Fine-Tuning Franchise Performance: CFO John Cappadona

"We survived COVID-19; we’ll get through this," said the School of Rock CFO about a possible recession.

School of Rock CFO John Cappadona is one of a burgeoning group of finance chiefs who traversed the financial planning and analysis route to the CFO seat. For Cappadona, interpreting key performance indicators and optimizing growth while maximizing cash flow and profitability is second nature.

And the School of Rock music school and tech platform is growing, with 315 franchises [47 owned by corporate] in 15 countries and hundreds more in development. Since Cappadona joined in 2018, the number of children and adults who learn guitar, keyboard, bass, drums, and other music from School of Rock has more than doubled, to 56,000, and revenue has increased two-and-half times.

The franchise music school’s secret sauce is a subscription model that provides one-on-one lessons and puts students in a band that rehearses as a group, working toward a season-ending live show. The patented School of Rock Method builds musical proficiency through a proprietary Method App, Method Book collection, SongFirst approach, and performance-based music curriculum.

The mobile Method AppTM features exercises assigned by instructors, real-time interactive feedback, thousands of song transcriptions, and customizable song backing tracks that allow students to rehearse with other instruments.

I sat down with Cappadona at a conference in Las Vegas to discuss economic trends affecting the company and its franchises. In addition, we discussed how the CFO of a franchiser encourages individual owners to improve financial performance.

John Cappadona

CFO, School of Rock

  • First CFO position: 2018
  • Notable previous companies:
    • Sentient Jet
    • W.B. Mason
    • Gyrus ACMI

This interview had been edited for clarity and length.

VINCENT RYAN: Are there any economic trends that are challenges for School of Rock’s plans for growth?

John Cappadona: We have invested in our New School Opening process significantly. It has led to schools opening stronger than before and reaching milestones quicker. But the supply chain disruption has been hurting us. We got our process of opening a new franchise down to nine months before the pandemic hit — from the signing of the franchise agreement to a school opening. Now that’s back up to 13 months. And then, honestly, we’re sitting tight waiting for the shoe to drop on the recession. If the economy is fluctuating, people are less likely to risk capital. I’m looking at it this way: We survived COVID-19; we’ll get through this. We’re very nimble.

How well did you weather the pandemic?

Cappadona: Within two weeks of the shutdowns, we put together a Zoom-based solution to give remote one-on-one lessons. COVID-19 put a lot of pressure on us and [the franchises]. Fortunately, many U.S. franchisees qualified for Paycheck Protection Program (PPP) funding. We started forecasting monthly, put all capex on hold, and took out loans. I made sure that we had enough cash, and we paid all the loans back. … Now with the fully remote option we developed, our enrollment dips aren’t as big in the summer as they used to be.

I’m looking at it this way: We survived COVID-19; we’ll get through this. We’re very nimble.

In what areas are your capital expenditures?

Cappadona: Capex would include refurbishing schools, buying music gear, and investing in technology. We have significantly invested in our curriculum. We have a patented method that students use on the mobile app. Our instructors transcribed 1,200 songs for [vocals and instruments.]

What fees do franchisees pay?

Cappadona: The franchisees pay royalties and an IT fee for use of various systems. … The only thing we require is that they use our point-of-sale system. But we have relationships with vendors that they can go to for preferred pricing on other things. The thing that’s nice is domestically we have their ACH information, so I just withdraw those royalty funds every month. 

Do you get any other financial performance data from the franchises?

Cappadona: Quarterly they have to submit profit & loss (P&L) statements. The director of operations will review the P&Ls with the franchisees each quarter, pointing out opportunities and looking at metrics like labor as a percentage of revenue. The business is highly variable, but the model is quite simple — the more students you have to leverage your fixed costs, the more profit you make.  

Since we consolidate all the franchise numbers, we started to publish a profitability tool in Google Sheets [for franchisees]. We show them their trailing 12-month P&L and other metrics. Franchisees can also measure themselves against other schools. And we give them the ability to ask ‘what if’ in the tool. What if you raised your pricing? What if you increased your student count? 

We just launched Microsoft Power BI [data visualization software] a couple of months ago, and the tool will [be on that platform by the end of the year]. 

The business is highly variable, but the model is quite simple — the more students you have to leverage your fixed costs, the more profit you make.  

Who tends to sign up for franchises?

Cappadona: With a lot of franchisees, it’s a passion play. It helps if they have a music background, but it’s not needed. … We’re getting a lot of people with solid business backgrounds. And then we get parents who saw how School of Rock transformed their children and want to be part of it.

Are you a musician yourself?

Cappadona: I am not. I’m actually the prototypical reason why this model works.

Because when I was a kid, I wanted to play the drums. And they gave me a snare drum and a book with notes. I did it for like, five months, and then baseball season came. I wanted to be in a band … With [School of Rock’s] method, within a couple of lessons, some kids are able to bang out an AC/DC tune. … Our method gives the kids a sense of belonging. As a parent, I’d much rather have my kid doing that than playing Fortnight.