Deal To Watch: The Ice Cream Store Franchise Mogul Reinventing Shift Work

Key Stats:

Summary

At time of publication, May17, HigherMe had raised $170K surpassing its $50K minimum

In 2002, LinkedIn came to market to revolutionize the way corporations hired white collar workers. In 2010, Angellist was invented in part to help reimagine how startups hired employees. Then in 2015, HigherMe was invented to reinvent the way hourly workers get hired.

This Y-Combinator company is off to a fast start, and has shown that the 80M hourly workers in the US are in need of a better hiring solution. Company revenues are on the rise, and the unique value proposition is winning over franchisees in the quick service market by the day. The growth characteristics of the business, in conjunction with the promising unit economics point to a sustainable business model worth learning more about.

Problem

Staffing in the part time retail and hospitality segment suffers from three key issues—Low throughput of candidates, burdensome hiring admin, and extremely high turnover. What most people don’t realize is, “from a headcount perspective, the hourly worker market is larger than the white collar professional space and because of turnover, the number of yearly hires is massive. We are talking about 80M hourly workers, that are constantly looking for work.”

If you, “think about the money, time, effort and attention that has been spent by startups in trying to improve the professional space,” you realize what a gaping hole exist in the hourly job market to better service hiring needs.

Most traditional jobs boards, and professional hiring services don’t meet, “the unique design elements to effectively hire an hourly workforce.” Thus, for the last three years Rob and his team have been building HigherMe to solve for these very issues.

Solution

HigherMe is a first of its kind, “fully mobile, text-to-apply, paperless job application solution, that drastically improves throughput rate. For instance, White Castle doubled their applicant throughput overnight.” On the backend, the company has built a, “SaaS platform that ranks, screens, and automatically schedules candidates to cut out a significant portion of the admin associated with hiring, because no-shows are a massive problem in this space.”

The team is even building out its data science team so that they, “can determine what happens to applicants after they get hired, so in the future we can predict hiring outcomes based on applicant responses.” As the team continues to build its applicant pool, which now stands at over 1 million users, Rob is looking to move into phase 2, “where the company will begin to not only be a system of record, but also a sourcing mechanism for candidates as well.

HigherMe will also work to service other types of organizations such as hotels, call centers, light manufacturing, and automotive companies. Essentially, any organization with, “evergreen hiring needs where they have high employee volume and turnover, without a centralized hiring mechanism.

Business Performance

HigherMe has been doing exceptionally well since graduating from Y-Combinator in 2015, growing, “10 to 15% month-over-month during that time, with just shy of 1M people having used the platform to date to apply for jobs, and the business currently exceeds about $1.6M in annual recurring revenue.”

All of this success is due to the inside sales model the team has deployed that works directly with franchisees and franchisors. By not working directly with the larger corporations themselves like McDonald’s corporate, the team has an average sales cycle of, “4 to 6 weeks” working with franchisee’s that typically have, “10 to 30 franchise locations,” but they also have some customers with, “as many as 400 locations.”

Rob and his team are one-by-one winning over major franchise brands. For instance, the team has “seen 10X growth in the number of Dunkin’s,” they serve in just one year thanks to a, “dedicated Dunkin’ rep.” And they are now working to replicate this success with, “Domino’s that has kicked off strong too.” As the company begins its progression as a business, Rob says the team will work to, “replicate the success we have had with early brands, with 25 other major brands.”

The business is doing so well, they are at a point where they could decide to be, “profitable if we wanted to,” but rather than slow down, the team is reinvesting profits into the business to accelerate growth because, “as a team, we have a nearly unlimited list of leads to go after.” And though it is early days, “the 6 to 1 and 7 to 1 CAC to LTV figures,” are a sign of a sustainable business model that can win in the long run.

Want more evidence that HigherMe is a sound business? COGS hang around 20% at the high end, and customer churn for customers spending more than, “$1K per month is -3%, because some companies add features after using the platform.” To reiterate, not only do they not have churn across most of their customers, but customers are even adding additional features.

The Founder

Rob Hunter, Founder & CEO of HigherMe

Rob Hunter is one of those people when you meet him, you know you are going to be an investor in, because frankly the man knows how to build businesses and succeed. He’s been a serial entrepreneur grinding it out since the 90’s with wacky business ideas that have brought multiple wins to his name.

How wacky you ask? Well to give you an idea, Rob said it all started out with, “hacked e-commerce websites selling Japanese wrestling videos in the 90’s, which surprisingly did well enough to fuel endeavors in student housing rented properties.” And while all of his friends from business school in Canada were getting into the investment banking and consulting world, Rob found himself drawn to the “ice cream business,” where he ended up, “being the youngest franchisee of Marble Slab, which is very similar to Cold Stone in Canada.”

By 25, he was one of the largest franchisees and had built up an impressive amount of retail and hospitality experience. After attending Babson College for his MBA he worked at Mobee, a startup reinventing the mystery shopping experience, and continued to see that one of the largest problems faced by retailers like Marble Slab or McDonald’s or White Castle is staffing.

Why The Team is Raising Via WeFunder

Raising capital from the WeFunder investor base has presented an, “opportunity to reinvigorate the war chest of capital,” to be used to invest in “top levels of traction and growth in the next 6 to 12 months that will make for a great Series A round of funding.”

The raise thus far has been a, “great learning experience and way to raise capital,” that is proving effective in, “building an army of advocates to get us even more customers.”

Rating

Recommendation:

With the team already surpassing $1.6M in annual run rate revenue, that pegs the valuation at about 5X current revenues, which is extremely reasonable at current growth rates. As Rob mentioned, no one has spent a whole lot of time trying to optimize the hourly worker hiring market despite it having 80M individuals in it. That leaves an incredible amount of room to run as an organization like HigherMe.

The mobile application product is also on trend with what millenials are looking for, and it cuts out most of the traditional frictions associated with applying to hourly jobs. I also like the defensible moat they are building by developing a set of data analytics that could help reduce turnover by empowering smarter hiring decisions down the road. With over 1 million users already they have a nice first mover advantage in the space.

The team also has a lightweight, yet effective sales and distribution strategy, which involves an inside sales team closing franchisees in 4 to 6 weeks. They have already shown an ability to successfully grow one franchise in Dunkin’ and with plans to continue to replicate across other major brands I like the upside potential for fast growth.

Lastly, the founder is highly experienced and has time and again shown an ability to identify a market need and meet it with a solution that wins. I appreciate the fact that he also identified this problem by being an owner of several franchises as a young businessman. He obviously understands well the unique challenges of hiring in this space, and knows how to build businesses.

For these reasons I recommend HigherMe as a Top Deal.