Danny Kenny, Principal at Level 5 Capital Partners
Danny Kenny joined L5 in 2018 and is a principal on the Investment Team. In this role, Danny is involved in deal sourcing and diligence, portfolio company operations, overseeing portfolio company integration with AS, investor relations and day-to-day management of the Investment Team. Danny additionally served as Director of Corporate Development for Big Blue Swim School from 2018to 2020 where he was responsible for launching the franchising business.
From 2015 to 2017, Danny managed public and private investments at Bayshore Global Management, a multi-billion-dollar private family office in Palo Alto, CA. Prior to Bayshore, Danny was a vice president at Goldman Sachs in Chicago, IL.
Danny received a B.A. in political philosophy and economics from Georgetown University and an MBA from the University of Chicago in statistics and analytic finance.
Connect with Danny on LinkedIn.
What You’ll Learn In This Episode
- The next big health and wellness brands
- The Health and Wellness Market Size is expected to increase by USD 1.39 trillion from 2020 to 2025
This transcript is machine transcribed by Sonix
Intro: [00:00:04] Broadcasting live from the Business RadioX studios in Atlanta, Georgia. It’s time for Atlanta Business Radio brought to you by on pay Atlanta’s new standard in payroll. Now here’s your host.
Lee Kantor: [00:00:24] Lee Kantor here, another episode of Atlanta Business Radio. And this is going to be a good one. But before we get started, it’s important to recognize our sponsor on pay. Without them, we couldn’t be sharing these important stories. Today on business radio, we have Danny Kenny with Level five Capital Partners. Welcome, Danny.
Danny Kenny: [00:00:43] Hi. Great to be here, Lee. Excited to spend some time with you?
Lee Kantor: [00:00:46] Well, I’m excited to learn what you’re up to. Tell us a little bit about Level five Capital Partners. How are you serving folks?
Danny Kenny: [00:00:52] Yeah, absolutely. So Level five has been informally around since 2008, investing in in the consumer franchising space. We started our lives with a brand called Core Power Yoga and ultimately made an investment in the brand and then organically grew into its largest franchisee owning and operating over 34 stores across the country. Over time, we realized there was a lot of opportunity in the space to professionalize and institutionalize and so started working with other brands. So we work with Orangetheory Fitness, Big Blue Swim School, Heyday Skin Care and restore hyper wellness and cryotherapy.
Lee Kantor: [00:01:38] So you stay within that health and wellness kind of conglomerate.
Danny Kenny: [00:01:44] You know, we have up to up to this point in time, we tend to focus on consumer services businesses. So really think about businesses we like to say that are non Amazon able where there’s really an element of human connection and local community. And that’s really the sweet spot for where we’re in. It’s happened to be health and wellness. And I would say when we started doing this business, health and wellness was a much smaller niche. And just as an example, five, six, seven years ago, we wouldn’t have thought of heyday skincare as something that was in our space. But today it is because people want to take care of their skin and care deeply about that.
Lee Kantor: [00:02:26] Now, when you’re working in kind of a category or a niche like you are, even though it might be broadening a bit, is there some benefit for that franchisee in terms of by partnering with you and getting access to multiple brands? So there’s some economies of scale like so one, if I am a user of a service, you know, say the fitness brand, that I might also be a user of the skin care brand. And then you don’t have to kind of acquire a new customer. We can share the same customer.
Danny Kenny: [00:02:56] You know, we do get some of that. I would say it’s less about us sharing data across our brands and more sharing processes and tools where there are some walls between what we can share across brands. But the methods for capturing the consumer’s attention and more importantly, delivering a really high quality service experience, those tend to be pretty universal across brands. And so building the processes, tools and systems at the franchisor level and then also giving your franchisees the institutional platforms that a lot of emerging franchise systems don’t have. That’s really where we at level five capital can help a lot in scaling a brand faster by giving them tools that some franchise systems take 5 to 10 years to build out. We can help a brand do that within 24 to 36 months.
Lee Kantor: [00:03:56] And what’s an example of some of those tools?
Danny Kenny: [00:04:00] Well, we build them out. It runs the gamut. And so we have a group that does marketing and new store opening for us. And so we recently recruited somebody from from Facebook to lead that effort. And running the digital marketing playbook is pretty universal across brands. And to do it efficiently and at scale across all the locations that we manage is extremely powerful for for both us as a franchisor. And we also are a franchisee of all the brands we work with today. And we share those insights and processes and playbooks that really exists across our concepts in terms of a large real estate team that helps us locate stores and get in the way of the customer, really make the services convenient for them and and make sure that we’re hitting our opening timeline builds and that we’re delivering as many customers to our locations on the day the store opens.
Lee Kantor: [00:05:02] So having come from kind of the lens of a franchisee, do you think that that’s part of your secret sauce, that you really could empathize with that prospective franchisee? Because you’ve, you know, you’re that’s an active part of what you do every day as an organization.
Danny Kenny: [00:05:17] We don’t even need to empathize. We are on the other side of the table. So we’re building tools for ourselves that that are easily shareable with the rest of the system. So we absolutely do have empathy for sitting in the seat of the franchisee. But we’re also doing I don’t want to proclaim where this is all is all charitable, but we are building tools for ourselves that we want to give access to other franchisees. Because ultimately, if the whole system is successful, everybody wins and we want to see more people involved. And ultimately, it’s all about how many customers can we serve and how many people’s lives can we make better.
Lee Kantor: [00:05:56] Now, you hear a lot about this great resignation. Has that kind of been a maybe an impetus to consider franchising for some of these folks that have quit their jobs?
Danny Kenny: [00:06:10] Yeah, that’s a great question. I think we have seen it. We have in 2020, we actually had a very good year in franchise sales. So we saw probably about a two month slowdown during the pit of the crisis in March and April where nobody was really doing anything because we were all paralyzed with fear. But really, it started picking up in May and June across all of our concepts, and we actually had a really good year selling franchises and 2021 was even better. So I do think you are seeing it. And, you know, we don’t we don’t forecast the future too much. And perhaps with the economy picking back up, that that slows down. But yes, we have seen tailwinds in franchise sales during the pandemic.
Lee Kantor: [00:07:01] Now, any advice for that emerging franchisor that’s out there, maybe with a new franchise that they decided to franchise, that some do’s and don’ts that you would recommend that they kind of implement?
Danny Kenny: [00:07:15] Yeah. I mean, I would say the number one mistake that we see across new franchise systems is a desire to sell at any cost to whomever they can. And so we really see people make strategic errors because they don’t have the early emerging franchise or doesn’t have the negotiating leverage at the table. And I can assure you each one of them regrets that decision 24 months later. Now, that may be the right business decision at that point in time, but I would I would recommend anybody early in the franchising system to think long and hard about giving too much up at the negotiating table just because they haven’t sold a lot of units.
Lee Kantor: [00:07:57] And then what about getting clear on who that ideal franchisee is? How do you go about doing that?
Danny Kenny: [00:08:05] I mean, we it’s very difficult up front. I would say more often than not we’re wrong. But what we are doing is we’re constantly revising who are what the customer profile is for our ideal franchisee. So as soon as we do start selling franchises for a brand, we’re doing quarterly and semiannual updates on who we’ve actually seen come into the funnel and who we have actually sold a unit to. And we’re retargeting based on that. And again, I would say our initial instincts, we can we can get I think we’re going to be correct. But more often than not, the actual people who end up coming in the door and buying and and ultimately being successful franchisees are very different from the people you’ll have in mind when you’re initially launching.
Lee Kantor: [00:08:56] Now, once you’ve identified the ideal franchisee, do you just implement the same strategies you’re using for franchisees to get clients in the door? Are you using those same kind of Facebook and digital ads?
Danny Kenny: [00:09:09] Absolutely. Our franchisees in our system are going to use the same playbooks that we put in place at our stores. And that’s part of the benefits of scale that we bring to an emerging franchise system. So a lot of other people don’t have that expertize. And so the same playbooks that we use at level five for our franchisees are the same playbooks that are put in place for non five franchisees. And people see a lot of benefit in that and I think they take a lot of comfort in the fact that the same person who is an investor in the franchise or is also putting their money where their mouth is and becoming a franchisee and sitting on the same side of the table as future potential and current franchisees.
Lee Kantor: [00:09:52] So that same strategy works for a franchisee to get a customer than it does for L5 to get a franchisee as a franchisee for a brand.
Danny Kenny: [00:10:03] Oh no. So I was thinking customers in the door. We have two different strategies for getting franchisees or for getting potential franchisees to sign franchise agreements. The playbook that I’m talking about that we give to franchisees is really focused on the customer coming in through the doors of the four walls and the franchisees who are not out five of the same playbook as L five does to drive customer volume and revenue through their door.
Lee Kantor: [00:10:31] Because you’re kind of running a laboratory to kind of figure out best practices.
Danny Kenny: [00:10:36] Correct. We like we like to visualize as a conveyor belt or a set of gears that work. Right. And all the gears need to work together. And we’ve come up with a pretty good conveyor belt to do that.
Lee Kantor: [00:10:49] And then when it comes to identifying the next big health and wellness brand, do you have a system for that as well?
Danny Kenny: [00:10:57] Say yes to a lot of meetings. You know, you just have to spend a lot of time looking and talking to a lot of different people. I don’t it’s very hard to triangulate on a system and we’ve thought about it and we attend all the conferences. And but we really the way we think about it is, is we come up with what are things in our life that we want somebody to solve, whether or not it’s something’s not working in my life or this is an inconvenient product and we think somebody can do it better. And then then you start to see patterns and you say, okay, that that person, this product, this this brand is solving this problem in my life that I have either one that’s somebody else hasn’t solved before, which is the case of Restore Hyper Wellness, which is a very new concept and a new brand. Or in the case of Big Blue Swim School, there was competition out there, but we didn’t feel as a customer that they treated that it was as good of an experience as it should be. And so Big Blue is in a market that existed but really ups the game. And we try to think of Big Blue as the apple of of kids swim schools with just a high level of customer touch and experience with a strong technology wrapper around it. I would say the other thing that we we want to see in a brand early on is leaning into technology because everything is has some sort of software wrapper around it. And if you’re not making that investment early, it’s very tough to change the DNA of a company.
Lee Kantor: [00:12:35] Now, is it just a coincidence that you’re based here in Atlanta, or does Atlanta have some unique characteristics that make it a good place to launch brands like this?
Danny Kenny: [00:12:44] You know, it’s it’s coincidence, but it’s a great coincidence. We happen to be here because my brother, who’s also the founder of our firm, know his wife’s a doctor and she was placed at Emory. It just so turns out Atlanta is a great city. It’s not one I considered. I moved here from San Francisco and really kind of pinch myself because I love it here, but it is a great place to put a franchise business. There is just a lot of talent here and it’s very easy to recruit people to move here. And so, again, it’s a coincidence, but it’s a coincidence that I’m very happy about.
Lee Kantor: [00:13:21] Now, is it also a good place to kind of if you’re starting with an emerging brand, to have Atlanta be that market that you’re putting some of your early franchisees on?
Danny Kenny: [00:13:32] Yeah, absolutely. We love Atlanta as a market. It’s a growing demographic. The hard part in Atlanta is it’s growing so much that it can be difficult to find real estate. But beyond that, you’re spot on in terms of the ability to attract talent here and the ability. It’s it’s nice not to have discovery days in the north where it’s. We’re cold and nobody wants to be there from December to March. And so Atlanta absolutely helps in that regard.
Lee Kantor: [00:14:03] So when you’re working with an emerging brand, how do you know when you’re getting traction? Like, is it an obvious thing where you’re like, okay, this is going to work? Like we’re going to be able to get to 102 hundred units? Or is it something that, you know, you have a brand, you do some stuff, it’s maybe it’s struggling and then you’ve got to do some tweaks, like, how do you know when you’re getting traction?
Danny Kenny: [00:14:26] Yeah, I would say the traction is obvious in hindsight and some brands just don’t have to worry about it and some brands do. And it’s great when a brand doesn’t have to worry about it. And basically there’s a giant tailwind behind what they’re doing, and we certainly have a couple of those in our portfolio. And then there are some brands that really have to work through product market fit and there are is some tweaking to do. But ultimately it’s actually the latter is is more rewarding for us and for me gives me a lot more confidence going forward because if you can run into problems and solve them and then come out on the other side with a really good outcome, I feel like you have a much more a much stronger grasp of cause and effect in what you’re doing. And you can have a lot of confidence that the management team at the brand is able to solve problems, whereas a lot of brands sometimes just have so much growth underneath them that they never run into any problems. And you know well as well as I do at some point, at some time, a brand is going to run into a problem, whether that’s a ten stores, 100 stores or 250 stores. It helps to know that the management team is capable of seeing the problem, diagnosing it and coming up with a solution. And so I don’t view brands as completely invulnerable just because they’re growing extraordinarily fast. Sometimes those bumps in the road really help you to understand the durability and the ability of the management team to really understand the customer and fix the trajectory of the brand.
Lee Kantor: [00:16:08] So what do you need more of? How can we help?
Danny Kenny: [00:16:12] Oh, I’m. What do you mean?
Lee Kantor: [00:16:15] Do you need more franchisee? You need more emerging brands. What do you. You need more capital. You need investors. What do you need more of?
Danny Kenny: [00:16:22] Well, on the latter point, I can’t talk, but on franchising, I mean, listen, we are always looking for franchisees. We have a really I’m really happy with the group of brands that we’re fortunate enough to work with and we’re always looking for new investment opportunities. We again, we’ve been blessed in terms of the types of types of brands and more importantly, the people that we’ve worked with at the brands. We do this because we love it and the areas we focus on. Again, we’re trying to we like to say we want to create the communities that we want to live in. And so finding brands that are trying to solve these problems and make people’s lives better lets us get out of bed and work really hard and gets us excited about it. So and that we’re happy to talk to anybody who is looking to become a franchisee. We’re happy to talk to young and emerging brands and whether or not we make an investment. I’ve spent a lot of time with brands where we haven’t made an investment, just giving them advice on how to think about things. And it’s ultimately been rewarding for me and and some of the brands I have started to see them scale and maybe at a point where they’re ready to work with us. So at the end of the day, we’d love to talk to both.
Lee Kantor: [00:17:44] Well, if somebody wants to learn more, have a more substantive conversation with you or somebody on the team, what’s a website?
Danny Kenny: [00:17:49] Yeah, it’s L five capital l5e capital dot com. In my email address is Danny at WL five capital dot com and easily reachable.
Lee Kantor: [00:18:03] Good stuff, Danny. Well, I appreciate you coming on and sharing your story today. You’re doing important work and we appreciate you.
Danny Kenny: [00:18:09] Thank you, Lee. Great to be here.
Lee Kantor: [00:18:11] All right. This is Lee Kantor crucial next time on Atlanta Business Radio.
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