Photo by Raysonho via Wikimedia.org
When she started her entrepreneurial journey, Kristie Shifflette didn’t have an exit plan. She wanted to just work hard and see what came of it. As an area developer for North Carolina for OrangeTheory, she started out with her one location, funded by an SBA loan.
While the loan ended up being around $700,000, she was able to negotiate some good tenant improvements such that $200k came back to her for the upfits, leaving her with a net $500k loan and a personal guarantee on a five-year lease.
One of the benefits of a franchise is a proven system and Kristie leaned into that, following the franchise playbook to a T, which included conducting a 12-week presale to build up membership in a club that doesn’t yet exist. Because she did, she was profitable within 90 days, which then allowed her to open a second location with a private loan from a friend. After that, she and her team were off to the races because they were able to fund their growth from their own cash flows.
After her third location, she added a regional manager to start managing the store managers, who she incentivized with performance in sales and retention. By the time she was running ten stores, she was seeing an average of 40% net margin on a store average of $1.5M in annual sales. Fit numbers, indeed.
Around this time, the gentleman who had loaned her the money for the second location let her know that the probable valuation they were heading to put them in the lower middle market, and it was as good a time to go to market as any. She was also pregnant with her third child, and the truth was that all their eggs were in this one basket, and if nothing else, it was time to take some chips off the table.
In January 2018, when she went to market roughly four years after starting, locations 11, 12, and 13 were under construction.
The business attracted a good deal of attention, and she had between 15 and 20 buyer meetings, leading to two that she particularly liked. She had turned down the highest offer because it was overly aggressive (not to her benefit) and somewhat vague, which led Kristie to believe that this was probably a retrade play for them, whereas the two that she liked really understood the business and that they had a vision for what was next.
Kristie had been a savvy negotiator throughout this journey, and now she used those skills to bump the final offer from the party she preferred by $1M, which ended up coming in an earnout.
As part of the deal, she sold 70% of the company to the acquirers and rolled 30% into the new entity, which she immediately went to work for when the entity was sold, managing acquisitions.
Kristie and her family had secured their future and were focused on what was next. Here are three lessons we want you to take from her story:
- Finance your own growth. While Kristie did take out a couple loans to start, after her second location was running she financed all the growth herself, taking a minimal salary. This enabled the company to grow more quickly, without sacrificing equity or control.
- Follow the franchise playbook. Part of why you pay franchise royalties is, ideally, an ever-updated operations and marketing manual. Kristie followed that every time and kept getting profitable locations, including one that hit $2M in revenue per year.
- Negotiate. Not only did Kristie end up getting the $1M add-on from her preferred buyer, when it turned out that she had technically not hit it, because it was tied to a same-store sales metric, she pointed out the overall double-digit growth of the company due to her focus on acquisitions instead of same-store sales. While the buyers weren’t happy to pay it out, and weren’t contractually obligated to do so, they respected Kristie’s argument, and more importantly, wanted her to be happy. If you want to negotiate, have a coherent narrative.
Kristie gives a lot of credit to the advisors in her corner who helped her get to her dream outcome. We’d like to be one of those advisors for you when you decide to buy or sell. Contact us today.