The most important choice a master franchisee or a multi-unit developer will make is in selecting the most suitable brand. Matthew Jonas advises
Thousands of hopeful entrepreneurs turn to start-up or single-unit franchising for a number of reasons. They want to start a business but are afraid to do so alone; they’re fed up working 9 to 5 for someone else’s benefit; they want to leave something behind for their family. Whatever the reason, these optimistic businessmen and women have determined that franchising is their path to entrepreneurship.
But for you, the multi-unit investor, franchising is much more than just an emotional decision. You understand the elements of business ownership; know the personal and financial commitments a franchise requires; and are a sophisticated and educated investor. For you, deciding which brand is worth investing in is less about your feelings for the brand, though they’re still relevant, and more about how it will impact your business portfolio.
Obviously, financial capability and capital acquisition will play a huge role in selecting the right franchise fit for you, but even as a sophisticated investor, there are several brand-centric considerations to identify before making your multi-unit commitment.
What’s your risk tolerance?
When deciding on any significant financial investment, your first step should always be to set a tolerance for risk. The same goes for shopping a franchise brand, no matter if it’s your first or your fifth. An honest conversation with not only your prospective franchisor – but also your investor team or board of directors, your lawyers and accountants, and even your existing operations team, is necessary to determine what you can and cannot invest in, and whether or not this investment is right for you. Consider the best agreement structure for your portfolio and select a franchise system that fits within your budget, your current portfolio, your current team’s strengths.
But, just because you’re a seasoned multi-unit franchisee, doesn’t mean you have endless capital and can be careless with your selection.
A good first step in choosing a franchise system, is to choose one in an industry that you’re familiar with. This allows you the opportunity to explore the idiosyncrasies of franchising within an industry sector that feels comfortable to you. It can also be a great opportunity to expand your expertise within the industry and allow for a wider business profile in the future.
Considerations for multi-unit franchise ownership:
New vs. familiar industry sectors
Personal, as well as professional, goals
Future growth plans
Of course, you can explore the alternative of investing in a new, unfamiliar industry. In doing so, you are presented with a unique learning opportunity to enter a new market, providing diversity in your business portfolio and allowing you the opportunity to tap into an emerging or trending consumer market. Keep in mind that exploring alternative franchise options may increase your risk and can create strain on your current investment team. Also be diligent in researching whether this industry is riding on trends or is poised for long-term, steady growth.
There are pros and cons for each option, so a close inspection of ROI potential, initial investment and business longevity should always be a priority.
What are your personal goals?
More than a financial or professional commitment, investing in any franchise is also very much a personal commitment. Not only do franchisees invest hundreds of thousands of dollars to open a business, they also invest a personal commitment that exceeds most other career choices. In order to make sure you’re making the right decision for your future, it’s important to consider how your personal goals fit with the goals for your ideal franchise brand.
Start by reflecting on what you’re looking to achieve as a multi-unit franchisee. What are your motivations for multi-unit franchise ownership in a new brand? Do you want to, or can you be, directly involved in operations; can you leverage your current team’s capabilities, or do you need to hire a new management team to oversee additional locations? Are you interested in large territories or local or regional development? Are you looking to leverage the purchase of a new franchise as part of a goal to expand your portfolio for continued growth, or as a means to establish a foundation for a near-term exit strategy?
Identifying these goals will provide evidence of your expertise, experience, motivation and financial means that are needed to convince a franchisor that you’re a good fit for their brand. Because at the end of the day, whether you’re passionate about a brand and confident in the potential for the investment, it’s ultimately up to the company to award you the opportunity to invest.
What does your future look like?
Once you determine your motivators for multi-unit ownership and the market sector you plan to invest in, then it’s time to consider what specific opportunities the market has to offer. With hundreds of franchise opportunities available, sorting through the best can be a daunting task. It’s easy for emerging franchisees to be attracted to the hottest or biggest franchise on the market. But as an established business professional, you know the keys to a strong franchise system – industry sustainability, brand awareness, territory reach, market position and of course, franchise health.
The first step when considering a franchise investment is to look at the brand’s track record. The best way to do that is by talking to existing franchisees. These individuals not only have similar business goals, they’ve already made the step that you’re considering. If existing franchisees have achieved their goals and have received the expected support from their franchisor, they will most likely have glowing reviews and give you a good idea of what you can expect. If these franchisees haven’t experienced success, whether on their own accord or because of a failure from the franchisor, they will be likely to spill the beans. Show caution in these instances though – rarely will a franchisee admit fault in a failing business.
But existing franchisees aren’t the only place to gather information about a prospective brand. The industry and market can also reveal the truth about your brand of choice. Through franchise marketing, brands tout themselves as “leaders in the industry” or the “hottest concept on the market.” Truth is, you can tell a brand’s real market position based on what others are saying about them.
Spend time coursing through industry-specific magazines. Look for impartial, versus self-promotional, conversations about the brand’s reputation. Pour through social media accounts and online review sites to see what customers are saying. You may also want to research your choice brand’s closest competitors. Explore the number of open and operating locations; identify closed locations and ask why they’ve closed; determine the areas and markets these locations have opened; and most importantly, learn what kind of support and systems are available to you as a multi-unit franchisee.
When to make the decision?
Ultimately, the decision to invest in a franchise is unique to each investor, but those who are able to utilize a combination of emotional connection and objective due diligence are often set up for the best success. Of course, the potential return on investment must be a significant factor in your decision making, but you also have to believe in the company’s goals and its future in the market niche you’re investing in.
As the saying goes, “Do something that you love, and you’ll never work a day in your life.” Investing in a franchise is more than buying stock or providing capital as an angel investor. Franchise ownership, whether single or multi-unit, is a years and often decades-long commitment. The biggest question to answer when selecting a new franchise brand, is how do you see yourself fitting in with both the system and the industry segment long-term?
ABOUT THE AUTHOR
Matthew Jonas is the president and co-founder of TopFire Media, an award-winning, public relations, and digital media agency specializing in franchise marketing. As one of the premier full-service marketing agencies in North America, TopFire Media expertly blends the best in marketing and digital lead generation strategy to engage any audience, in any industry, on the value of nuanced branding, storytelling and strategic, data-fueled marketing to grow a business. www.topfiremedia.com twitter: www.twitter.com/TopFireMedia facebook: www.facebook.com/TopFireMedia
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