Multi-Unit Franchisee Magazine Issue I, 2015 | Page 52

FUND-AMENTAL CHANGE?
broader franchise community. And third
is because our goal is to provide some
outstanding returns for investors.
Is there a monetary goal for the
fund? The fund was initially marketed
as a $50 million fund. However, due to
demand, we have increased the size of the
fund to $100 million.
What types of brands are you
targeting? We are open to any sensible investment in franchising. However,
there are 5 verticals we have a particular
interest in: food, because it represents the
largest segment in franchising; wellness
and beauty; education; healthcare; and
senior care.
Do you think this will change the
fundamental structure of franchising? Fundamental is a strong word.
Franchising is a $2.1 trillion industry, and
I feel a $50 million or $100 million fund
within that doesn’t change it overnight.
But I certainly feel I’ve started something

A

“The fund was
initially marketed as
a $50 million fund.
However, due to
demand, we have
increased the size
of the fund to
$100 million.”
that is going to lead to fundamental change
down the road. There’s a huge imbalance
between the risk-adjusted economic returns
of the franchisor and the economic returns
of the franchisee as franchising in the U.S.
matures. This fund is a response to that
reality and others will, in due course, find
ways of replicating it. So it’s an evolution,
like what Uber did to taxis.
If you take any public franchisor com-

INVESTORS SHARE THEIR THOUGHTS:
ALI LAKHANY

li Lakhany is the CEO of CSM Group, which operates more than 70 Popeyes
Louisiana Kitchen and T-Mobile USA units in Texas, Tennessee, and Alabama.
• Why we invested. The reasons our group, which has been in franchising for
decades, feels it’s good to put a substantial amount of money into this fund are:
1) The person driving it knows franchising as well as
we do, is very knowledgeable, has a good background,
and is an overall A-class individual.
2) The business model of the fund, the way Aziz is
looking to acquire brands, is a no-brainer. The numbers
make sense, and I think it will make some great money.
3) To diversify our assets from just operating businesses and paying royalties—we want to be able to
collect royalties too.
• Franchisees who attend the Multi-Unit Franchising Conference should be on the lookout and be
very excited, because a lot of the brands they haven’t
Ali Lakhany
been able to franchise with, brands that haven’t had the
strength to go from a regional to a national player, will come soon to their markets.
• Franchisors. I think franchisors would actually be optimistic about this fund,
particularly the smaller and medium-sized brands that can partner with the fund
and accelerate their growth. I agree with Aziz that it opens up a great amount of
networking opportunities for the franchise community overall. If a franchise brand
is really a quality brand, they would want that to be known. Partnering with Aziz
would certainly accomplish that.

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pany and look at what h as happened to
their stock in the past 5 years, it is remarkable. While franchisees have done well in
this period as well, in general it cannot be
compared with returns garnered by the
franchisors. The natural question is, Why
were the franchisors able to outperform
the franchisees in such a profound way?
The reason is that franchisees work really hard: we build stores using our own
capital, we pay the royalties, and there’s
very little incremental expense to the
franchisor. That is the essence of the franchise business model: a license of intellectual property to others for a fee. And
it works very well, so well in fact that it
has led to a proliferation of franchising.
But when the underlying business model
for the franchisee is not based on a solid
unit-economics footing, it can create an
imbalance. In other words, a franchisor
can continue to make outstanding returns
while the franchisee does not. This fund’s
goal is to identify those brands that represent a great investment for a franchisee,
and use the power of the fund’s network
to help the good ones grow.
The fact that franchisees can band together, that they can unite, that they can
create a capital base, that they can go out
and buy great franchisors, and that they
can choose to develop those franchisors
in which they have an investment—that’s
a fundamental change, no matter how
you slice it.
What kind of feedback are you
getting, now that more people
know about the fund? I’ve received
only positive feedback from every quarter.
I have not received any negative feedback
from anyone—including my franchisors,
the people who should be most worried.
They know that I’ve scaled down, but they
have been as encouraging as anyone. It’s
been really heartwarming.
Are you getting calls from emerging franchisors looking to be purchased? I don’t think a day goes by where
I don’t get a new phone call. This has been
going on for several weeks. I can’t even
return the phone calls. We’re getting franchisors in the 50- to 100-unit range who
are saying, “Hey, this is what we need to

MULTI-UNIT FRANCHISEE IS S UE I, 2015

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