European Wax Center…for Dogs

What's up, everyone? Welcome back to another episode of Founders Journal. I am Alex Lieberman, and I am recording this episode at 10:05 PM on a Tuesday night. Not my typical time that I record the show, but for you golf fans, I don't know how many people in the audience are into golf. I actually spent the day at a golf outing. I drove 2 hours to this place just outside of Philly. It's a top 5 course in the US. It's called Merion Golf Club. It was awesome. Drove 2 hours back, so it was a good enough course that I decide to spend 4 hours of my day in the car. For those of you that aren't into golf, don't even worry about it. For those of you that are into golf, the place is definitely worth the hype, and I can understand why they've had 5 US Opens there. The last thing I'll say about this before we hop into the episode is that golf is this amazing hobby that I've found in my life, and I love it because it's something where the stadium can change every time. So there's a lot of variety. It's a great excuse to meet new and interesting people. And it's a sport where it can be a team sport, but it's also an individual sport. So you can consistently try to level yourself up and like kind of your barometer for success is just how you've done in the past relative to how you do now. So all of this to say, I recommend, and I hope for everyone that I meet, that they find kind of their golf equivalent, which is the thing that allows them to build a skill, the thing that allows them to meet interesting people, and it provides variety into their life. Now let's talk about the episode. When we brought this show back, there were a few promises I made. One was that I would create content that helps builders better build their companies, which I'm going to continue to be focused on. The second was that we were going to try a lot of new formats. We're going to see what you like, see what you don't like, and based on what you do like, we'll just triple down on those things. Today we are doing a new format. It is called Free Business Idea. I would say on the typical day, just a run-of-the-mill day of the week, I have 3 or 4 new business ideas. I'm not gonna build all these businesses. Some are great ideas, some are horrible ideas. But I think regardless, talking through business ideas with you all is what I think of as like business CrossFit. It allows you to think more deeply about business opportunities, spotting trends, analyzing whether businesses are viable or interesting or whether they are not. And so I'm willing to embarrass myself. Kind of at the expense of education for you all. I'm willing to share maybe sometimes business ideas that aren't so great and other times business ideas that are great. And I would love nothing more than to see someone from my audience take one of the ideas that I created an episode around, run with it, and it ends up becoming a business that they found. So we're going to hop into this. But what I would love from you is shoot me an email at alex@morningbrew.com, introduce yourself, And also let me know what you think about this format, whether you would like for me to do more free business idea episodes in the future, or if you think that I should squash it and test the next format. So without further ado, let's do this thing. Time for some Founder's Journal. So let me set the scene. I was in Hoboken with my wife a few weeks ago. I think we were getting Starbucks and across And across the street, I saw a place called European Wax Center. And, you know, I kind of have this mindset always whenever I'm like walking through Hoboken or any new town is I'm just like always assessing the area around me because I kind of always have this thought that every storefront I see, like everything I see around me has an interesting story behind it, an interesting business behind it. And so I'm constantly just asking, what is the business behind the thing that I'm looking at? It could be anything from like signs on the side of the road and be like, wow, there's some person who's probably a millionaire who is responsible for manufacturing that sign or who owns that sign business. Or like we go to a dry cleaner in Hoboken and I'm like, the owner of the dry cleaner probably has a really interesting story about how they launched their business, what it's been like for them to be an entrepreneur, the opportunities it's provided for them anyway. I'm not familiar with European Wax Center because I've never been waxed at European Wax Center. But I asked my wife, like, what do you know about this place? And she basically went on to share that European Wax Center is this brand that does waxing predominantly for, let's call it, like millennial women in large cities. It's something that people go to European Wax Center multiple times a year. And I think that was what first piqued my interest because I was like, Okay, interesting. Like, I'm always interested in kind of a service that people use for themselves or their kids or their pets that are recurring in nature. And so I dove more into it. I'm going to share what I learned about this business because I want to set the scene for kind of what's really interesting to me about this business, where I think there are other business opportunities that people in this audience could end up brainstorming based on kind of a certain pattern or profile of European Wax Center. The first is it was founded in 2004. So it was founded almost 20 years ago in Aventura, Florida, which is, I think, right around Miami. It says the business offers hair removal salons offering waxing services as well as skincare products, body products, brow products. The salons typically are 1,200 to 1,400 square feet, which I just find interesting because for a retail space, that doesn't feel very large. Like 1,200 to 1,400 square feet is like a 2 to 3 bedroom apartment. Yeah. And that's what the average European Wax Center is. And now I'm getting to some interesting things. It says, at least on Wikipedia, and I'll share kind of what the up-to-date stats are. The business is run through franchising. Interesting. The chain has 878 locations. It looks like it was co-founded by 2 brothers, Joshua and David Koba. They hired, it looks like, a professional CEO in the business in 2018 because I believe they sold their business Or a big chunk of it to General Atlantic, the private equity firm. Then I ended up finding out that European Wax Center IPO'd a few years ago. And so that got me even more interested because then I know there's just like investor presentations and financials that they have to provide. So I ended up going to their company website and there were a bunch of interesting things I learned across all 978 locations. European Wax Center did $910 million in revenue. So that's across all of their stores, $910 million in revenue. The average store that's been around for at least 5 years does $1.1 million in revenue per year. Now, again, this is a 99% franchise business. So all of these stores are independently owned by franchisees. There are actually many franchisees who own multiple stores. So in terms of European Wax Center corporate, the actual revenue to European Wax Center based on products that are sold in stores, the marketing fees that they charge, I believe, their franchisees and the royalty fees that franchisees have to pay. That number to European Wax Center corporate is $207 million. And on that $207 million, $72 million of it is profit or EBITDA, which is obviously an amazing margin for a business that isn't having to take on a lot of like the capital risk because all of these locations are individually owned. Other than this being 99% franchised, the out-of-home waxing industry, very specific industry, but I think it has an $18 billion TAM, is growing at 8% per year, which is, I would say, notably fast. European Wax Center is 11 times bigger than their next closest competitor in terms of sales. And the rest of the market, there's only like 2 competitors. The rest of the market is tens of thousands of just mom-and-pop shops. So it's completely fragmented. European Wax Center ultimately wants to get to 3,000 locations in the US. And the core of their business— and this is why I found it so interesting— is their business operates off of something called Wax Pass, which basically is their subscription service. Customers of European Wax Center can buy basically their passes to get wax and hair removal treatment the vast majority of purchases for European Wax Center, I believe it's 60%, are prepaid purchases because their customers are coming in frequently enough, you know, let's call it every 4 to 8 weeks, such that they are buying many appointments well in advance. And so I think that's a really interesting business and just pattern to think about how can you bring this to other businesses before we talk about that pattern and we start brainstorming the business idea. Just a quick word from our sponsor. Before the break, we were talking about European Wax Center, how I'm really fascinated by this business. Now I want to talk about specifically what about European Wax Center we can learn to then apply to other businesses as we brainstorm other opportunities like this. Basically, there's a few things that stand out to me about European Wax Center. First, it is a highly fragmented industry. Mostly mom-and-pop owned, with only European Wax Center and 2 other competitors in the entire kind of like out-of-home wax business. The second is that there's a recurring revenue opportunity. So a service that you, your pet, or your child needs several times a year. So we know waxing is something that people will get many times a year and for some people many times a month. The thought now is, as we abstract this out, what is a business idea? That relates to a multi-time-per-year need that you, your child, or your pet will need. So that's another way to frame thinking about this business idea. The third is relatively low CapEx. That's something that I love about European Wax Center because when you think about it, I shared before it's 1,200 to 1,400 square feet. So the size of a 2-bedroom apartment in terms of their retail footprint, which is very small. My guess is their lease is not very expensive. But also if you think about what do you need for a waxing facility? Right? It's not like a dry cleaner or a laundromat where you're buying really expensive bulky machinery that you have to depreciate over a long period of time, and you have to get enough customers to basically pay off the fixed cost of all this equipment. Like in these places, your only equipment is like you have a massage table for someone to lay on or sit on. So those are the first three: highly fragmented industry, recurring revenue opportunity because it's based on a recurring need. That you have. The third is relatively low CapEx, so it's not a costly business to start in terms of machinery or equipment. The fourth, and this is a huge one, is relatively low skill. At the end of the day, it is not a high-skill role to learn how to wax someone. Sure, I'm sure there's training and I'm sure there are people who are better at it or worse at it. But this is not something like a lawyer who has to go to several years of law school. That is the floor for doing work for a client. And so then that's the 4th criteria to brainstorm a brand that is basically taking over a fragmented retail business, which is relatively low skill. The way that I think about this is like when you think about scaling like a law firm or a medical doctor's practice or a financial advisory firm, oftentimes the bottleneck is your supply. Like supply for talent is your biggest constraint to scale. So a way to think about this is what is a service you can provide that the supply or your talent is low skill enough that that won't be your constraint? So I think that's a beautiful thing about European Wax Center is your talent is not going to be your constraint because you could basically teach anyone how to wax effectively. And then the 5th, and I think this is the most unique aspect for brainstorming a business idea, is focusing on an existing service and pulling out the most standardized version of that service that still has high demand. So I'll give you a few examples. European Wax Center pulled out waxing from like the spa, which is a specific standardized service but still high demand. Another example would be Drybar. Drybar is a brand that has, I believe, hundreds of locations. Specifically for blowouts. Blowouts were a part of the overall hairstylist experience when you go to a beauty salon or a barbershop. But blowouts, the nice thing about it is it's standardized, right? So you've pulled out something that has high demand, but you've pulled out just the part that is low skill because you don't have to be a high-skilled employee in order to do a blowout. Another example would be Gloss Lab. Gloss Lab is doing this for manicures and pedicures where, yes, there are higher skill things that a nail salon could typically do, but Gloss Lab is taking the most standardized version of manicures and pedicures and it is creating a brand around that. Now, where I leave it to you, the free business idea is how do you take those 5 criteria and basically think of an amazing consumer brand that you can launch by aggregating a historically fragmented retail business. And so I'm going to leave you with 4 ideas. I'd love to hear your thoughts on them. I'll tell you which one's my favorite as well. So I have 4 ideas for businesses that I think are worth at least looking into because I think they could follow this pattern. And I don't know anyone as big as European Wax Center in these given segments. The first is a manicure pedicure brand. I did just share that Gloss Lab is doing this. Gloss Lab only has, I believe, 30 locations. So I just still think there's a huge opportunity here because historically manicures and pedicures are low-skill talent work. So you could train many people to do the job of manicure and pedicure. Women Typically are getting manicures and pedicures anywhere between every few weeks to every few months, depending on the type of work you're having done. You know, you need a little bit more CapEx than a European wax center, like, you know, the seats that people sit in for their pedicures, the drying machines, etc. But it's still not even close to something like, I don't know, a dry cleaner or an auto repair shop. So I think a manicure and pedicure brand could be really interesting doing basically what European Wax Center did for manicures or pedicures. The second— now this is more of like a new behavior. You would be creating a new market, but a stretching studio. The idea is like, how do you take out the low-skill, high-demand, standardized services from an existing service? So in this case, it would be from like the fitness center or the gym. What are activities that people do in a gym that there's going to still be high demand for, but you don't need fitness instructors or gym trainers? To be hired to do it, I think a stretching studio could be interesting. I think along those lines you could do something like a mindfulness or like a wellness studio that has cold plunges, ice baths. But that to me starts to get a little less interesting because the cost of spinning up one of those locations is significantly higher. So stretching studio is interesting to me. The third is children's daycare. At the end of the day, I'm not a parent yet, but I just think about it as parents are willing to spend anything on their children. Daycare is a recurring service. At some point it stops for your child. But if you have multiple children, if you liked the experience you had with one daycare, you're likely going to go back to that daycare. I don't know any centralized daycare brands. I think of all these different daycare places as generally mom-and-pop owned. So I actually think daycare is really interesting because again, I view it as low-skilled labor. I view it as relatively low CapEx, not a ton of machinery and equipment, recurring revenue, and highly fragmented industry. So actually, now more that I think about it, I think a brand in children's daycare could be a really interesting opportunity. Maybe something's already out there. I haven't heard of it though. And then the final one I'll share is dog baths and blowouts. I think if you were to go with the route of dog grooming, I think a dog grooming brand is a great opportunity, but where you end up getting stuck is it requires very high-skilled talent. Dog owners are very particular about their dog's cuts. They expect someone to be really good and give their dog a very specific cut based on the specs that they ask for. But also because of that, you learn to love the groomer who cuts your dog really well. So I think building a brand where basically you can swap out any employee to do the exact same job becomes very difficult. So I would actually say abstract the standardized service out of the traditional dog groomer. And the standardized service is baths and blowouts because there are a lot of times where you don't need your dog's hair cut yet, but you would love for your dog to be clean. You would love for them to get a bath. To be dried just so they feel cleaner. You enjoy spending like hugging them and having them on all of your furniture, your bed, your couch, etc. more. So I could see a recurring service for baths and blowouts that requires low-skill talent. You know, the, the only I would say part of that that I don't like even as much as the children's daycare is there is going to be some CapEx, like you need to buy several bays to be able to bathe the dogs. You need to buy industrial blow dryers. That is a fair bit of CapEx that you don't see with something like European Wax Center. But those are the 4 ideas: manicure and pedicure brand, stretching studio, children's daycare, dog baths and blowouts. I think children's daycare is the one I would go even deeper on because as I talk through this with you all, I think it's most interesting. And so that's the idea, basically taking the European Wax Center model. We pulled out the 5 criteria that make European Wax Center so interesting. I offered you 4 ideas of possible jumping off points to copy the playbook, but in another fragmented industry that I haven't seen a really huge brand yet. And so with that, this is the end of this new format, Free Business Idea. Let me know what you think about it. Do you want me to do more things where I basically share business ideas I come up with and kind of how I think through these ideas and where I think they are good versus where There could be challenges. Shoot me an email to alex@morningbrew.com. Let me know what you think about this format if you want me to do more of it, and also just introduce yourself. I would love to meet more of my listeners. We have a ton of momentum with this show right now, and I want to try to build a community around this as much as possible. As always, thank you so much for listening to Founders Journal, and I will catch you next episode.