets. And here’s one really simple way to look at it.
So let’s say that you’re in Minneapolis, right? So Minneapolis in the winter, and let’s say it’s 10 degrees outside and you wanna keep your house at 70, 68, 70, we’re gonna use easy numbers here, so I don’t have to do hard math, but nonetheless, you gotta move the temperature roughly 60 degrees, whereas in Florida, right, in the winter, let’s say that you’re, you know, we’re based in Melbourne, so central Florida, let’s say it’s 50 in the winter, and we keep our house at 70. Well, I only have to move the temperature by 20 degrees, right? So big, big delta there. And heating is more expensive than cooling is. Yeah. so if you’ve ever looked at like your, your heating appliance, like the sea ratings on your HVAC system, often you can see AC systems that are a sea rating of 16 or 17, or 18. Now with high-efficiency systems like mini-splits, we’re seeing sea ratings like up in the mid-twenties, sometimes even like the high twenties. So that just means that they’re extremely efficient.
Whereas with heating, oftentimes the, you know, quote-unquote sea rating for an electric heating system might be a sea rating of like nine or 10 or 11 or something like that. But it’s often really low. So not only is it more expensive to heat, it’s less efficient to heat in a lot of scenarios. So insulation is really important in all climates. And it’s not just about efficiency, it’s not just about money, it’s about comfort. Yeah. Insulation will make your house really comfortable.
The Wolf of Franchises:
This reminds me, so life, I used to work in the H V A C world, actually for a big distribution company that it’s actually a franchise. It’s kinda like a hybrid franchise and cooperative model, But regardless, we sold a bunch of different products. Insulation was one of them. So you know, do you, is there kind of a competing edge there where maybe some HVAC suppliers try to get into the installation game? Or is there a kind of service that you guys are providing that other home services companies just really can’t specialize in? Like you
Scott Marr:
Sure. Yeah, that’s a good question. There are some HVAC companies that sell and install installation. It’s not very many. There’s only a handful that are out there that do it. Insulation is really specific because especially like with spray foam. Spray foam is really technical and spray foam is becoming a bigger and bigger piece in the insulation puzzle.
The Wolf of Franchises:
What is that?
Scott Marr:
So spray foam insulation is just a type, so it’s like, it’s a newer type of insulation. So we refer to like the cotton candy stuff, like the pink stuff, right?
The Wolf of Franchises:
Yeah. Yeah.
Scott Marr:
So we refer to that as traditional insulation. So bath blow in celluloses, Fiberglas, et cetera. That’s traditional insulation. And it’s still widely used today. Whereas spray foam is a plural component chemical. Basically, it’s a part A and a part B, and basically, it’s heated and mixed together, and it’s run through what’s called a proportioner. And so basically you’re taking a liquid and then it’s, it’s mixing, reacting with one another. It’s a polyurethane-based product. So spray foam is, is one of those things where most HVAC companies aren’t wanting to get involved in that because it, it’s more technical and you do have to, to have people operating the equipment that knows what they’re doing.
When you start messing with chemicals and things, it can certainly be learned. So whenever you’re, you’re talking about installation to a homeowner, you know, sometimes they have really unique problems, whereas an HVAC company would be really good at solving their issues as it relates to their HVAC system. But they may not be specialists in insulation. So we’re not really going in and quote-unquote selling customers’ insulation. We’re really educating them and we’re solving their problems because often our customers will call us with very specific pain points and want us to solve something very specific for them.
The Wolf of Franchises:
Understood. Yeah, no, I, I, I could see that. And I just think too, even from like a, I remember this just hearing from, cuz all, all our customers, when I was, again, in the HVAC world, all my customers were residential commercial contractors. You know, there was almost a branding there for homeowners where they wanted to call the quote-unquote specialists. So like, you know, all the HVAC companies that had add-on services, as they dabbled in plumbing or water heaters and things that weren’t necessarily air conditioning, they always saw lower touch points there just because the homeowner’s like, No, I wanna go to the plumber for that. You’re my air conditioning person. So you guys are the insulation folks. So yeah, I can see even just for you why it makes more sense for there to be a sole company based around that.
But before we get to the franchising, which has taken off like a rocket ship, I do wanna understand more just like the business, you know, kind of the unit economics. So you said earlier that the primary revenue streams are for new construction. So when a new house is being built, there’s an insulation crew like you guys who can have that part of the build, right? And then also retrofitting. So what does that look like and how many, I don’t know, you know, in the HVAC world, we call them technicians, the people who would fix someone’s air conditioning. So how many crew members do you need outta the house for a retrofit versus new construction?
Scott Marr:
Yeah, so the bulk of our business today, I would say like 95% of our business is really made up of the retrofit. So we’re going into existing homes and we’re solving a problem for the homeowner directly. The construction, the new construction side is a piece that’s growing within our, you know, within our company. And we’re continuing to build upon that. Those are bigger jobs. They take longer. There are a lot of other nuances to them. So with us, with Koala still being, you know, relatively young and being a nascent concept, we have a lot of newer franchise partners that are still learning the trade and, and really getting their legs underneath them. So, you know, we advise that they don’t go push on new construction really hard, you know, in their first month or two months out of the, you know, outta the gate.
But as far as the installation side, so most of our franchise partners are running a two-person team. So you have a lead and then you have an installer helper. And that’s pretty much the case on a retrofit or new construction. If there’s a really big job sometimes they’ll add a, a, a third person to help with cleanup or prep work to just make the job go, go smoother. Especially if you have a job that’s right on the edge of being more than one day in that sort of instance you know, it’s better to keep that in one day if you can. So add a third person and just knock it out. So, so as far as the number of jobs and things like that on the retrofit side, and again, this all depends on the size of the job.
You can do two jobs a day, sometimes even three jobs a day, just depending on, you know, how tightly they’re scheduled, the size of the jobs, and so on and so forth. And then of course we have ancillary and additional services that we offer. So if they all take those additional services, then those are gonna take more time. But I would say a good, a good rule of thumb is, is two jobs per day is really where you want to be. Now on the spray foam side, it really depends on the size of the job because the setup and the prep time is the same realistically. I mean, whether you’re gonna spray 500 square feet or you’re gonna spray 2000 square feet, it’s the same time and set up basically to do so often on the spray foam side, it’s one job a day, even if it’s a relatively small job it, it’s often still only one job per day. So on the new construction side, often because you’re, you’re installing more installation just more surface area, right? Cuz you’re doing the roof line often you’re doing the walls, you’re doing interior walls, so on, if it’s a house with a crawlspace, you might be doing crawlspace encapsulation work. So those are often multi-day jobs and you may even have to come back at different points of the construction process to finish up some of those jobs.
The Wolf of Franchises:
And this is probably an annoying question to answer, but I like, cuz again, I just, I, I get, there’s a lot of variables. If we can get a sense though of, you know, like what’s whatever your standard job is in your head, like how much revenue are you driving, like per house, let’s call it. And let’s stick with retrofitting since that seems to be the majority of the business.
Scott Marr:
Yeah. On the retrofit side are average tickets running around 26, 20 $700.
The Wolf of Franchises:
Damn. Okay, cool. And is that including, do you normally see conversion on the upsells? And I’d also honestly be curious to know, like, what kind of are those additional revenue streams and add-on services that you guys provide? Yeah,
Scott Marr:
Sure. So yes, we do see adoption, you know, with the core service and then the additional services. So we do a handful of things. So naturally, we install new insulation, but we also have to remove old insulation that’s bad. Or, or just really old where someone wants to go in and really do a full refresh on their house. So we do insulation removal services. We also do air sealing. So basically air sealing is just controlling the movement of air between the condition versus the unconditioned space. So that’s an upcharge. And additional services, you know, additional service. We install baffles to contain the insulation and the right parts so that your attic can still breathe if it’s a traditional insulation install. We do attic catch covers, can light covers, and then we also do solar attic fans. So if someone wants to, you know, reduce the temperature in their attic, then we can go in and install a solar addict fan. And that’s often done on the day of install of the new installation. Damn.
The Wolf of Franchises:
Wow. All right. Yeah, never would’ve guessed <laugh> that you had all that in your wheelhouse. That’s impressive. Do you guys ever find anything weird when you’re doing the removal? I could just picture maybe there’s like animals or like deep dead stuff or just tons of dust.
Scott Marr:
Yeah, we’ve found a lot of stuff. So naturally the common things you’re gonna find are like leftover nails or screws, or if there’s a chimney in the house that’s made out of brick, they’ll be leftover bricks from the brick masonry folks. Okay. But yeah, there’s been some interesting things. We’ve found some beer cans, <laugh> where the house was being built. And then we’ve also found some old like some old jewelry and just different things like that. So there’s certainly been some been some things. Yeah,
The Wolf of Franchises:
No, Okay. That, that’s funny. Yeah, my uncle’s like pretty good handyman and he’s always just helping people on houses and, you know, he’s just found ridiculous stuff in some of the construction work, so had to ask. All right. So moving toward the franchising part of the journey. So, you know, I know you guys started franchising in 2020. Is there anything that you did differently? Cause I know you, you mentioned right that part of the reason you liked insulation was that there wasn’t too much competition from a franchisor standpoint. So since you had franchising in mind, it sounds like from the get-go, like did you do anything differently with, you know, the initial company to set yourself up for more success? And maybe it’s because you learned things, you know, from Fleet Clean, but yeah, I’m curious like if there was anything that you were like, Okay, well now that we’re gonna franchise, we need to start doing something just a little bit differently.
Scott Marr:
For sure. I mean, you know, one, one of the things that I I like to say is that, you know, you’re gonna be smarter tomorrow, you know, than you are today. So naturally we’ve learned a ton. I learned so much from my experience at Fleet Clean made a lot of mistakes and also had a lot of successes there as well. It was a very successful business, an exit for us. So naturally we carried over all the best of the findings to Koala from day one. And then we’ve learned a ton with Koala as well, just along this journey. Coming from an industrial B2B service is very different than a, you know, B2C service business, even though it’s very similar, you’re still using rigs, it’s still mobile, so on and so forth. While there’s a lot of commonalities, there are also a lot of differences.
So yeah, I mean, we, we learned a whole lot just with equipment and you know, using certain components and building rigs in-house versus, you know, using an outsource company to build the rigs so that we can better support our franchise partners. I know the other thing that we did out of the gate was we really thought about the end game of what we wanted Koala to be and where we wanted it to be, and a what timeline. And so we knew that we wanted to have an accelerated growth, you know, program for opening new locations because we wanted Koala to be the household name of installation, installation. And so we put a lot of infrastructure in place from day one. So we started working basically before we even, you know, were thinking about, I mean, we had the end game of we wanna offer franchises, you know, available.
You know, we had to really back into that and say, Okay, let’s start putting in, you know, infrastructure, so let’s put in franchisees support before we even have franchisees, basically. So we went really deep with that. And then also training. So knowledge transfer is, is a big part of what franchise partners buy when they’re buying a franchise. So for us, we wanted to have a really amazing training process, and so we built a training house in our facility. So we have a couple thousand square feet just dedicated to knowledge transfer in our headquarters facility. And so when franchise partners come down, they’re gonna learn how to install blown in insulation and bats and remove insulation and do air ceiling and, and all the other things, you know, insulation. So yeah, I mean, a big thing that I took away from, you know, from our experience and my prior system was training and knowledge transfer.
The Wolf of Franchises:
Yeah, I, I love that term. I’ve never actually heard it and it makes sense, right? Knowledge transfer, obviously like every franchise is giving training, but ultimately that’s what they’re trying to do is just, you know, the franchisor should be the expert in that business and how to build it and, you know, all the brand standards. So yeah, you’re just trying to, as you state in the beginning of right, as efficiently as possible, transfer all your knowledge to the franchisees so they can start, you know, kicking ass on day one. That’s awesome. Did you guys like raise any money and is there, do you have a co-founder or, or are you kind of, were you solo so to speak at the start?
Scott Marr:
Yeah, so we haven’t raised any money to do what we’ve done. So we’ve done everything with Personal Capital, basically, and, and the business has no leverage and it hasn’t had any leverage from day one. And no, I, I’m, I’m the sole owner of the business, and we intend on keeping it that way for a while. We we just feel like that the, the business is, is really solid because again, we don’t have any leverage. I’m not personally, I’m not a leverage guy. You know, there was a point in my career, right, where I had leverage, I had, you know, mortgages and, and car payments and things like that.
But I like to really focus on my business and really focus on what’s best for the long term rather than the short term. And just by not having debt, it really allows me to think about the long term rather than debt covenants and, and you know, what we have to do to please the bank, you know, next month or next quarter and or shareholders, right? So, or, or, or partners. Yeah. So in a startup environment like this, fine if you, you want to have partners but they just have to be, you know, along the thinking, along the right mindset as you, and you have to be really aligned so that you know, you don’t have differences and things like that. So that’s just a little, you know, about how I’ve, you know, gone about funding the business and, and things like that.
The Wolf of Franchises:
No, for sure. And yeah, I mean, I think everyone can probably appreciate that especially have a decent amount of like franchisees that listen to this podcast and you know, especially the brick and mortar ones, they are all too familiar with leverage. So I’m sure they would love to be in your position someday to not have any. So when you started franchising, like was there a moment or something you were waiting for and looking for, you know, before you said, Okay, now we’re ready. You know, was it like the unit economics of the business compared to how much it cost to start up that you were like, now this will be compelling enough or were, we’ve proven out the concept enough, you know, was there kind of a light bulb moment or did you just say, Let’s do it and figure it out as we go?
Scott Marr:
Yeah, so we we had a, a couple of joint ventures of the underlying concept, right? So we didn’t, I didn’t know insulation, I didn’t know construction related services. So we had to learn that. And we did that by opening a couple of, you know, our own koala insulation locations in different areas because we wanted to prove like in a tier one market, in a tier two market, in a tier three market, so basically just population and city centers. And we wanted to prove that we could be successful in all three of those markets, so that we felt really confident in being able to go out and award, you know, franchise territories around the country.
And so the light bulb moment really was just, you know, we opened the first one and within a couple of months we were like, Holy cow, we’re, you know, we’re already profitable, This is great. Let’s let’s see if we can replicate this. So we did it again a few months later in another market, and within a few months we were profitable. So we said, Okay, let’s do it again. And after three different locations, you know, with having success in each of those locations, you know, that that was the light bulb moment. We said, Okay, we’ve proven that we can do this. And at that point, we didn’t even have all the resources that we have now, right? There was a lot of things we didn’t know then that we know now are absolutely, you know, what I call mission critical to being successful in in-home service business.
Scott Marr:
And so, yeah, I mean, I think that you know, to any franchise partner that’s looking at a concept, I think it’s important that they look at and, and can understand that the franchise door has experience in running the business that they are gonna be in. Because while Sure we’re, you know, Koala is in the installation space, we, as the franchisor, we’re not in the installation business, right? We’re in the franchising business. And so it’s so important that the franchisor actually, actually knows the underlying service in a big way so that they can support their franchise partners.
The Wolf of Franchises:
Yeah, I completely agree. Like this piece of content that I’ve been kind of ideating on, and it’s kind of just that, that like, franchise orders aren’t in, you know, like Dominoes isn’t in the pizza business, Subways not in the sandwich business. They’re in, I I have this idea of calling, it’s like business as a service where you’re mm-hmm. <Affirmative>, you’re providing the tools for them to launch whatever the business is, but like, that’s what the franchisor is in. Like, they’re executing on that and obviously all the support and training. But yeah, I, I completely agree with that and, and a lot of what you’re saying, I mean, it’s, it’s really impressive and, you know, I used to work in franchise development and I would’ve loved to have come across a brand like yours where you as a franchisor have already done it once, profitable business within a few months, you know, great unit economics on top of that, you did work of building out support systems, kind of, you know, very early on.
And then you also tested this in tier one through three markets like that. Is it, it’s not surprising to me, cuz what I’m getting at everyone is that Scott didn’t start franchising this until 2020 and as of this recording September 13th, 2022, about 350 territories sold. So for people not familiar with it, that is not normal in franchising. That is insane growth. It’s incredibly impressive. Most brands, you know, don’t do that. And by most brands, I mean 99% of franchise brands are not having that incredible growth. So I guess we could take it year by year or just like, you know, I just wanna know, I mean, what has it been like to manage it? How do you scale up your support team as tons of new franchisees are coming in and, and the numbers still look great as the system has grown? So yeah, I mean <laugh>, whoever you wanna start there man?
Scott Marr:
Yeah. it’s the best thing I could say is hire early and often. Okay.
The Wolf of Franchises:
Just
Scott Marr:
No, you know, look at the, what I like to call the metadata, right? So look at the small data sets that are going to, you know, be meaningful to your business. So what I looked at was our pipeline of, of incoming perspective franchise partners. And I saw that, okay, how many people are coming into our pipeline on a daily basis, and then how many are coming in weekly and monthly? And then, okay, what does that extrapolate to mean in terms of new franchise partners signed? And so when I started to really understand that data, it took me a little while to understand, you know, what the closing percentage was gonna be and things like that. But once I understood that it allowed me to, you know, really set the business up for, you know, for success, it allowed me to bring on additional staff resources and support staff for our franchise system.
So it’s been a lot. There’s been, just like any business, you’re gonna have peaks and valleys. You’re gonna have days where you say, this is the best thing, I’m so glad I did this. And then you’re gonna have days where you say, What in the hell did I get myself into? This is really, really hard. We’ve had all of that into the extremes on both ends, but the biggest thing I could say is higher, early and often, one of the best things that I did to really set Koala up for success and I made it stand out in franchising, was that we had a really robust support team. And not just the team, but also the infrastructure. We had good training facilities, we had the ability to build rigs and scale so that we could support our franchise partners. We put in good technology, we’ve got proprietary technology systems in place to help manage the system overall.
So anybody that’s looking to start a franchise system and anybody that says I want to go out and do, you know, 200 territories or whatever that extrapolates to in locations, maybe 50 or 60 locations, the biggest thing is knowing going into it that you’re gonna have to continually invest until the business gets to a cash flow positive standpoint. And that takes a lot of time in franchise systems because sure, you go out and you award units, but a good franchisor is not making, I don’t wanna say a good franchisor, that’s probably the wrong word to use, but I would say most franchises are not using the franchise fee as a profit center. Most franchise orders are using the franchise fee as a way to continue to build on the infrastructure. The profit center really comes from the royalties. And often that doesn’t come for six or eight months after the, the new location is signed. You know, they may start generating sales substantially before that, but the royalties are not gonna be super meaningful, you know, in the first few months of the life of a franchise agreement.
The Wolf of Franchises:
Yeah, no, I mean there’s a couple important things I think you said there. I would agree with the first way you phrased it that the good franchisers aren’t doing that. Cuz I’m not gonna say, I mean, look, there’s over 4,000 franchises out there. I’m not gonna pay a fraud stroke on behalf of, you know, most of them. But I do see variation in kind of what a lot of franchises are doing. But you’re right, and I think it’s important for franchisees to know that like, that franchise fee for the good ones is not really a profit center. It could be going into, you know, you guys can be putting it back into launch marketing for that franchisees territory. It could be just being reinvested into the training and support, it’s gonna support the brand as a whole, including that franchisees. So, and also the, the second facet of that is for anyone listening to this that might be thinking of trying to franchise their business is that it does take time.
And, you know, I used to see that all the time where people are looking to franchise their business and, you know, I’d ask questions like, you know, what’s your marketing playbook? What’s the ops playbook? And you know, they kind of given answers like, ah, well we haven’t really figured it out. And it’s like, you definitely should not be franchising yet then. And, and I think there’s this belief amongst some that it can be like kind of a growth hack, a get rich quick scheme of sorts. But I mean, yeah, like that royalty, right? I mean, typically brands are charging 6% of a franchisees revenue, so mm-hmm. <Affirmative>, if you do the math, you need a lot of franchisees to make that 6% a big number. So yeah, I, I I love the way you laid that out. So you, you partnered with Franchise Fast Lane, you know, what was the decision there? And for anyone who’s a franchise or founder out here, you know that this can be just good resource for you. So yeah, what was the thought of of partnering with Fast Lane and versus just doing it in house again and kind of maybe keeping more of the upside depending on the partnership that was laid out with Fast Lane? Yeah,
Scott Marr:
So I, I watched what Fast Lane was doing for about a year, maybe a year and a half before I actually ended up working with them. So Fastline, I believe came to market in late seven, late 2017. And I started watching what they were doing in May, No was earlier than that, probably like February, March of 2018, I started watching what they were doing. So I just kind of, you know, kept the pulse on what was going on and, and, and what they were building. And I can’t recall how I heard of them or how I learned about them to begin with, but in either case, just started watching what they were doing. And then I just, I kept tabs on ’em. And at that point I wasn’t sure that I was even going to have another franchise system. So just over the next several months saw that they were doing some really good things in the, in the franchise development space.
And then ultimately I ended up losing a franchise prospect for my prior business. They were looking at us and a Fast Lane represented brand, and they ended up going with the Fast Lane brand. That was in 2019, I believe. And that’s when I ultimately decided like, All right, I need to really see what, you know, what these folks are about. And so that’s when I reached out to Ryan. We had a, a few conversations. Ryan and Carrie had a few conversations with them and I just realized like they were the right partner for us. So we ended up partnering with them and it was in 2019 and I didn’t reach out to them though until we had our infrastructure in place, until I knew that we could support it because, you know, at the end of the day I was selling myself to them too, right? Like they had to know that if they brought the clout that they have and and franchising, if they brought that to a brand that can’t support it, that’s obviously not gonna work for them. So, so it is been a great partnership. Wouldn’t change it for the world, would absolutely partner with Franchise Fastline again 10 times over. And they, they remain a committed partner to our success today. So highly recommend the team there. And Carrie’s great. Bobby’s great. Our director Derek Bishop, he’s great. So they have a really good team.
The Wolf of Franchises:
Yeah, I mean, their track record’s impressive. A lot of their brands are getting to over a hundred territories or locations in under two years, which again, not the norm. And, and you know, I’ve spoken to Ryan a handful of times too, and they have a great reputation. They get a lot of inbound and I think that this is the most telling sign to me cuz I, you know, I’ve worked at a franchise development company where maybe we were a little desperate for brands, honestly <laugh> whereas far more than they accept for franchises cuz a lot of them they say, Hey, you’re not ready. Which is a great sign that they even have that ability to do that. You know, I am curious though, I mean 350 territories, I’m not sure how many franchisees that translates to, but like, was there ever a point where you’re like, Hey, you guys gotta slow down.
We don’t have the support team to like make, cuz you know, you want, and for people who haven’t really dove into franchise development, right? A big piece of the success of our franchisees that the franchisees perform well, cuz if you lose track of some and they’re not profitable, you know, during a due diligence process for a new candidate, they get to talk to the franchisees. And for franchisees not making money, you know, that kind of, that negativity and that poor performance can scare off new franchisees. So it’s critical, right, for every franchise to make sure that the large, I mean, every single one ideally, but you know, the large majority of their franchise owners are performing well. Cause that in and of itself will sell future franchises for them. So yeah. I’m curious, you know, were you ever just like, Hey, we gotta slow down, I gotta focus on who we have in the system right now.
Scott Marr:
You know, there was a point where like in probably late 2020 there was a lot of pent up demand for a lot of things, but yeah, there was a point in late 2020, early 2021 where we were almost at the point where we said, Hey, we need to really pump the brakes here. Ultimately, and thankfully we never got to that point. You know, supply chain was probably our biggest issue. Okay. And so that was unprecedented. Just through the pandemic, we ultimately worked through that. We as, as a good franchisor, we went to great length to source products and consumables and rig components for our franchise partners. And that, that might be for another podcast to get into <laugh>, but ultimately we stayed steady and we just we kept on developing even through those tough times where you know, it, it was good, right? But nonetheless, still a problem. We just remained committed to the mission and again, higher, early and often that’s what we did. We, we kind of emerged from the pandemic at about one and a half, 1.7 times the number of employees that we went into the pandemic with. So, you know, we just, we kept on
The Wolf of Franchises:
Yeah. That, I mean it’s, I couldn’t imagine what it, what it felt like at times. Cause I, you know, in my experience, I, I’ve sold, we sold the hundred locations for a brand and like we were just on the development side. And even that felt insane, you know, to have that rocket ship growth. So yeah. What, what you’ve done and gone through, it’s it’s wild man. So I have a few more questions here. Really just two. And this first one I’m gonna ask, I’m curious because what I love about franchising is that it’s this, this business model and mechanism where you were before franchising Koala, you were just not just, it’s still impressive, but, you know, you were a local small business owner, but most people would hear that and think that’s cool. Like, you can, you can do well you can have a nice life.
But there’s a ceiling that I think people place on that. However, franchising removes that ceiling completely and moves it into outer space, right? Where not now, if you’re the owner of this franchise, I mean, there’s nine figure billion dollar plus franchises. So I’m curious, I mean, ideally like you have 350 franchises sold, is there a value, like have you gotten acquisition offer or buyout offers? Do you know roughly like what the value of your business is today? And the point of that isn’t to brag, it’s more like to show what’s possible that you a bootstrap founder now have, you know, I’m gonna guess is an incredibly valuable company <laugh>.
Scott Marr:
Sure, yeah. So I mean certainly we, we’ve had acquisition offers you know, we, we get contacted by private equity firms and buyout firms and different things Yeah. On the regular, I mean, often like weekly we’re getting contacted by different groups. And so yeah, I mean, as far as valuation goes, certainly, I mean, I know where the, where the valuation of the business is today. I, I’m not gonna give a number,
The Wolf of Franchises:
<Laugh>. All right?
Scott Marr:
It’s it’s, it’s been a really, really good ride and we’re not done yet. So we’ve got 300, a little over 350 territories we just had assigning this morning for three more territories. Wow. And I really feel like Koala can go to five, 600 territories over the next few years. Now, our development numbers are gonna slow down because naturally the tier one markets are getting sold out. But for example, we’ve not developed a single territory in California yet. That’s 80 territories easy for us. So we’re gonna continue to grow for the next several years, both in terms of unit count. Yeah. But also in terms of average unit volume, that’s really the most important metric here at this stage in a franchisor’s journey. Average unit volume is so critical. So that’s what we’re really focused on and have been for the last, you know, year is average unit volume.
How do we get ticket prices up? How do we get price per square foot up? Yeah. how do we, you know, make franchisees more profitable? Profit solves problems and franchise systems. And so that’s what we’re really, you know, extremely focused on these days. And, and then we actually have our second concept that launches in January. It’s gonna be a sister brand or brother brand to Koala. It’s gonna be in the home service space, and it’s gonna allow our franchise partners of Koala to be able to, if they want to expand, they’ll have the ability to expand with another brand that’s complimentary to what we already do.
The Wolf of Franchises:
Oh, that’s genius. I love that. So, so you’re gonna give basically all your existing Koala owners kind of first at this new brand before opening it up maybe to others?
Scott Marr:
Yeah, so it’ll be, I wouldn’t say all, it’ll be by invitation only. Okay. Because you know, naturally now we’ve had the ability to to date for a little while, we get to know who we, you know, the ones that <laugh> that we might be interested in, in in expanding with. Oh yeah. So we’re gonna offer it to those folks that are just absolute rock stars within the Koala system.
The Wolf of Franchises:
That’s genius. That, that’s really cool. Well I’m looking forward to watching what that brand is. And yeah, I mean, my last question was gonna be kind of what your, your goal is long term, but you kind of gave it there with your growth ambitions and then that new brand. So look, yeah, Scott, this was awesome. I, I learned a ton. I think a lot of people are gonna be really impressed with what you’ve built and hopefully, right? I, I want them to open their eyes to what’s possible, right? Where that you’ve a already turned a, an insulation brand in Florida into a national brand with 350 territories. So love what you’re doing, man. And yeah. Is there any place where people can follow you, whether it’s LinkedIn or, or, you know, can just kind of keep an eye on your journey?
Scott Marr:
Yeah, I would say LinkedIn is is probably best. And then certainly you can follow along at our websites. We post updated media and content, things like that, so.
The Wolf of Franchises:
Awesome. All right. Yeah, and we, we’ll have Scott’s LinkedIn account in the show notes, so if you want to give him a follow or, or connect with them you can do so there. But Awesome. All right, man, great chatting and we’ll talk soon.
Scott Marr:
Thank you much.
The Wolf of Franchises:
Thanks
The Wolf of Franchises:
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