Lessons from a $325M Franchise Exit

When people are exploring business ownership, they spend a lot of time on the front end trying to figure out how much money they can expect to make on a yearly basis. That's understandable. You want to make sure that your income as an owner will meet your financial and lifestyle goals.

But what is often overlooked is the end of the journey.

I read a headline this week that stopped me in my tracks:

Celtics Minority Owner Reaches $325M Deal to Buy Connecticut Sun from Mohegan Tribe

The Sun are a WNBA franchise that were originally purchased by the Mohegan Tribe in 2007 for... get this... $10 million.

I'll let that sink in for a moment.

In just 18 years, the value of the Sun franchise increased by $315 million dollars. That's a 3,150% return on investment for the Mohegan Tribe. You can't get that in the stock market!

As I read the article, here's what hit me and what I want to share with you.

Franchise businesses, if built correctly, are more than just a source of cash flow. They're an asset. And assets have the ability to grow in value and potentially sell for significantly more than you purchased them for.

In other words, don't think of it as buying a franchise business. Instead, think of it as investing in a business asset that could have significant value down the road.

Now, that's an exciting thought that hopefully shifts your thinking about franchising as a business path for you.

But growth like the Sun experienced doesn't happen by default. It takes intentionality.

The first thing I'd encourage you to think about when choosing a franchise is that you want a business that has scalability. The business needs to be able to grow bigger than you. You need leverage.

Here's a simple example to illustrate what I mean.

Person A starts his own pressure washing business. He buys some equipment, he knocks on a bunch of doors, and he starts washing people's houses. His calendar is full and he's making good money, but he's a one-man show and he's exhausted every night when he puts his head on his pillow.

Person B invests in an exterior washing & lighting franchise. He lands contracts with a higher average ticket than Person A because he has the capacity to stack multiple services beyond just pressure washing. He also locks in 3-year contracts for holiday lighting, which gives him recurring revenue. And with multiple trucks and a team of technicians deploying around the city every day, he's able to take on many more customers than Person A without having to do the physical labor himself.

Whose business is likely to have more value 10 years from now? Obviously, it's Person B's. That's what I mean by leverage and scalability. 

The second insight I want to share comes from the last line of the article I referenced about the Sun purchase. It provides a key insight into what made the franchise valuable in the eyes of the new owner.

It reads: "Off the court, the Sun have been lauded for building a loyal fan base in a non-NBA market and for being the first WNBA franchise to operate profitably — a breakthrough that validated the Mohegan Tribe's early investment in women's professional sports."

The Sun aren't valuable because they're the best team in the league. In fact, this year they're in last place (though they have had winning teams in the past).

No, the reason the Sun were an appealing acquisition target is because they're profitable and have loyal, raving fans.

That's key.

Whatever else you do, take that truth to heart. Build your business with integrity and impeccable customer service because that's what wins hearts and minds — and it's what will convert customers into loyal fans who will choose you over the competition every time.

And when that happens?

Well, let's just say that you'll have a lot of good options whenever you're ready to step away from your business.