This is Matt Reustle and today we are breaking down the fitness franchise, Orangetheory. I have wanted to do a deep-dive on franchising for a while now and I always knew who the guest would be. I’m joined by a man fully dedicated to all things franchisee and franchisor - the Wolf of Franchises. We talked through the origin story of Orangetheory and the tech-enabled concept that helped differentiate them during the boutique group fitness boom. Wolf walks me through the economics for both the franchisees and the franchisor – and he helps compare this to the rest of the franchise system throughout the conversation. If you’re in any way curious about franchises – I think you’ll enjoy this episode. And if you do, make sure to check out Wolf’s work at wolfoffranchises.com – it’s the exact type of niche dedicated content that I love. Enjoy this breakdown of Orangetheory.   For the full show notes, transcript, and links to the best content to learn more, check out the episode page here.   -----   Business Breakdowns is a property of Colossus, LLC. For more episodes of Business Breakdowns, visit joincolossus.com/episodes.   Stay up to date on all our podcasts by signing up to Colossus Weekly, our quick dive every Sunday highlighting the top business and investing concepts from our podcasts and the best of what we read that week. Sign up here.   Follow us on Twitter: @JoinColossus | @patrick_oshag | @jspujji | @zbfuss | @ReustleMatt   Show Notes [00:02:55] - [First question] - What makes Orangetheory unique from their competitors [00:04:47] - Orangetheory’s founder and origin story [00:06:53] - What it looks like going from an initial concept to a franchise  [00:08:56] - Whether or not early franchises have pricing and adjacent benefits  [00:11:17] - How their franchisee numbers rank compared to their competitors  [00:13:09] - How their location numbers rank compared to their competitors  [00:15:39] - What it would look like applying for and becoming an Orangetheory franchisee [00:17:52] - How much Orangetheory cares about their franchisees being good operators [00:20:35] - Upfront franchise fees and other parent company revenue streams  [00:23:15] - How much revenue is actually going back to the Orangetheory parent company [00:25:41] - Whether or not the parent company helps with upfront costs [00:28:01] - Overcoming the barrier of up front capital for a franchise  [00:29:33] - Unit economics and business models for fitness instructors  [00:30:53] - Rules of thumb and variables to break even on an Orangetheory franchise [00:34:04] - The average cash flow generated by a mid-tier Orangetheory franchise  [00:35:16] - Where an owner might have to reinvest their profits into the business [00:37:14] - Additional marketing and mandatory costs required of an owner  [00:38:47] - How franchisees are protected by new locations  [00:40:47] - The main risks to an ecosystem like Orangetheory over the next five years  [00:44:17] - Key takeaways for operators and investors from Orangetheory’s story

Today’s breakdown has been at the top of our to-do list since the show started. There are few brands as strong as this one and the way the Dumas family has nurtured it over six generations is remarkable. We are, of course, talking about one of the ultimate status symbols, Hermès. What began as a specialty saddles business in the mid 1850s has become famous for iconic handbags and other luxury items. Last year, the business earned $9 billion at 70% gross margins. It does things differently and to explore the details behind its difference, I’m joined by long-time shareholder, Mark Urquhart. Mark is a partner at Baillie Gifford and head of their Long Term Global Growth team, which he co-founded in 2003. Hermès was in the original portfolio when it launched in 2004 and has been held since then. Please enjoy this breakdown of Hermès.   For the full show notes, transcript, and links to the best content to learn more, check out the episode page here.   -----   Business Breakdowns is a property of Colossus, LLC. For more episodes of Business Breakdowns, visit joincolossus.com/episodes.   Stay up to date on all our podcasts by signing up to Colossus Weekly, our quick dive every Sunday highlighting the top business and investing concepts from our podcasts and the best of what we read that week. Sign up here.   Follow us on Twitter: @JoinColossus | @patrick_oshag | @jspujji | @zbfuss | @ReustleMatt   Show Notes [00:02:29] - [First question] - The iconic Birkin and Kelly bags explained [00:04:41] - New price and resale price for a Hermès bag [00:06:13] - Production and distribution dynamics of Hermès bags [00:08:11] - Overview of the company’s scale and structure [00:09:52] - The basic margin structure and history of Hermès [00:12:10] - Defensibility of investing in a luxury brand like Hermès [00:15:48] - Market size and potential for future growth [00:21:20] - The power of Hermès’ long heritage history [00:26:37] - His definition of luxury and the role of luxury products in culture [00:30:49] - The Hermès manufacturing model and their focus on craftsmanship [00:35:28] - Strategies that Hermès has chosen to avoid [00:38:51] - The importance of their six-generation family stewardship [00:42:42] - How the family has maintained the business for so long [00:45:41] - Overview of retail sales and their distribution model [00:48:28] - Learnings from Hermès’ marketing strategy [00:52:08] - How he would set up a brand if he needed it to compete with Hermès [00:54:28] - Companies that come close to Hermès from an investment perspective [00:56:20] - The complexity of Hermès’ valuation and growth potential [01:00:59] - Why Hermès maintains a conservative capital allocation model [01:03:07] - The importance of their consistently simple products and business model