FranDev Players: Scott Thompson, CDO of Level 5 Capital Partners

Scott Thompson is no stranger to the franchising world — the franchise executive has been a multi-unit franchisee, master franchisee, franchise supplier, broker and has served on the executive team and board of multiple franchisors. Currently, Thompson’s role as Chief Development Officer at Level 5 Capital Partners challenges him to draw on all of his previous roles to ignite growth for the brands under the firm’s portfolio.

1851 Franchise spoke to Thompson to hear his opinion on all things franchise development.

1851: Tell us about your company.

Scott Thompson: Level 5 Capital Partners was founded in 2009 by Fortune 1000 technology executives to invest in high-end wellness and lifestyle offerings with a focus on yoga. The Level 5 team expanded one CorePower Yoga studio into the third largest national yoga studio chain with over 200 locations in less than a decade.

1851: How did you get into franchising?

Thompson: The thing I always loved about the concept of franchising was that if I saved up for a franchise fee, I could become my own boss and the franchisor would help me succeed. When I was 22 years old, I did just that — I opened my first franchise and became a multi-unit owner a few years later with Fitness Together, a one-on-one private training franchise based out of Denver. Eventually, I sold a few units in New York City and became an area developer of around 30 locations in New York. We eventually sold to private equity and bought the brand from the founder. I worked for them for another year, and at that point had been in the franchising industry for 10 years. 

Around that time, I launched another brand called Elements Massage. I also sat on the franchise advisory council and was a part of the franchise association. By that time, I had acquired a ton of franchise experience, and from there I joined a company called Desjoyaux Pools in franchise, which was my gateway to the wellness industry. After a few years there, we realized the brand was not ready to franchise and I ended up getting a job with Premium Service Brands. I became the vice president of development for four years, helping them grow and selling to some great markets both domestic and international. From there, I became the senior vice president of global development for Tutor Doctor, selling franchises all over the world. 

Two years ago, I was called by L5 Capital to work with them on growing Big Blue Swim School* and became the firm’s chief development officer. Currently, L5 Capital’s portfolio includes Big Blue Swim School, Orangetheory Fitness, Restore Hyper Wellness + Cryotherapy and CorePower Yoga. These are all brands we have bought, but we are also franchisees. We will always be operators first, but we are also private equity that focuses on growing early stage brands. 

1851: Are there any keys to consistent franchise growth?

Thompson: Franchisors need to lay their foundation and establish who their ideal franchisees are. Franchisors can’t just sell franchises and not worry about what happens next. For example, after signing, franchisors shouldn’t just let franchisees choose real estate without a strategy or process in place. I highly recommend establishing a very thought-out process so that the franchisor can control the outcome of each new unit. Also, before you start franchising the business, make sure your unit model really works. Is the model replicable and does it provide franchisees with a good ROI? The concept should work anywhere and there should be a consumer demand for it in a wide variety of locations.

1851: What are the biggest hurdles to successful franchise growth right now?

Thompson: Undercapitalization is a big problem. When brands are just starting out, they sometimes think they can just boot-strap certain things and underestimate the amount of money they really need to scale properly, whether that be with training, support or operations. Before royalties start coming in, franchisors can’t underestimate how much cash flow they will really need to grow successfully. 

1851: How did the COVID crisis affect franchise growth opportunities?

Thompson: In franchising, COVID-19 has really cast a light on the brands that did not have emergency strategies in place to support their franchisees. We had to rewrite our business plan across all of our portfolio companies, but we were able to weather the storm because we had that support infrastructure in place. Those brands that were undercapitalized to begin with will not have enough money to weather the storm and support their franchisees.

1851: What are your biggest goals/plans for 2021?

Thompson: L5 Capital is hoping to add two or three more high-scale brands to our portfolio. In the meantime, we are going to continue looking for companies that may be a good fit.