Would you rather operate a Goosehead Insurance franchise or a Chick-fil-A one? By now, you’re probably asking yourself what Goosehead and Chick-fil-A have in common that justifies such an odd question. Well, aside from being named after birds, they both offer a franchise model.

This actually goes a bit deeper as there are similarities between franchises and insurance agencies – both captive and independent. The main one is that an insurer, just like a fast-food brand, gives permission to an individual (franchisee) to sell its products.

There’s more, of course. It’s common knowledge in the world of food franchises that Chick-fil-A is the hottest opportunity in town. Switching back to the insurance universe, we cannot say the same about Goosehead’s model, but of course, they can and in their S-1 they stated the following:

“Franchise Channel solves the inherent flaws in the traditional agency model. We believe that the traditional agency model is flawed for several reasons, including: (1) agents are typically responsible for handling their own client service and renewals, diminishing the time they can devote to winning new business and growing their overall Book of Business, (2) Captive Agents can only offer clients products from one Carrier, limiting the agents’ ability to best serve their clients and (3) some Captive Agents do not own their Book of Business, giving them less incentive to win new business. Given the size of the traditional agency market and its inability to adapt to these challenges without introducing significant channel conflict, we believe there is a meaningful opportunity to disrupt the traditional agency marketplace.”

Goosehead’s franchising journey began around 2012 when its co-founder, chairman, and CEO Mark Jones was lying in bed at night thinking. “Okay, what is it that we do really well?” he asked himself. Naturally, the first answer that comes to mind to any successful agency owner is ‘sales’, and Jones’ answer was no different. However, taking the next step sometimes requires you to stop selling the product and start selling the vision. This led Jones to dig deeper. “But what we were most extraordinary at is the back office…” he said in 2019. “And that has allowed our agents to be highly productive… because they can focus all of their time on sales. And so trying to think of how can we – how do we get more leverage out of that back office, we decided to try our hand at franchising.”

The most despised man on earth is the middleman. Benjamin Disraeli, the former Prime Minister of the U.K. once said that “it is well-known what a middleman is: he is a man who bamboozles one party and plunders the other.” Famous business blogger Seth Godin was not as harsh, saying that “developing expertise or assets that are not easily copied is essential; otherwise you’re just a middleman.” If every company could figure out a way to sell at scale while keeping all the profits, there wouldn’t be a need for a middleman. However, that’s not the case and different companies – from McDonald’s to State Farm – rely on middlemen to sell their products. But middlemen aren’t the issue, unnecessary middlemen are.

In 2020, Chick-fil-A generated $13.7B in sales from franchised and company-operated restaurants. That year there were 2,598 locations and a quick calculation shows that the average Chick-fil-A store brought in $5.2M. On the other hand, Goosehead’s corporate and franchise channels placed nearly $1.56B in premiums in 2021. At the time, Goosehead had 506 corporate sales agents and 1,198 operating franchises. The company does provide a breakdown by channel and on average, the corporate channel ($422M) stood at ~833K in premiums per agent and the franchise channel ($1.13B) reached ~$950K in premiums per franchise location.

Goosehead’s numbers throughout the years (2018-2021) are pretty consistent with premiums per agent and franchise location ranging between $833K-$1.1M and $694K-$950K, respectively. This means that Goosehead is in the numbers (quantity) game, which isn’t surprising since the human agent does not scale.

Looking at Goosehead’s numbers, there’s some cause for concern. In its 2018 S-1, the company said that there are approximately 40,000 potential franchise candidates in its current pipeline. This figure more than tripled in 2022 when the company said there are 137K potential franchise candidates in its pipeline. Clearly, Goosehead’s pipeline has a lot of holes – between 2018 and 2021 the company added just 741 operating franchises.

An optimist would say that Goosehead hasn’t even scratched the surface by their own (pipeline) standards, but if you’re being realistic, then you sense a problem whether you look at the numbers from 2018 or 2022. Basically, Goosehead’s franchise model conversion rates look a lot like the conversion rates of standard digital ads – somewhere between 0.8% and 3%. That’s in the range of Chick-fil-A’s numbers but just the other way around – in 2018 the chain received around 68,000 inquiries from people interested in becoming franchise operators but only 100 were accepted. “I’m a US Army Ranger. I’ve been deployed to Afghanistan,” Quincy L.A. Springs IV told Business Insider about his Chick-fil-A journey. “When I got the opportunity to become an operator, I cried.”

Today, Goosehead’s market cap is greater than the market cap of Lemonade and Root combined. One contributing factor is Goosehead generating $8.3M in income last year while Lemonade and Root lost $241M and $521M, respectively.

Still, Mark Jones knows the problems with his agent vision and now there’s a new vision that involves a direct-to-consumer quoting platform, which was introduced last year. “We believe the potential of this platform is significant as we build out and continue to invest in digital marketing and actively explore possible partnership opportunities that would embed our digital agent into partners’ client acquisition processes,” Jones said this week.

In sum, Goosehead’s intentions are public, requiring it to display its digital muscles to investors. This time around, it won’t be as simple as selling a vision to insurance agents, but as challenging as selling insurance.