David Slavny, Chief Development Officer at The Learning Experience

Guest: David Slavny, Chief Development Officer, The Learning Experience (TLE)

Host: Chris Hatch

Listen on Spotify

Summary

Chris Hatch talks with David Slavny, chief development officer of The Learning Experience, a premium childcare brand with about 440 centers and 250-plus in development. David explains why daycare development exploded after COVID: childcare was deemed essential, many mom-and-pop providers closed, and TLE's franchise sales jumped from about 30 to 35 a year to 144. He walks through TLE's turnkey model, where franchisees pay a modest fee and wait in line by county while TLE finds the dirt, developers build to suit, and franchisees get the keys to a fully equipped school. He also covers the 10,000-square-foot prototype on an acre and a quarter to an acre and a half, the site criteria and weekly real estate committee, rent ramps during lease-up, the Bubbles and Friends characters, the company's growth through COVID, its new private equity partner Harvest Partners, and a standing call for more sites.

Key Takeaways

• Daycare growth took off after COVID put a spotlight on childcare. Even now, national brands serve only about 30% of children in childcare.

• TLE franchisees don't find or build the site. They pay a site development and coordination fee, wait in line for their county, and receive a turnkey school.

• TLE is about 90% franchised and 10% corporate. Running 30-plus centers itself keeps it close to what franchisees deal with.

• The prototype is a 10,000-square-foot building with a 5,000-square-foot playground (more in some states) on about 1.25 to 1.5 acres, typically ground-up build-to-suits.

• Site criteria: household incomes of about $85,000 to $90,000 or more, about 3,000 kids under six within three miles and 5,000 within five miles, competitors that are full, and visibility or good signage.

• A weekly real estate committee reviews software analysis plus local knowledge, and regional staff drive most sites before approval.

• Construction to certificate of occupancy runs about 10 months, then 60 days to five months for licensing.

• Centers mature in about year three at 130 to 140 children. First-year rent ramps to about half rent overall.

• Franchisees prove one center before getting a second. The system averages two centers per franchisee.

• TLE needs more sites. It has a waiting list of 100-plus franchisees and promises a quick yes or no on any site submitted.

Transcript

Editor's note: This Riverside recording had separate tracks, so speaker labels come from the recording. Pre-show chatter and a short off-topic aside David asked to cut (about competitors' franchise models) were removed. Please check: [Chris Horny] with [Murphy] (the broker who connected Chris and David), and one spot where the raw text says "getting BP" that reads like "getting CO."

[01:45] Chris Hatch: Well, welcome back to the Dirt Dog Pod. Today we have David Slavny, who's the chief development officer of The Learning Experience, with us. Welcome to the show, David.

[01:58] David Slavny: You got it. I appreciate that. Thank you. Appreciate it. Love being here. This is going to be great.

[02:18] Chris Hatch: And we love that you are representing the Florida scene here. You got the floral background there with the logo in the backdrop. It's great.

[02:26] David Slavny: We do. Yeah. Yeah. I have the very formal silver sign behind me. Normally TLE signs are all extremely colorful, but I got talked out of that. So you have the formal boardroom look.

[02:41] Chris Hatch: Yeah, well, can appreciate both looks, right? Yeah. There are times where I have to...

[02:44] David Slavny: Yes, yeah. Yeah, I wore my shirt with the more formal logo versus usually it's really very colorful colors. Yeah, the TLE colors as we call it. Yeah.

[02:54] Chris Hatch: Yeah. When I go into the banks and ask for money for our development projects, I just take my hat off. Yeah. That's my formal. Yeah. There you go. That's good. I thought maybe one of the best places to start today is I started in commercial real estate 22 years ago. And there was daycare development that was happening in the markets that I worked in.

[03:01] David Slavny: I love it. I love it. That's my weekend look. That's my weekend look, yeah.

[03:22] Chris Hatch: But I don't really think I ever noticed it. Then I feel like somewhere around four or five years ago, it was like an atom bomb dropped and like a mushroom, like just like whoosh through the market. Everywhere you're going, everywhere we went, seems like there, you guys, et cetera, there's a lot of your peers expanding all over the place. So what is going on in the daycare world for that to kind of be the perception for me and might be for others that are out there.

[03:50] David Slavny: Sure. So the best we can tell to your point four or five years ago happens to coincide with COVID. It seems like COVID really put a spotlight on childcare. Was one of the few businesses the government allowed to open. They considered it an essential business. Certainly didn't help the mom-and-pops that were, I think 80% of the industry is the small mom-and-pops who obviously lost a significant amount of their population and potentially couldn't weather that storm. So we saw a huge uptick in franchise appetite. Post-COVID, or pre-COVID, me, a good year was selling 30, 35 franchises. The first year in COVID, it post-20, call it 21, we sold 144.

So almost a three to four fold what we sold in our normal. Let's say couple of years prior to COVID, the following year, think we sold 120 and it's really kept triple digit pace since. Yeah, the only thing we can figure out is COVID silver lining, I guess in that case, COVID put a spotlight on the industry.

[05:05] Chris Hatch: So it's not like we've had some mass influx of youth, What would you call them? A pupil or a customer?

[05:16] David Slavny: Yeah, our children, our clients, Yeah, our customer, yeah.

[05:20] Chris Hatch: Yeah, right. So it's not like the customer pool has increased 5x over the last five years or something, right? So what was happening before? Where were the parents taking kids?

[05:36] David Slavny: Again, we've not done a formal study, but my best guess is quite a bit of that was going to mom and pops. And again, the industry, even today, I believe the last that I read was still north of 70% of children are not going to the national players. They're not going to The Learning Experience or the KinderCares or the Goddards, et cetera. So I think that maybe that mom and pop population shrunk and maybe the press really took off with The Learning Experience and our competitors and really shined the light on that bigger player. Believe that could be an answer. Don't know again, we've never done a formal study, but again, our appetite right now, both on the franchise side and the developer side is literally insatiable.

Opened up 57 locations last year, which was a record and quick math is that slightly more than one a week. And this year we'll exceed that by probably three to five units. And we believe based on our current pipeline that we're going to open up closer to one and half a week starting in the next two years and on our way to what we think is going to be two a week starting five years from now.

[06:48] Chris Hatch: Boy, that 70-30 statistic is really interesting. With all this growth that we've seen over the last few years of new facilities for the national daycare players, still only capturing 30% of the market.

[07:02] David Slavny: Surprising, right? Wouldn't think that's the number. Yeah.

[07:05] Chris Hatch: Now kind of blows me away. I guess my brain's starting to think of all of the various daycares you got in the church basement, somebody's running an operation, you got somebody down the street that maybe has kids come into their home.

[07:19] David Slavny: We had a franchisee recently come to us out of Long Island who had three small 10, 15 kids in their house and their neighbor's house type operation running for literally a decade. And now she wants to get rid of those and go and have a 10,000 square foot TLE instead.

[07:40] Chris Hatch: I have five children myself that my wife and I are, thank you, that my wife and I are raising here in Utah. And I love my kids, but I do have to tell you, it really makes me wonder who is one of your potential franchisees that is signing up literally to just have dozens of these children of that age, right? All at the same time, every day of their life.

[07:43] David Slavny: Congratulations. Yeah. Yeah, hundreds, hopefully. So the question, I'm sorry, the question is sort of who is that franchisee? Yeah. Yeah, it runs the gamut. It runs the gamut from somebody who's just purely in it for the business. They believe it's a good solid business. They see what TLE has done.

[08:11] Chris Hatch: Yeah, right. Who is the person out there that volunteers for this assignment, right? I mean,.

[08:27] David Slavny: To people that look at it really more as a calling. They feel like it's something they can give back to the local community, to people like yourself that have a lot of kids, love kids, and want to run a business that's child-related. We've had a lot of TLE parents, which is the best of the best, when we have parents who are taking their kids to one of our schools and now want to have one for themselves. People who are who were in a scenario where they can't find childcare or there was a they had a very difficult time finding childcare They were put on a waitlist and they're saying hey You know what?

If there's a shortage of childcare where I live to the point where I'm putting out I'm being put on a waitlist and me and my other Friends and family are being on a waitlist or can't find childcare Let's go open up one in our market and we're coming to Utah by the way coming to Salt Lake.

[09:18] Chris Hatch: Yeah, I would assume this would be a tremendous market for you.

[09:20] David Slavny: Yeah, we have one in the pipeline as we speak, just to try it out.

[09:26] Chris Hatch: Yeah, yeah, definitely a robust, full of kids situation, right? Yeah. So, okay, so I'm one of these folks that hits your candidate resume of what you just described of a potential operator of one of these units. And let's just say I want to open unit two in Utah. What is the process?

[09:30] David Slavny: Yeah, yeah, yeah. So the processes that you obviously contact us, you get in touch with one of our franchise sales individuals. They walk you through the process, which basically starts off with you filling out a QQ, a qualifying questionnaire, asking you a little bit about who you are, what you do, and then financials, talking about do you have enough capital, net worth, et cetera. After that, you go through a... Sort of a learning process along with the franchise salesperson. They're going to walk you through exactly what this is going to entail, what it looks like. Get a disclosed, obviously, because we're a franchise organization. So you get an FDD.

So you're officially disclosed. You get a copy of the franchise agreement that you can review with your attorney, et cetera. Assuming you want to move forward, you have an interview with myself. And you usually want at least one other person in the organization. To really talk about who we are, what we do, who you are, what your expectations are, why you want to be in this business, how did you get here. And from that standpoint, if you decide to go forward, well, it's one of two directions. Usually it's either A, there's a location that we're building that you'd like to put your name on, assuming it's not already matched, or there's nothing in the area.

So in your case, you would say, hey, you don't have a second location in Utah. However, here's the counties. In Utah that if in fact you find a proper location, I'd like to be that franchisee. Currently, because of the demand, we literally have no centers nationwide that you could actually call us up today and say, hey, I want that center that's under construction because they're were sold out through the end of 2026. So no matter where you were in the country, you'd literally be coming to a saying. When you find a piece of dirt, and this conversation we're having when you find a piece of dirt in this.

County or these couple counties, I'd like to be one of your franchisees. And at that point, unfortunately, you're in a little bit of a waiting game, waiting for us to identify the dirt in those counties, we then start showing you locations, you have the option to accept them, not accept them. And obviously, you're in line. So in a scenario where there's three pieces as an example, if you were in Atlanta, and you wanted Fulton County, but three other people signed up for Fulton County before you. Just like I use the analogy like the deli counter, you'd have your ticket, so to speak, but you'd be behind three other people waiting also in Fulton County.

At that point, once we find a location, and we have a franchise engagement director who would be in touch with you and sort of holding your hand through the process and letting you know where we are, we're looking at some dirt, we found a couple pieces of dirt, they're going through real estate committee, we'll let you know, and we find something and once you get.

[12:21] Chris Hatch: Fascinating.

[12:40] David Slavny: Once you get matched, then the actual, really the thing starts to speed up a little bit. You start going through training and the hiring process. But even at that point, from the time we actually match you to a piece of dirt, as you well know, it's still a good year and a half, two years out before you're going to be in position to actually open your doors.

[13:01] Chris Hatch: So it's interesting about that, and we have had lots of food concepts on here, right, on the pod that are franchise driven. And it's interesting because it sounds like TLE is a little bit more hands on and kind of helps to run that real estate process.

[13:20] David Slavny: Yeah, so we, think we really have sort of a different model than I don't want to say that any concept, but certainly in the childcare space, which is that we have a fairly low barrier to entry from a construction standpoint. The franchisee is not having to go out and borrow $5 million. They don't have to go find the dirt. They don't have to build a building. TLE takes a fairly nominal upfront check from them. We call it an SDSC, a site development and site coordination fee. And from there we go identify the dirt. We do all the analysis of it. We decide if it's a proper location for us.

We then bring it to the next franchisee in line and say, here it is. Here's the location. Here's why we think it works. And in that sense, unless that franchisee comes back to us and says, hey, I'm local, you might not have known about the horrific fire that took place there. Other than that, we're going to go forward with that space, whether they want it or the next person wants it, or we decide to actually open it up corporately, which also makes us very different. We are not all corporate run or all franchisee run. We're about a 90, 10 split. But we do all the work.

What the franchisee is signing up for is literally a turnkey facility. And I mean turnkey, and this is not a joke, the toilet papers in the bathroom, the stuffed animals are on the shelf, the computers are set up, the cameras are set up. The door locks are on, the parking lots paved, they're literally handed a set of keys and can open up the doors the very next day and be in business.

[14:57] Chris Hatch: So as you're out and about and you're scouting these sites, what is it that makes a good TLE site? What are you looking for?

[15:07] David Slavny: So as you'd suspect, and I heard some of your other guests say the same thing. So in our case, obviously, first and foremost, there have to be a lot of kids. We run all of our sites through two pieces of software. We're looking at the kid count in the area, incomes, the overall population. We're looking for growth. Is the market growing? Is it shrinking? We're looking for traffic patterns. We're looking for other companies or other businesses, excuse me, that I you talk a lot about this on some of your other segments, talking about Dutch Bros and the Lowe's and the Home Depot's and other businesses.

A lot of times we're in a business corridor. We look for nearby schools. Are there a lot of schools? Are the schools old and run down? Are the schools growing? Obviously, we look at our competition. Is there competition, which we love? But how is the competition doing? Because if there's five schools within a five mile radius of our competition and they're all half full, that's kind of a red flag. If there's five, those same five schools and again, it doesn't mean it has to be a five mile radius, but just for argument's sake, if those same five schools are full with waiting lists, that's obviously a very good sign.

So we run, we have a real estate committee every single week, but I just literally came from my real estate meetings just before this. And every real estate meeting lasts somewhere between an hour and a half. Our five real estate guys internally present their books, so to speak. And they run us through why they think of we obviously see the spreadsheet that the software spits out. But they also run us through we know these years. Here's the other things you can't see from the software. Here's these housing developments going up. There's a headquarters for this company just opened up down the street or is planned for next year.

In the Syracuse area, Micron is building a 500 billion dollar facility, something like that, those types of things that you can't see from the software. And then there's about 15 people in the room, including our CEO, who's been doing this for 40 years. And we make a collective decision to say, we don't like the site. We do like the site. And very, very often, especially today, we ask for site visits just to, but if we like it, if it's unanimous, like, holy crap, this is a great site. Then there's usually no site visit, but probably nine times out of 10, even if we quote unquote, like the site.

We asked one of our regionals to go drive the area just to get one last look, see what else is around, see what it looks like as a parent driving in, what else might be in the areas or anything negative we missed. But yeah, every week we approve anywhere from one to five, six, seven sites.

[17:54] Chris Hatch: And if you, as you're out and about and scouting sites, so it sounds like kid count is huge, large employers in the area. Yeah. Yeah.

[18:00] David Slavny: Huge. Large employers, Incomes, because we're a premium brand. So they have to be able to afford to come to us.

[18:09] Chris Hatch: Well, that's always the part that just blows me away about daycare is the cost of daycare. It just, you it's, I, not to, it's, running a business, you're making money, you got to make money to run it. Just the whole concept of what it costs. I mean, it is really, it's up there. It's a huge expense for a lot of people.

[18:28] David Slavny: And it is, there's no doubt about that. And it's an interesting part of that to your original conversation regarding the growth of the business post COVID real estate, as you again, well know went crazy. So the cost of our building between the dirt to put the building on and the actual physical cost of our building has increased almost 40%. So I guess the good part for us is the tuitions also kept pace with that. For better or worse, right? The cost of our building used to be high ones, low twos, that same building with dirt is now $5 million, $6 million, $4.7 million. Obviously varies by the cost of the dirt, soft costs, site improvements, et cetera. But yeah, they're not cheap. Our average building today is, I would say, easily north of $5 million.

[19:22] Chris Hatch: What is the prototype size currently?

[19:25] David Slavny: 10,000 square feet with a 5,000 square foot playground and that's 90%. The only variations in that other than an outlier where you have to do something a little different but that's the exception of the rule is certain states have different playground requirements. Think Arizona, the playground has to be 7,500 square feet and California I believe is 12,500 but the buildings are all 10,000 square feet.

[19:50] Chris Hatch: 10,000 feet with the playground that's probably fitting on an acre and a quarter, acre and a half somewhere in there.

[19:55] David Slavny: Perfect, exactly. Yeah, that's our sweet spot. You know, there are again, always a little exception. Somebody has a slightly bigger piece of property, but they can make it work from a cost standpoint, we do it. Again, there's a couple outliers where they were small, but we wanted to be there. And we've actually done some two story locations that we try not to do that. But there are those areas that you really want to be there. And it's the only way to get there.

[20:22] Chris Hatch: As you're working on getting approvals, how much gets done at a state level versus the local municipal? Or is it all local municipal? Are there other kind of approving authorities that you deal with because you have so many kids in this space?

[20:40] David Slavny: Well, on the construction side, it's all local. It's all exactly what you would expect. The developer is, again, we don't build buildings, just again to be clear, we have developers that go out and build us turnkey locations, build the suits. So they have to go through all the usual site plan approvals. Have to get... All their construction docs done and get approved. Then at that point, we have to then post the building permit and moving forward. It goes to the licensing agency who then comes and looks at the building and says, okay, looks at the blocking plans and then decides how many children we're allowed to have in that school.

There's nothing cookie cutter. They're close, but every municipality, you can build the exact same school in one town and build it in a different town in this school. You know, this licensing agency says you're allowed to have 150 children and the next school, the next place says, you can have 170 children, even though there's literally no difference in the building whatsoever. You know, and all the utilities are slightly different. You know, what they charge to hook up your power, what they hook up your water. There's always, as you know, there's nothing perfect about construction. There's always something different about each one.

[21:52] Chris Hatch: So as you walk into the building, assume you have some kind of entrance lobby. And then do you partition off into some classroom space or kind of gathering spaces to divide up?

[22:03] David Slavny: Yep. So all of our buildings again are very cookie cutter. There's a front door, obviously, but then there's a vestibule. The vestibule is locked so you can't get into the actual lobby without being buzzed in and or you have to have your credentials. And then from the lobby into the classrooms is also partitioned off with security. So you can't get back to where the children are without going through another layer of security. And then from there, each school has roughly get 99% of them have 10 classrooms. We typically open them up and have the FF&E in seven of the classrooms just to get the school up and running. And then as the franchisee fills the school, they go ahead and order FF&E to fill the rest of the three.

[22:45] Chris Hatch: And in each individual classroom, you probably have to do individual restrooms, et cetera, all those kind of things.

[22:50] David Slavny: A lot of restrooms, yeah. They all have individual restrooms. There's of course adult restrooms in the hallway for the teachers. And then the classrooms are all broken out. There's the toddlers, there's the twaddlers, there's the preppers, there's the infants. So they're all broken out by the different age groups. And we take care of children from as early as six weeks old to when they're exiting, usually around six years old to go to pre-K.

[23:06] Chris Hatch: So they're in. Yeah, part of it makes you want to scratch your head when you think about that $5 million cost, but then you start thinking about what you're building out and it's pretty intense.

[23:22] David Slavny: It's pretty intense. And they're all, again, when I say all, there's always an exception, but literally 97% are all greenfield ground up builds. We do very few TIs and there's places you have to do them, like in the boroughs of New York as an example. And once in a while, been very rare, but we might see a restaurant that went on the business, but it's at the corner of Main and Main with an amazing parking lot. You say, okay, this is, you can't pass up on this location. So we'll do a TI, but. 99% of them as I keep using the word dirt 99% of the time it's just us looking for a piece of dirt and then building a building.

[23:58] Chris Hatch: I like to think in version two of our development company, we might be smart enough to just go ground up, but we're still dumb enough to try renovations all the time. It's always amazing. Learn, they're always five times harder to do. I don't know why it is, but it just seems like every single time you do a renovation, you pull a wall back, there's a beam there. Sweet.

[24:19] David Slavny: Yeah, and you made a great point about the bathroom. So as the CVS's and Walgreens and some of these RiteAids start becoming available and a lot of them have amazing locations and amazing parking lots, we looked at them and never say never, we looked at them and said, wow maybe we could all of a sudden expand quickly by doing a bunch of these TIs and the then the question comes, okay, well, for starters, you can't have, you just build the bathrooms alone and the amount of concrete you'd have to break up to run the new plumbing. All of sudden what seemed like, this is a layup, the building's already there, the parking lot's already there, it's in a great location at this intersection, all of sudden becomes, wait a minute, that's a lot of work to turn that into a TLE. Yeah.

[25:02] Chris Hatch: Yeah, interesting. Do you have a kitchen as well in the facility?

[25:07] David Slavny: We do. We have a small kitchen. They're not cooking in there, but they are preparing meals, warming up food, et cetera.

[25:12] Chris Hatch: So that probably then involves Board of Health, some additional approvals there. Yeah. Yeah, what a fascinating thing. So start to finish, what are you seeing on a typical build time from shoveling the ground to kind of getting your first student in the door?

[25:16] David Slavny: Of course, yep. Yep. So shoveling the ground to CO has been roughly 10 months. Getting the kid in the door varies because now you're into licensing. Sometimes you can start those licensing processes early. Some states you can't even start till CO. So it could be as early from CO to actually opening the front doors for business can be as quick as 60 days. It can be as long as four or five months in some states.

[26:01] Chris Hatch: Yeah, that's wild, right? Just to think about. So your building's there, it's built here you are. Obviously somebody's paying something here.

[26:11] David Slavny: It's very interesting. And post COVID, it did not get any better because a lot of these municipalities laid off a lot of people and never staffed back up or they staffed back up with contractors that they may not be as attentive to getting things done, to disparage anybody or disparage anybody. But yeah, there's some of the states that used to be, three, four weeks or all of sudden three, four months.

[26:36] Chris Hatch: Yeah, I feel like that was the easy move during COVID was to let part of the staff go. And then so many of them wanted to hire the third party. It just, it really, at least from a macro sense, is really, in our experience, never been more efficient.

[26:52] David Slavny: No. Again, the challenges are beyond, especially when you're building 50, 60, 70 schools a year. The curve balls we get from municipalities saying, we're very particular about colors and approving a color. And then a different person shows up 10 months later and says, we don't like that color, paint it. And you say, well, not us, of course, but the developer says, well, I got this approved. You guys actually wanted this color. Yeah, now we own a different color. And it's like, yeah, the story, the stories are endless. And it hasn't gotten any better, unfortunately.

[27:26] Chris Hatch: Yeah. No. Okay. So you got, your developers got the building built, your development team's ready to hand off because the licensing is coming into place. I'm the operator. I'm raring to go. I'm excited. So I start touring potential students through the school. How long does it take me to kind of get to a point where I've got a student body? Or group of customers, So that we start operating. Do you just start going, you just start filling one classroom at a time?

[28:01] David Slavny: So it's a question. We do, and again, this is every, I can't tell you how the granularity of this, because every city, state, town is very different. There are some states and municipalities where you're allowed to start doing pre-enrollment and we have an internal pre-enrollment group that actually starts doing, running those ads and actually taking those calls and actually registering parents before the franchisees even engaged in the process. So sometimes we have a school that's got 30, 40, 50 kids already paid, ready to go. There are literally municipalities where you're not even allowed to put a coming soon sign up before you get CO. So it really varies.

Yeah, I guess the short answer is we're doing as much prep work as we can. We're trying to get as much of a head start as we can so that when the front doors do open, they're not opening up at ground zero. They're opening up with at least 20, 30 children already. And know enrolled and moving forward and then from there the franchisee has to go to work they've got to get in the community they've got to run ads they've got to go to the local farmers market and make sure people know they're there they'll do grand openings and have our mascot bubbles they're greeting children and you know it's again it runs a gamut your first child might be a four or five year old your first child might be a six week old.

[29:23] Chris Hatch: So, and what is there a metric that you track that you would call stabilization as far as enrollment goes?

[29:32] David Slavny: So we view a mature center, believe it or not, in year three, as in mature, stable, gone through some teachers, potentially has gone through a center director, and has now met sort of stability. That's really what we, and we're a very KPI-driven organization. We look at numbers inside out and upside down and backwards. And yeah, three years is what we deem mature.

[30:01] Chris Hatch: And what does a school look like in year three?

[30:05] David Slavny: In year three, they should be somewhere between 130 and 140 children. That would be, from our standpoint, benchmark of a well-run school. They might be at 160 or 170 or 200 children, depending on what they were licensed for. But really, given the cost of the school and tuitions, in order to really, what we would call a healthy business, it's north of 130 to 140 children.

[30:32] Chris Hatch: Do you typically structure the rent with your developers so that it's kind of graduated as they're going through the kind lease up period?

[30:39] David Slavny: Yep, so great question. The first year is roughly half rent. So they start off at very low rent first month gradually ramps up by year or by month 12, they're paying full rent. That equals 50% rent the first year.

[31:00] Chris Hatch: Yeah, that's got to help. I mean, otherwise that would be a huge drag right out of the gate.

[31:02] David Slavny: Yes, a huge drag. It would be quite a bit of money right out of the gate. Yeah, and it's been, and we never have pushed back on that. There's even some centers where we've been able to get 18 months of rent ramp up, rent concession. Yeah.

[31:14] Chris Hatch: Yeah, interesting. Interesting. So you got a full front, a full-flung run center. It's humming. You're in the mature stage in year three. Does a franchisee in your system, is that kind of a full plate or do they typically look to develop a second unit with you or how do you work there?

[31:37] David Slavny: So very few franchisees come to the table thinking about one. In fact, often in that first interview, they talk about, we don't want to just be one. We want five or 10. Or they have aspirations, which is great, by the way. Our model is that we'd like to see them be successful first with one location before talking about the second one. It's really simple. We don't want them to fail. We don't make money off the real estate. We make money off of royalties. We want to see them have a successful center. And then we want to gauge, hey, how do they operate? What are their scores in their quarterly reviews?

Are they a fantastic franchisee? Look, we would love nothing more than to have somebody end up with five or 10 locations. But we also have seen people run one amazing, run two pretty good, and next thing you know, they're at three or four, and all three or four start to suffer. And we have to reel them back maybe have them sell one to a different franchisee or a new franchisee So we're really careful and we can say today that our average franchisee across the system We're actually officially at two as an average and again that takes into account the person that has one and the person that has 15 but they but yeah, it's our franchisees have been very aggressive in wanting locations and sometimes literally won't drop the subject.

[33:30] Chris Hatch: So in your space, you're obviously franchise-driven. You have a couple of peers that have some franchisees as well, but then a lot of them that just run corporate daycare locations. So at the end of the day, your customer really is your franchisees.

[33:51] David Slavny: Without a doubt that is the backbone again we are unique and that we do both. But we it's part of the eat-your-own-cooking type of theory in other words we're living what our franchisees are living we understand what they do day to day not just because we've been doing it so long because we operate today north of 30 locations ourselves so all those trials and tribulations and good days and bad days we're living on we're living ourselves so it makes it very. Easy to talk to the franchisee about, we've had these issues. This is how we fixed it. We know you can grow because we've done this in this location as opposed to just sort of being a a sideline coach.

We're actually on the field every day operating and measuring ourselves and measuring our own regionals and corporate people to say, hey, the school's down. Why is it down? We have to get it back up. It's not just telling somebody to go out there and do it. We're actually doing it ourselves.

[34:49] Chris Hatch: Because we're new to your concept from a consumer standpoint in the state of Utah, my home state, I haven't seen this as much until I started prepping to talk to you today. What I was kind of blown away with is this entire social media world that TLE has embraced and appears to kind of own this whole space of the characters. You mentioned the mascot, right? Talk a little bit about what the thought process there is. Invest? Because that's got to be an incredible amount of resource that goes to that.

[35:24] David Slavny: It was incredible, my resource. So the family that started this company who had a predecessor company, they've been doing this over 40 years, always embraced characters that we think it's a real differentiator. It's very Disney esque, right? We have actually 99, I think is the official number of my money might have gone over 100 actual characters. And again, they sort of roll off and roll back in. But it really endears. The kids to who we are. I was literally, I could tell you a story, we were literally in London, because we have three locations in London now, and we had bubbles in Trafalgar Square in London and had kids run up and knew our character.

It was mind blowing. So our characters often reflect who we are. We have Penny Polite, who teaches being polite. We have... You're going to kill me. We have characters that talk about charity. We have characters that talk about phonics. We have characters that talk about, one of them wears a cochlear implant. So our characters, typically one of them is we have an IT character. Have a, we have one called Lionstein, who's the really smart character. So we use these characters to sort of create a theme within the educational part of what we do.

[36:50] Chris Hatch: I couldn't believe I got on, I think it was on YouTube and I just started looking at it. I could not believe the hits. I mean, the amount of views that some of those videos have that you've put out, it's incredible.

[37:02] David Slavny: Yeah, so we started our head of marketing, basically came up with an idea of saying, let's take our characters and bring them to life. Let's create a whole series called Bubbles and Friends. And Bubbles and Friends has really become taken on a life of its own. I think the numbers are well over a hundred million lifetime views. I think we eclipsed like 10,000. Hours of viewing in one month recently. Again, I'll get that exact back for you. So I didn't misquote that. But yeah, it's something that we've really embraced. We believe that we've proven that it's driving occupancy that people are watching it. Then we actually had a study that came back and they actually interviewed a number of parents both in customers as well as non customers of The Learning Experience.

And who knew our who knew Bubbles and Friends who said if I knew Bubbles and Friends was associated with The Learning Experience, I would have sent my children there. So we're looking at it as not only IP, it could be valuable someday, but also we'll drive occupancy to the schools.

[38:09] Chris Hatch: Yeah, and that's, think, in flipping through some of the videos, it was wholesome, educational, was interesting. I don't know, I mean, I'm sure like every other parent out there, my kids flip YouTube on and the stuff they watch sometimes, you just walk in and you're like, really? This is what we're watching? Right? And I never forget, my wife walked in on one of our younger girls. And she was watching a video of another little girl playing with dolls. And she's like, instead of doing that, there's a whole bin full of dolls over there. Why don't you just go play with the dolls? And it was much better content, much more rich content than what I think a lot of people should gravitate towards, for sure.

[38:45] David Slavny: Of dolls here. Yeah, we like to think it's pretty wholesome content as well.

[39:00] Chris Hatch: Well, and that's the thing, I think it's so interesting. A lot of people that I've talked to that have gone into the franchise business, sometimes, I think one of the interesting things, Garrett from Layne's Chicken, harped on this, that really as you choose to enter into the franchise or world, your clients are the franchisees. And that's what I think is so cool about the content that you're producing there is TLE is really supporting those franchisees. And that's great to hear that it's driving occupancy. That's fantastic.

[39:34] David Slavny: Yeah, we spend roughly three times as much on SG&A and growing this business and supporting our franchisees than our competitors. And again, not to disparage anybody, but if you look at the numbers, we're also growing at about 3x our competitors combined.

[39:53] Chris Hatch: Wild, truly wild. How many daycares are there in the system at the moment?

[39:58] David Slavny: I think you're right today because we're literally opening up one to two a week. I think we're at about 440 ish and there's about 250 plus in development and development might be we signed a lease yesterday and development might be the next one that opens up Monday morning. So if we stopped all development right now, we would be we would be close to 700 locations in the next four years.

[40:16] Chris Hatch: Yeah. When did you join? And how many were there when you joined the company?

[40:27] David Slavny: About 240. Yeah, I joined the company literally weeks before COVID hit, which was an extremely interesting time in the company. So the CEO of this company and I have known each other since he started the company 25 years ago. So I've lived it sort of from the outside. But yeah, I joined literally January 1st, 2020.

[40:29] Chris Hatch: So you see some incredible growth. Boy, there had to be like not just a few nights of sleepless nights as COVID hit. There had to be like a couple of months of sleepless nights around your organization.

[40:57] David Slavny: It was, as my CEO likes to say, never say I've seen it all, because then COVID comes and you have to say, I've never seen this before. So we just to put things in perspective, we went from taking care of 26,000 kids to taking care of 6,000 kids quite literally in 24 hours. So yeah, was our CEO did an amazing job navigating this company. Golden Gate, our private equity group did an amazing job supporting the company actually said, we're not slowing down, put your foot to the floor. And we came out of COVID with 100 more locations that we went into. But it was crazy.

Everything was crazy. I mean, just everything about the business was just different. Even like our big annual conference, TLEcon, for two years had to be done virtually. Just the way the company shifted and adjusted was amazing.

[41:58] Chris Hatch: Yeah, I was going to say it's one thing to lead when you have the opportunity to have those in-person rah-rahs, but to be able to figure out how to do all of that virtually and then navigate all of the complexities and the PPE and just everything that was involved with that, right? Yeah.

[42:12] David Slavny: Crazy, procuring masks. Broward County said to where we are, said you can't be in the building without a mask. Like even if you're in your office with the door closed, you have to be wearing a mask. Was just the whole thing was just wild.

[42:28] Chris Hatch: Yeah, no kidding. So Golden Gate was your PE. But the hot off the press in the month of July, you have a new PE partner, correct?

[42:31] David Slavny: Correct. Correct. Harvest Partners.

[42:38] Chris Hatch: Yeah, wonderful. And go ahead.

[42:42] David Slavny: I was going to say it was Harvest came in just recently as you mentioned. Golden Gate had been with us, I believe, almost seven years. As you know, private equity usually has that four or five year window. So it was time for them to exit and we found an amazing partner. And actually, the Golden Gate is coming along for a little bit of that ride and only met a few times. They're actually coming in this week for, excuse me, next week for our first official board meeting. Kumbaya, so everybody gets to know each other.

[43:14] Chris Hatch: Wonderful. So ahead is tremendous growth, a new PE partner, little bit resurgence back on the cap stack side. And you have a waiting list of your own of potential franchisees.

[43:28] David Slavny: Longest one we've ever had we have north of a hundred individual franchisees Who only have what we call a market purchase all they've been able to say is hey I live in this town. I live in this county I'd like something in my county or maybe these two or three surrounding counties and they're waking up every day hoping today's the day we call them and say we found a couple locations for you to go take a look at and It's funny that the first time I ever heard the term dirt dogs one of our 40 year real estate professional, as we were sitting around commiserating about how we're to ramp this up quicker so we can get these people off the waiting list said, we really need are some dirt dogs to go scour the planet and find us places to build locations.

So yeah, we have a significant waiting list and it's growing on average about one to two a week are being added to that waiting list as we sell franchises. Yeah.

[44:25] Chris Hatch: Yeah. And that is how you and I got connected was through [Chris Horny] with [Murphy]. He is one of the daycare dirt dogs out there in the world, a real life one.

[44:36] David Slavny: Yeah, I could use about three or four hundred of them if you could help me find them. Yeah.

[44:40] Chris Hatch: Yeah, there you go. There you go. It's like anything, right? If you have the site, you don't have the tenant. If you have the tenant, you don't have the site, right? Murphy's law.

[44:47] David Slavny: Yeah, Murphy's law. Yeah, it's a good problem to have, but it is something we're working on. We're expanding the size of our real estate team and we're going to start doing more outreach. We just did a big outreach to about 80,000 developers via list that we sort of scraped off the internet. We obviously have a huge presence at ICSC. We've been platinum partners two years in a row. And this year, I know you were there this year, we had the entire front of the building next to the Jersey Mike sign. I think that helped because we were very, very busy. We're going to do some advertising and some other large real estate platforms. So we're going to do our best to let the world know that we're in need of more dirt.

[45:31] Chris Hatch: Yeah. You know, I, guys have done a wonderful job as far as branding yourself and being unique and being you. And I appreciate the boardroom setting TLE backdrop we have today, but you know, it's so recognizable when you see it. It's great.

[45:47] David Slavny: Yeah, yeah, I'm curious if my CEO will like that we use the silver background as the only non multicolored TLE sign in the entire company or he's going to say why didn't you have the big color for one but I just followed orders from our marketing department. Yeah.

[46:04] Chris Hatch: There you go. There you go. What do you see is the biggest challenge in the world that TLE is facing right now?

[46:13] David Slavny: So I hate to go right back to it, but honestly, just fulfilling that word. The good news is we're selling and we have this incredible appetite, but we also have to deliver them a center to our customers. The franchisees, zero question we can meet any franchisee goal, but now we've got to grow real estate. That is really my title. Encompasses franchise sales, it encompasses new center openings and it encompasses real estate. It's all about real estate right now. I've got to figure when I joined the company, we had one person in franchise sales. Now we have four. We had three real estate people when I joined.

Now we have five. And that's really all that's really for us to reach our five year goal, which is to get sort of on that trajectory of 100 openings a year. I can't do it without more dirt. It's just that simple. We don't go into strip malls. I only have one choice. I've got to find more locations.

[47:14] Chris Hatch: So we have a lot of dirt dogs that listen to this program. So for anybody out there that's listening to us talk here today, if they've got what they see is the ideal site, we're looking for an acre and a half. We're looking for heavy kid count.

[47:25] David Slavny: Acre and quarter, acre and a half, yep, you set it perfectly up. Every kid count doesn't have to be main and main. It doesn't have to be it's nice to be on a main road, but frankly, we have many, many, many locations that work that are on a side road, on a utility road on an access road next to a Home Depot, whatever it might be. So yeah, good incomes preferably over 85, $90,000 average household income, preferably 3000 children in a three mile radius, five and a 5,000. 5,000 kids, excuse me, in a five mile radius. Visibility helps and if not visibility signage ability. Like not to be completely hidden, but we have no issue being off Main and Main, but at least having a pylon sign or a monument sign that people can see.

And yeah, I mean, that's really the, if you have the children and you have incomes, we're pretty confident that we can have a successful location. And then I think that the last part of this is we can turn an answer around very quickly. If somebody says to us, hey, I've got a location here within, not to exaggerate, but literally within hours, worst case, the following day, we'll come back and at least give them a preliminary yes or no. Hey, this looks like a potential. Now we've got to go do our homework or quickly spit out. Doesn't meet the incomes, doesn't meet the kid count. We're going to pass, but we'll give them an answer very, very quickly.

[49:00] Chris Hatch: Is there a kid count metric that you're looking for?

[49:04] David Slavny: Yeah, that that 3000 usually we look for the 3000 children in a three mile radius, 5000 in a yeah, 5000 kids in a five mile radius doesn't it's not a deal killer if it's off a little bit like we have locations where you know, in a one mile radius, it shows hardly any kids but it happens to be surrounded by commercial locations. But then all of sudden in three miles, there's 10,000 kids or there's 6000 kids. So it doesn't have to meet that perfectly. But if the one three and five mile. Is light. That's even if the incomes are great. If the one-, three- and five-mile radius is light, we're probably going to move on just because let's face it, we're not going to say, hey, there's 700 kids and three miles.

You know, we have to get a third of them to have a successful business that doesn't work. You we don't want we don't want to play. We don't want to play those odds.

[49:54] Chris Hatch: What is the max age you're defining when you say kids?

[49:59] David Slavny: Usually children five years and younger because they graduate out as they turn six.

[50:02] Chris Hatch: Five years and younger. Does it matter? Have you found that it matters if you're located on the AM side of the road versus the PM?

[50:10] David Slavny: No, no, we do look for for egress and how they're going to come in and can they make a, can they turn left in and left out? I mean, we look for that with they're going to have to do a U-turn and, drive around in circles trying to find us. That's not good, but it goes back also to our site visits. That's one of the reasons, even though you can see it on Google Earth and so on. That's another reason that we'll have somebody do site visits make sure there's not a drive through that's going to back up into our parking lot and block parents. But the AMPM part has never come into play.

[50:41] Chris Hatch: Alright, so for Aaron Harris listening to this, do not place a Dutch Bros next to a high volume TLE, please. And thank you.

[50:46] David Slavny: Yeah, we almost every time we're looking at sites, growing sites, there's a Dutch Bros somewhere thereabouts. They are exploding.

[50:57] Chris Hatch: Yeah, I love it. David, we have a lot of younger professionals that listen to the show or newer professionals to the business. If you were looking back at the 20-year-old version of yourself as you were getting your start in commercial real estate, which was yesterday, what would you tell young David?

[51:19] David Slavny: All right, so I got to preface all this that I have my path to where I am today is could not zigzag more. Started off literally driving a truck for Coca-Cola as a young kid, ending up in the investment banking business, then going on to open up a couple IT companies myself and having employees to then jumping on board at The Learning Experience and initially coming on board to help oversee our IT department. And then one day my CEO said, hey, we're going to promote up the individual running our IT department who deserved it beyond belief. And then, you this is your new role, like the old analogy of throwing somebody in a pool and saying, I hope they can swim.

So I don't know that I've got a good path, but for anybody looking to get in, think I would just tell them, but back to the thing I said this earlier, and this comes to my CEO saying it to me, there is nothing straight and perfect about construction and development. Are every day is a zigzag. And, sometimes you got to, you got to have your hard hat on for a reason. You know, there's always delays and sometimes it's the opposite. Sometimes a center you thought was not coming in until October. All of a we find out, they say they're getting [BP] two weeks from now and it's three months early.

And, it's a lot of curve balls, but it's fun and it's fun and it's as I think I heard your McDonald's retiree mention, it's satisfying to drive by or have somebody take a picture of one of your TLEs on the other side of the country and send you a text and say, oh, I just drove by one of your schools. And you say, oh, yeah, I remember we did that school two years ago. And it's satisfying to actually build something. And then it's going to be there for the test of time.

[53:11] Chris Hatch: It always blows me away when you're driving down the street and you just see all these buildings. And then you start thinking into all of the blood, sweat and tears that went into opening each individual building all the way down the street. Yeah.

[53:24] David Slavny: Everyone's got a story, if not multiple stories. Yeah, there's no such thing as, yeah, we broke ground. Everything went perfect. And then we got CO and there's no such thing. They all have a story.

[53:36] Chris Hatch: Well, and it's such a team effort, right? I mean, it involves so many people to get something done, right?

[53:43] David Slavny: Yeah.

[53:45] Chris Hatch: Pretty amazing.

[53:45] David Slavny: It is, yeah, so we have just to touch on that. Yeah, we have quite the robust real estate and construction teams. So we've got several construction managers spread out all over the country. You know, they're internal, but they're remote and they're visiting each one of our sites five to eight times during, during the construction. We have a whole pre-construction team of architects looking over plans and site plans and the construction documents. We have all pre-construction, other pre-construction team that's literally looking at every single step on a granular basis and getting ahold of the developers and saying, are you still on track to hang drywall this week and are you still on track to do this week? And yeah, we've gotten extremely granular internally. It does take a lot of people to do as many sites as we're doing a year.

[54:35] Chris Hatch: Wonderful. Well, if you're listening and you haven't checked out TLE, go check out one of their daycare centers, especially if you're in market and have young children. And otherwise, you know where to find David. You can go find him for sites. If you've got a site, hopefully some of the dirt dogs out there will send you something. It's our only hope is that you get some sites out of this.

[54:54] David Slavny: That would be amazing, yes. There's no number that's too many. And we're happy to kick the tires, so don't be embarrassed if you come with one and you're just not sure, bring them on.

[54:58] Chris Hatch: Yeah, well, we appreciate. There you go. The door is open. So David, we appreciate you coming on and educating us about the daycare space and TLE.

[55:08] David Slavny: The door is open. Yeah, thank you, Chris. I appreciate you taking the time to talk about us.

[55:18] Chris Hatch: Thank you.