🍟 10/16/2023 – Five Hot Takes Every Franchise Buyer Should Read
5 Hot Takes Everyone Buying A Franchise Should Read
5 Hot Takes Everyone Buying a Franchise Should Know
1. Entrepreneur Franchise 500 Is Not A Genuine Ranking
Everyone in the industry knows this, but no one really talks about it.
Yes, the Franchise 500 is a useful tool to discover franchises. But if you think they have objective franchise analysts working there, you’re mistaken.
Some of the brands on that list are highlighted organically, but many (who knows the exact %) are on a pay-to-play program. In other words, brands will pay to be included on that list, and then they go and tout the Entrepreneur Badge on their website, bring it up on sales calls with prospects to try and build credibility, and so on.
I’ve been in the franchise development role, and I’ve gotten the emails from their staff.
“Hey, we’d love to include your brand in this year’s list. We just need a $XXXX placement fee deposit and you’ll be locked in for your ranking”.
And from the franchisors perspective, I get it. Growing a franchise is hard, so using this as a marketing gimmick and to boost your sales process is what many do.
But I’m here to bring transparency for franchise buyers, so it’s worth highlighting.
For some this won’t be a surprise, as most media companies operate with pay-to-play incentives. Personal finance blogs are always recommending the “best credit cards of the year”, but in reality they’re highlighting the credit card companies that pay them the highest affiliate fees.
And if you don’t believe me, ask yourself, why are so many hotel brands that no one can afford high on this list? And why hasn’t a brand like Crumbl Cookies ever been on this list?
Hint: they refused to play the silly games that most in this industry do.
2. Most franchises Aren’t Worth It
Close to a month ago I wrote about how roughly half of franchises don’t share a lick of financial performance data in their FDDs. Some of them are massive brands that just outsource their validation to their franchisees.
But many are doing that because the numbers won’t paint a pretty picture, and thus would make it more difficult to sell franchises. Plain and simple.
I don’t have an exact percentage, but I’d say roughly anywhere from 80-90% of franchises aren’t worth the time, effort, and risk that you take on as a franchisee.
Don’t settle for a brand that doesn’t show a clear path to ROI. Don’t settle on a franchisor that seems disorganized or doesn’t have their operations dialed in.
It’s you, the franchisee, who will pay for it in the end. Don’t settle for anything less than a path to financial freedom, with a professional, ethical franchisor.
3. The Vibe Matters
A while ago, I was a guest on a popular podcast for entrepreneurs. Naturally they brought me on to talk about the world of franchises.
At one point I was talking about the concept of multi-unit ownership, and referenced a franchisee who owns 30+ Midas franchises. One of the hosts, who is in his young 30’s and already sold a company for north of $20M, asked me “I’m sure he makes a lot of money, but is owning 30 automotive service centers fun?”.
It was the first time someone ever asked me that, and I’ve thought about it a lot since.
Part of me thinks choosing to work on things you find fun is a privilege you have to earn, and until you do so, you should work on whatever provides you with the best return.
But I also see so many people who work in corporate America romanticizing the SMB / multi-unit franchise path, yet they’ve never worked a single day for a small business.
I bring this up because I don’t think enough people truly think about how your world changes once you buy into a franchise.
Say goodbye to company happy hours. Say goodbye to big teams, fancy conference rooms, company swag, etc. If you have an office, the vibes in it are probably like The Office. I love the show, but let’s be real, how many of us would actually want to work for Dunder Mifflin?
When you start a franchise, your world shrinks, and it becomes just you, a single location, and whoever your first employees are. Many jump from a white-collar corporate environment, to a blue-collar working class world where they are the only person who has a college degree.
It’s a culture shock that many aren’t ready for, and to close the loop here…many don’t actually have fun doing it. They become miserable when they realize the reality of building a multi-unit portfolio is 60 hour weeks in the unsexy world of small businesses.
For some, the financial gain truly isn’t worth it, and there’s nothing wrong with that.
So whatever franchise you’re considering buying, really envision that day-to-day grind and if you’re ready to take the leap!
4. Do Not Sign a Franchise Agreement With Liquidated Damages
There are franchisors and attorneys out there who say this is a good protection to have. If a zee shuts down early, the Zor deserves to be compensated for the royalties they would’ve otherwise earned. I get it…kind of….not really though.
Franchisees that are happy and making money don’t shut down early. You know who wants to shut down early? The franchisees that are miserable and/or performing horribly. Maybe it’s because they didn’t follow the protocol, or perhaps because the concept doesn’t have much of a competitive advantage. And maybe sometimes….shit just happens, ya know?
Most franchise owners get their start by risking a lot of personal capital, or putting all of their assets on the line with a personal guarantee on an SBA loan. Do you really think any franchisee wants to shut down early after paying a $50k-$60k franchise fee, and investing all the time and energy it takes to start a business?
If a franchisor is hellbent on extracting capital from a failed franchisee to generate revenue, that’s a problem.
Credit to Dave’s Hot Chicken for having enough confidence in their concept and franchisee selection process to not include this provision that to me just seems like the epitome of kicking someone when they’re already down.
5. Chick-Fil-A is An Amazing Opportunity
Wait, Wolf…how is this a hot take?
If you spend time on Twitter (still refusing to call it X 😓), just about everyone has the same take on being a Chick-Fil-A franchisee.
“It’s not a real franchise”
“You’re just a highly paid manager”
“You don’t have any equity in the business”.
The last line in particular is true. But you know what is also true?
The standard Chick-Fil-A franchisee is taking home (and I’m being conservative with this) $300k+ each year. I’ve been told by current operators and other people that work closely with their zees that many earn $500k-$750k/year.
Take your pick, and compare any of those numbers to the median household income in America (as of 2022):
So yeah, you can’t sell your Chick-Fil-A location when you want to retire or move on to the next venture.
But for the vast majority of Americans, Chick-Fil-A is a chance to earn a level of income that they’d realistically never have a chance of making.
Oh…and it only costs $10k to do so.
The entrepreneur bubble on twitter may say one thing, but in the words of Logan Roy, most people would be better off just taking the f*cking money 😬.
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