The Franchise World is adapting to the influx of multi-unit/brand empire building, overseas investor, family office and investment fund candidates for franchise opportunities. The step taken in the past was moving from owner operated franchises to semi-absentee.
Now the move is from semi-absentee to a “done for you” franchise investment where the franchisor sells you a franchise then provides a management company approach to running it for you.
You may already be a little familiar with this from hotels you stay at. The model has been represented in that industry for real estate investors who wanted to build and own a building but did want to run the business so they would contract with a big hotel brand to run a hotel in the building they build. The barriers to entry there were the cost of entry and how many dollars were invested in one piece of property, so diversifying was a very big financial play.
Now we are seeing a similar models in Food, medical, pets and contractor services, with more on the way. Depending on the brand, the model may allow for a single unit purchase or require that the buyer sign an Area Developer (multi-unit) contract where they will fund the development of an entire market and the franchisor will run it for them, for a fee of some sort.
This is not your Father’s vending machine business.
To some candidates we talk to the idea of an old school vending “business” has always seemed like a model where they could invest some money and not have a real business to run. Just had to restock the sodas and count the quarters. That business is much harder now and the people that seem to make the most money in that business manufacture machines, make sodas and find the ever rarer locations for the machines to live.
But for some reason it sticks in people heads as a simple way to invest and grow.
So how does today’s market offer a business where you can invest in a more robust business that services identifiable needs, but doesn’t require you top operate it or oversee the managers? This done for you solution where the franchisor, the folks that created the business model and tested it, run the business and update you every step of the way.
Now, here is my disclaimer, the fact that someone offers and done for you option on a franchise opportunity does not make it a good investment for you. And no, I am not going to name brands that others have checked out and approved because their criteria will be different from yours.
That said, I know there are great brands using this model, run by outstanding franchise pros, and with some savvy search and investigation you can find great concepts in this space, possibly the very same ones my candidates investigate.
Two investigations are in order.
The first investigation is into the franchise opportunity itself. Is it a brand that is in demand? Does it have a good business model? Do the unit economics make sense? The basics of a good franchise investigation have not changed.
If the franchise investigation checks out then move on to look into the management company itself.
Look into how they have tested the model in the real world. I would expect they do site selection, if that is a factor, manage the build out and hire any front-line staff and unit managers. Those pieces are pretty straight forward and easy to identify.
My questions would go quickly to who manages the managers, how does that communication work and how do numbers get communicated to the investor?
While technology gives us far more advantages in business operations than we used to have, there are advantages to someone in the market overseeing the managers and staff at the locations you may invest in.
Talk to the franchisor about how the development of the team in the market will play out as the market grows in terms of locations or dollar volume. How will they maximize customer satisfaction, revenues and profits?
I would want to see the management company compensation having incentives built in based on performance so that they make more money when you make more money.
Once you have investigated the franchise and the management company it is time to strategize a bit. How many locations would make sense based on the unit economics of the business and the cost of the done for you program? Or, might it me an entire market?
With the business being run by someone else, do you want to have it in your home market or another? This could be cost driven or decided by where the management company can best support your business.
This is a big opportunity within the franchise arena. Take your time, dive into the model and maybe it is an empire builder for you.
George Knauf is a highly sought after, trusted advisor to many companies; Public, Independent and Franchised, of all sizes and in many markets. His 20 plus years of experience in both start-up and mature business operations makes him uniquely qualified to advise individuals that have dreamed of going into business for themselves in order to gain more control, independence, time flexibility and to be able to earn in proportion to their real contribution.
Contact the Franchising USA Expert George’s Hotline 703-424-2980.