206 - 87k MRR & 30% Net Margins? Her Doggy Daycares Print Cash with Shaina Denny

25:17And so the same thing, how do you take an existing market? And even if you can take all those existing users out your platform, is that big enough? And how can I 10X it? And that was point number one. Point number two was pricing, right? That's like any early stage business, that's what you're trying to figure out. Can I make money? Well, that's what I was going to say. I was like, well, I'm not surprised your subscription model, if you're VC backed, right? That's just like all the, it's tech, right? Software as a service is a subscription model. When I talk about our franchise model, it looks exactly like a software model.

25:51You pay for something, you get a service delivery. It's not the other way around. We were like, yes, people want to, because they, we launched and then the pandemic happened, right? So people are still dropping their dogs off. I was like, this actually was the most proven way to show that people want to drop their dog off for two to three hours at a time. So we're like, okay, that was point number one. Point number two was, can we put these models in more convenient locations? I talk about convenience all the time. And so there's not dog daycares on the ground floor of class A multifamily properties.

26:24So that's what we went for first. And can we get these landlords to subsidize most of our costs? That was number two. Yes. What do you mean? Super high TI dollars. So we put dog drop in the ground floor of apartment complexes and landlords give us a ton of tenant improvement allowance dollars, which highly subsidize our build out costs because they see dog drop as an amenity. The pet amenities are the number one requested amenity. And we have now that we can help them attract and retain residents if there's a dog drop on say. So we were like. So when you say, hey, let's talk about our real estate strategy.

27:02Is that the real estate strategy that you're talking about? Yeah. So that's part one of it. Oh, interesting. So effectively what you're saying is like, hey, we're going to cut down on the initial investment that any franchisee has to make because you're going to have to build out these locations anyways. Why not focus on where that's going to subsidize that? Exactly. Interesting. And then point number three is how much are people willing to pay? Aaron, so we tested that and we hit all those marks. Our assumptions were right. And we said, I said, let's say we're wrong on everything. Let's say we're completely wrong.

27:38People don't want to drop their dog off for a couple hours at a time. People want to pay half day and whole days. People want more inconvenient locations. They don't want to be able to walk downstairs from their apartment. Well, they want to drive 20 minutes off the side of the freeway. So let's say we're wrong. I was like, I can still turn this asset into a standard traditional dog daycare model and make money. because when I started Dog Draw, I called probably between 60 to 80 dog daycares, boarding facilities, training facilities, all throughout California. I'm talking from like Rivertide to Fresno and everything else.

28:12We're just trying to see if I could buy their business. Yeah. No one wanted to sell. That's when I said, okay. That's a good sign. Yep. That's a good sign. You're benefiting from one of my investment theses that I love is investing in tailwinds, right? So it's like any the industry that has a tailwind behind it and people are spending more and more on their pets every single year. So yeah, I love these types of industries that are taking advantage of pet ownership growth and disposable income being spent on their pets. So the first two points though, aren't really venture differentiating points.

28:46Yes, the pricing model is different and yes, there's a real estate strategy and component to it, but those aren't in my mind, they wouldn't be necessarily venture differentiators. What got venture really interested in this model? So I agree with that, but they're critical to the business model to scale it. Right. So those are in through software. We can do that. So I think for us, we worked at first with science, their venture fund outside of out of Los Angeles. They incubated dog shave club, dog vacay, which was acquired by Rover, which anyone follows anything. Rover sets them to pretty big outcomes.

29:21Liquid death that we used to share with us basically with the guys at liquid death. So they've been committed. Oh, that's awesome. In between. Right. And they're really strong at consumer brands. And so it said, here is out, like there is no household name in dog care. Are we inventing the category of dog care? No, there's, you know, there's why there's rubber. Okay. There's walking services. There's, we know about the big boarding facilities too, right? There's a lot of things, but we have a specific niche. Our thing is, do people want to just drop off and pick up their dog and access any location throughout the US?

29:55Super easy. Like we think there's a market for it. I think we can solve that problem. Let's see if we can hit the core fundamentals of the business and how do we build software to make sure that that experience is consistent, that it's scalable, and that we can improve the unit economics. So what is the software? Is it software for the end consumer, the customer who's dropping off, or is it for the franchisee? That's what we focus the least on so far, which we have a ton of opportunity there. Most of it's the backend admin and management, everything to run your dog drop business. And we were talking about this earlier.

30:30So franchising was a part of the investment thesis. When you, when you went, it was not, I don't, I start one step at a time. Like, let's prove out these three fundamentals of business. Nothing else matters then, right? Let's see a world that this can be big. I don't know how to get to that world, right? Who am I to say what? I don't like to go into something, but this is the only way I'm not sure. Let's start with one. Okay. Now we see it. And then when I saw it, you're operating it inside the big community of that. You know, every dog, everything. I was there all day with my co-founder too, running and operating the business.

31:06And then as you get to looking at number two, we're like, Hey, you know, what was so successful was us as owners. And then I looked at what is our core competency of a business that we're building? I'm like, Whoa, what we're really good at is actually all the backend operations. We're doing them so efficiently. What if we can offer that to people? What if we can offer the software, right? There's so many ways to do this. And then how do we present this as a vertically integrated solution to someone else, which is a fancy way of literally franchising, right? We'd be burdened or like, well, that's franchising, but call it what you want.

31:44And I laugh because I was at a conference one time soon after starting Dog Drop. and I think it was the Wolfgang Bakery founder. If anyone knows Wolfgang Bakery and Grooming, I think they have, I don't know if they had 300 or 500 or a thousand locations. Honestly, I'm not sure, but a lot of locations. And they still - They had a lot of locations. A lot. They're the big pink guys. They primarily do grooming. And that Wolfgang founder, and they had, I think, a pretty decent size PE I'd say about two years ago. The Wolfgang founder, I believe it was him. He said, are you going to franchise? I said, no, no one ever asked me that before.

32:21I never even thought about it. I never even knew about it. Oh, is it? Sure. Once he asked that question, a handful of other people, and I kept being like, no, I don't think so. Then I said, you know, I need to change my tune. Then I started saying, I don't know. And then I started reading and looking more into it and reading case studies and realizing internally what our business is so good at. And I'm like, Hey, I think we can do this like pretty differently. It's really interesting. I'm going to put words in your mouth here so you can tell me if I'm way off base here. But if I'm looking at it from the outside and I'm like, all right, I wouldn't raise venture money to do this concept to tackle a big market.

32:58And I know that there's an opportunity here and we've done really good on the operations. But in order to scale, you're going to have to go raise more money. I mean, you can have the TI process or excuse me, TI incentives, the tenant improvement incentives all you want, but there's still going to be some capital outlay in order for you to open as many locations as you need to and then build out the operator stack, the marketing stack, all that stuff. So that means you're going to have to raise another round. And you still may have to raise another round, but there's another option, which is you're effectively crowdsourcing the growth by getting people who are interested in franchising, bringing their own capital to the table and starting these businesses.

33:37So that's one thing that I'm looking at where it's like, oh, that makes sense. And then you're capitalizing on another tailwind. We talked about the pet market, but there's another tailwind that's happening right now, which is entrepreneurship is becoming more and more popular with the younger generations. And so you've got people who are entrepreneurially minded and they want to get into entrepreneurship. They don't know how. And it's like, should I buy a business? Well, I got to sign a personal guarantee of a couple million dollars. Maybe I'll look into some of these other businesses, starting one from scratch.

34:04Oh, franchising might be a good option. And it's like you're tapping into that as well. That's how I see it. Is that how it's sort of evolved or did I miss something? that's pretty close it's like a triangle there right i think one thing that i say is like we've we've raised six million over six million dollars it's not and i think i like i'll see people as like we're a venture-backed franchise we've raised all this money and then you ask them how much and they're like oh we need to raise 200 000 i'm like okay well that's gonna get you through your fdd and hopefully setting up the thing and then what then you're so reliant on franchise sales you're so reliant on that you have to sell to anything because that's the only way.

34:45For better or worse, we've raised over 6 million, closer to$6.5 million. A lot of that is for our technology platform, but it's also to give our team free being real. You look at us in the evolution of our business, but I'm not going out there selling 10, 15 unit deals. We're selling a few and having these people get them open and we've gone slow to go fast, right? And you've seen these emerging franchisors that have said they raised all this money. But when you ask, what's that? It's like, okay,$200 ,000. If you 300, 800 ,000, and you're like, as an operator, as someone that operates a franchisor, I'm like, oof, that doesn't get you far as well.

35:22And I think that's important for people to understand is who is on the support team of the franchisor? Can they make it through the other side? Also, are they planning to raise more money to sustain the growth? our answer is like, yes, Joel. Well, in anybody who's listening, that's like interested in franchising, these would be the questions I would be asking is like, okay, well, how well capitalized are you? How much support can you offer on the back end? Again, I did the back of the envelope numbers where I'm like, okay, 80, I'm just gonna round$85 ,000 a month top line, $50 ,000 a month gross margin.

35:54This seems like a money printing machine. Again, my words, not yours. Why don't you have more locations sold? That would be my first question, right? I'd be like, well, this doesn't make any sense, right? If it's that good, then why don't you have more locations? You have 15 under development. That seems like a really small number. So I'll ask it to you right here. You've raised this money. You have a good thesis. It looks like the thing works. Why only 15 locations under development right now? So a couple of things. One, we were not going out selling big, big vanity numbers, right? I'm not selling 15, 20 units open two to three.

36:26Then we can talk about more, right? So if you think about any people like, oh, I want to buy full territory. You ask someone else, they're like, oh yeah, 200 units under. And that might be 10 to 15 people who are doing 10, 15, 20 deals. Right. Oh, that's really interesting. Yeah. Yeah. So you're capping the number of units right now, the number of units that anybody who's getting into the franchise can take on. Okay. That's interesting. All right. Operator as well. We just closed a deal with someone that got very early into Orange Theory. They were in area rent. They had a couple dozen Orange Theories, massively successful through that system.

37:05And they're starting with a couple. Let's start with a couple and get them open. Do we think that they're going to waste their time to open two to three dog drops? Why would they do that? I don't know. I don't even want to waste my time to open one to three dog drops, right? You can make good money, sure, off of any location, off of any business that you put into it. But the people that are talking to us how to build a really big business. So anyone listening, like when you buy a single unit, there is a ceiling, right? There is a ceiling on a location, on a brick and mortar business. There is a ceiling on a home service business within a territory.

37:40Everyone wants to say it's bigger, but eventually you need more and more and more. How big is the territory? It's about 250 ,000 population, give or take, all that fun stuff, but short answer. And how much time, this is one question I was going to ask, how much time does a franchisee spend in the business? I love that question. It's not a passive investment. It's not a passive investment. Not passive. Not passive. Okay, cool. 20 times, not. My experience from a franchisee is that this is their full attention. Even the people who own and operate in all these Orange Theories, they're operating this with their family full time, right?

38:22They're not just starting out right away with the jam. Does everyone going to work towards that? Of course, yes. If you need six months to do that, or if you need 18 months, whatever it takes to get your location up and running to get it great even first, then to get it profitable, to have your payback period, that's how long it takes. It's interesting because I would selfishly as well, and I don't mean that in a negative way, but just selfishly as well, you don't want people who are like, oh, this could be a passive income stream that I'm going to make$50 ,000 a month on because you're trying to build a brand.

38:54You're close, but that's a... No, I know. I know. I know. I know. And that was gross margin, right? We're not talking about all the net costs of rent and tech and royalties and all that stuff. But what I'm saying is you don't want that mentality because you're trying to grow a brand right now. And the success of these franchisees is going to inform whether or not people in the future want to join you, right? So if you're bringing on people who are going to set themselves up for failure anyways, then it's a short-term win suffering the long-term success. At least that's how I would view it. Yeah.

39:25I mean, we actually recently sold our first ever corporate location, my pilot location. We just sold last Tuesday to a franchisee. So he's - Oh, that's awesome. It's super cool to see. He's opening his store in Anaheim, California, right across the street from Angel Stadium. If anyone's familiar, great area. Drop your dog off, go to a baseball game for two or four hours. I was at the Giant game yesterday and I was like, I was pretty long if anyone would sell that. I used to work at The Block. Do you know where The Block is in Orange? Oh, yeah, in Orange. Yeah. Yeah, really close to it. So I'm familiar with the block.

39:59There's the man top of the wall. What was the skate park? I'm sure there's... Look at me. Do I look like I'm a skater? I don't know. My brother, we'd always drop him off there. And now he's walking around the block waiting for him. That's amazing. But you just sold your first corporate location, which is awesome. That's fantastic. It'll give my franchisee time to learn the business before he opens his Anaheim location. So I'm super excited. people like why are you selling everything i'm like oh it was tough right especially on his first location everything when i'm like what cooler over career point is that you have an existing franchisee over system wanting to buy a corporate location and i'm like he's gonna learn this business so quick inside and out i was down in la all last week spending i saw all of our og founding members and i was in there all day that they still go to dog drop i'm like oh my gosh all these dogs are still here.

40:54It was so fun to see. And now when he opens Anaheim, he's going to be like hitting the ground running. So it's very cool to do that. Okay. So I want to ask you some final questions. The final questions are going to be, how much does it cost to get in to one of these franchise locations? And then what are the red flags and green flags I should look for personally? Like, like how would I know that this is a good opportunity or bad opportunity for me? But before I do that, where do you want to point people? Where's the best place for them to go finding. Yeah, you can find me on X, Shana Denny, or learn about Dog Drop.

41:26If you just type in Dog Drop franchise on Google, our escena is pretty good. So it should pop up and take it from there. Okay, cool. And then I'll do a shameless plug. Go give this a like and follow me. Okay. If you want more, more interviews like this with Shana, I mean, Shana is top notch. I don't know if anybody's going to be as good as Shana, but I try to get people on every single week that are at least close. Okay. So how much does it cost to get into one of these franchises? Sure. So for a Dodger franchise, per our FDD, it's between 360 to 650 in terms of initial investment. And anyone can look at any FDD and you kind of dive right to item seven and you can see that range.

42:04For brick and mortar, it's really going to vary market, meaning location. It's going to vary by the space and the renovation. A Dodger, one of our core things that we're super gung-ho is getting a ton of tenant improvement allowance dollars, meaning that we could substantially have the landlord pay back our franchisees for some of their construction costs. What we're seeing across the US is that it's very probable to get TI dollars between 50 to $150 a square foot in tenant improvement allowments. That's what the market is giving when you have an amenity. It's different. We can't guarantee that's just the real estate market, not talking specifically about dog drop, but those are things that you should look for when you're evaluating any retail business.

42:51Tell me, so 350 to 650, let's say that's the range. What's the buy-in? Like what's the franchise fee? And then what's allocated to other things? So you kind of brought up a couple of times, oh, it's like a software business, right? So anyone who's looked at franchising, my short answer is, oh, maybe the franchise fee is 55 or something K, right? You look at a franchise business, it's 50 or 60 K. What we've done is we've broken up our franchise fee based on milestones and service delivery. Our franchise fee is$12 ,000. That doesn't mean that's your all-upfront cost. It's still equal to that around that$55 ,000 worth.

43:29And then you pay us 10 days later for our onboarding fee. And then you pay us a couple weeks later for our site selection and real estate construction. And then each milestone as we go through before your store opening, you pay us for your training. You pay us for our tech development. fee. Then you pay us for the site of the everything from there. And that's really important because we're not living off of those, you know, oh, I sold two units. I did a hundred K today. I sold two units. I get$24 ,000. I need to work every day for my franchisees. I need to tell my corporate team, we're not getting our next invoice until we've done this work for our franchisees.

44:08And that's kind of this new way of thinking as a franchise or that's really important to see is like how are these spread as a franchisee? I might say, Oh, well, crap. That means you don't have enough dollars to actually build out a support team that would make me successful. But then you go to the other side of it where it's like, well, we've raised money. We have, we have some breathing room here that allows us to not be so focused on getting you the franchisee to pay for, you know, all of that support up front. Yeah. I'm not selling all these units to people that aren't going to be able to open them.

44:42So in your experience, are people getting loans for these or are these like they're paying their own cash or is it a mix of the two is this sba financeable most of our franchisees are are paying cash towards their their investment or that their own things we've had someone do a 401k dropped rollover people are familiar with that i'm not a huge fan of someone taking out a 350 000 sba loan we would not be the right system for you i don't think i think that's so much stress and pressure i'm also i think at the end of the day, I'm a business owner too. Right. And I have to do every day thinking about our own company, making sure everything works out.

45:21And I don't wish that, that these massive SBA loans with the interest rates to me, I'm like, we don't need that right now. I don't believe in someone going, there's so many other franchise systems and people can make money immediately to build up their net worth and their cash position before investing that much or taking out that large of loan. If you are, it's one thing that's for a single unit, right? If you're not taking out loans for growth, I think that's a different stage of the business when you look at alternative financing to grow your business. But that's my belief initially getting into the business.

45:56And someone still feels comfortable that that's their own prerogative, but I think there are a lot of other branches systems that would be happy with that. And it's a lot less pressure on everyone. It's not to say, trust me, these people are like, oh, I have this money to lose. Absolutely not. That is not the case at all. But it's a huge Ryan item is what these monthly loans make up for. When it comes to opening your third, fourth, fifth unit, let's look at alternative financing. When you're looking at franchisees or if a franchise is looking like, what are for them, what are some qualities that you look at and say, hey, this would be a really fit for you?

46:37That first thing is I look at what makes a successful jump and throw, because that's how I'm looking at if you'd be successful running this business. One, it's a membership-based business. Can you acquire and retain members? That's super important. Two is how we acquire members. And it's very local. So I want someone that wants to build these local relationships, wants to go to all the small businesses next door, wants to be best friends with the apartment and leasing managers, right? Because that's what makes Don't Drop successful. If that's something that you can do, let me guess what you can do or don't really want to do, but you will do it will be the last on your to do list every day, meaning it's not going to get done.

47:19It's true. And I want someone who's like stoked on it. Like, Oh, I went to the coffee shop, the orange theory and the rubble, and we're having all these events and I'm setting up the tables and having our manager do this. Like that's the person that we're looking for because that's someone who's going to make a dog drop successful. The third thing is it's we're a service based business and we create moments of delight that are back. I like trust and safety and your team can feel that immediately. Are you likable? Does your team want to work for you? and your team is dropper raters who work hourly, who love dogs, and you set the tone as a business owner.

48:01And so we need to find people that can set the tone in a positive way. And those are the three immediate green flags that we look for. I love that. I'll talk about one red flag super quick. Yeah. I started a dog drop and most of people, like I said, I was obsessed with dogs, but I do have a genuine passion for their care, their wellbeing. And I, I love dogs. Right. But I wasn't that person in class who was like that crazy dog girl. And I had a good convo a couple of weeks with someone. I'm like, Oh, this person's like one super financially qualified, like to make a very business savvy, like great background.

48:38Then we start talking more and he's like, Oh, actually like I've never had a dog and don't really like them that much, but it's such a great opportunity. And I was like, want to know who's going to know that and feel that and read that through everyone's every single person that's very true oh so you said no i told him i recommended two other franchise systems he was so good for you he is so into that he really wanted pet because the opportunity i don't need to tell anyone it's one of the the best market opportunities i told him you should get into pet waste management you don't have to love dogs it's much more like home services landscaping everything i'm affiliated in with Cooper Scooper.

49:16So I don't want to sound like I'm, you know, promoting them without not that. But that was one I was like, you, you know, it's you're talking to the pet parents. I'm not saying you shouldn't not like dogs, but you don't add a dog drop. You need to, when you walk in, there's dozens of dogs there and their parents love their dogs and that's our service. And so if you give the feeling that they're like to you, that's not going to fly. Good for you recommending another system. That's awesome. And other comp service brands. I always like, here's other things. What is your skill set? Here's three other brands that might be more suitable.

49:52Well, Shana, this was awesome. Thank you so much. I'm going to talk to you soon and have a great one. All right. Thanks, Nick. All right. Hopefully you liked that episode. And if you've made it this far, you're either really committed or you're stuck doing yard work and you can't actually skip on your phone. So while I have you, the show is growing, but I have a favor to ask of you. will you please help me grow the show i want to reach more people there's a couple things that you can do like and subscribe is the simplest thing obviously you want to get notifications for when the next episode is coming out but if you go the next step will you leave me a review five star on spotify or apple what that does is it tells the algorithm that oh hey this is a high value podcast because more people are leaving reviews for it and it then pushes it out to more people.

50:36So that's why when people are like, well, you log and subscribe and put the five-star rating, it's not just to make themselves feel better. It's actually to get more exposure for the show. So if you do that for me, I would greatly appreciate it. And I'll see you next time.