🍟 11/13/2023 – The Truth About Semi-Absentee Franchises

DEEP DIVE 

The Truth About Semi-Absentee Franchises

The idea of semi-absentee (or even fully absentee) franchise ownership is incredibly common nowadays. 

Prominent franchise sales organizations won’t accept brands that don’t advertise their concept as “semi-absentee”.

You’ve probably heard stories of massive multi-unit franchise owners who own hundreds of locations (possibly even from me) and may have extrapolated the idea that, “hey, you can manage a bunch of businesses without actually having to be there”.

I’m here to tell you today, if you’re a first time franchise buyer, get that idea out of your head immediately. 

Building an organization that owns multiple franchises, be it 2 locations, or 2,000 locations, is anything but semi-absentee.

I say this not to be negative, but to provide a dose of reality, and to hopefully give pause to someone who is close to buying a franchise with the wrong expectations. 

The majority of first time business buyers are typically funding their purchase of a franchise with a personally guaranteed loan, meaning, if the business fails, the bank takes everything from you and you declare bankruptcy.

And bankruptcy is real, sad, serious, and nasty – you don’t just shout it out and move on like Michael Scott does in The Office. It is a financial armageddon in your life that requires you to start over from zero. 

And yet, given the stakes, there are tons of franchises being sold by sales reps as “semi-absentee”. They’re telling white collar professionals who have never owned a small business, “you don’t need to quit that job, you can just hire a manager from day 1”. 

BULLSHIT.

In the (paraphrased) words of my twitter friend and very successful small business entrepreneur Jon Matzner:

Imagine if someone said ‘YOLO, I’m going to have a bunch of kids, it’s cool though, I’ll just hire a nanny’.

Dude – that’s not how it works at ALL”.

I don’t think anyone approaches having kids with that mindset, and it should be the same with starting a business. Forget the financial ramifications and everything else – the biggest falsehood of “semi-absentee” concepts is that it completely ignores human emotion.

Do you really think if you bought a franchise that could theoretically bankrupt you and/or lose hundreds of thousands of dollars, that you could simply hire a manager to do the majority of the work for you? You wouldn’t be thinking about that business 24/7? Would you really be able to go about your days and weeks as normal and not be anything but in the weeds of that business to ensure it succeeds? 

Semi-absentee ownership is something that must be earned, but it starts with being a full-time operator. 

The big time franchisees who are buying a new concept today and running it “semi-absentee” from the get-go have already built their management team with another concept, and have the cashflow where they can afford for things to go wrong.

As a first time owner, that is not you. You need to be all in. And even then, it might not be enough.

Again, I say this not to discourage franchise ownership or entrepreneurship in general, but people need to have the right expectations.

And let me say that as an industry, franchising does a f*cking terrible job at aligning expectations. 

Why is that? 

Because it’s filled with too many franchise brokers and franchise sales organizations that make their money off of franchise fee commissions. The incentive structure is set up for bad outcomes. 

If you don’t believe me, I legitimately have full-on pro-formas in my inbox for brands represented by a prominent private equity backed franchise sales organization – one of the steps of their sales process is to project financials for candidates.  

Outside of the fact that this is a sales tactic that is CLEAR grounds for a lawsuit, you don’t have to be a rocket scientist to understand why the person who’s paid $5,000-$20,000 in commission if you buy a franchise, isn’t the most trustworthy person to take pro-forma advice from. 

Unfortunately, many franchise owners have realized that all the rah rah support around buying a franchise disappears after the transaction is complete, and they realize they have a mountain of work to do all on their own, and it will take years to figure it out. 

The good franchisors and professionalized concepts do not turn out like this. But sadly many in this industry are just franchise fee factories. 

Don’t fall for the BS narratives, and don’t take advice from anyone (including me) who isn’t a franchisee of the concept you’re considering buying. 


Stay safe out there folks. 


FRANCHISE HEADLINES

California’s New Minimum Wage Spurs Price Hikes at McDonald’s, Chipotle

To counteract next year’s higher minimum wage for California fast-food workers, McDonald’s and Chipotle Mexican Grill are poised to increase menu prices. Most of the Golden State’s 500,000 fast-food workers will earn $20 per hour or more starting next April 1 under the FAST Act, which was signed into law on Labor Day of this year. 

Franchisors, along with the International Franchise Association and several other trade organizations, had battled the pending legislation and warned that it would force fast-food restaurants to raise their prices. The new law applies to nearly all California fast-food restaurant brands with 60 or more locations nationwide.   

Buena Papa Gains ‘Shark Tank’ Investor, Plans for Nationwide Expansion

Buena Papa Fry Bar was born on accident, but a new strategic investment is preparing the franchise for expansion beyond the four corporate stores open.

Co-founders James and Johanna Windon appeared on a “Shark Tank” episode that aired in October, in which they received a $400,000 investment from Robert Herjavec. The investment comes with a 19 percent stake in the business for Herjavec. The pair initially pitched $400,000 for a 7 percent stake.

Disclaimer: This Content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. Nothing contained on this site constitutes a solicitation, recommendation, endorsement, or offer to buy or sell any franchises, securities, or other financial instruments in this or in any other jurisdiction in which such solicitation or offer would be unlawful under the franchise and/or securities laws of such jurisdiction.

All Content in this email is information of a general nature and does not address the detailed circumstances of any particular individual or entity. Nothing in the email constitutes professional and/or financial advice, nor does any information in the email constitute a comprehensive or complete statement of the matters discussed or the law relating thereto. You alone assume the sole responsibility of evaluating the merits and risks associated with the use of any information or other Content in this email before making any decisions based on such information or other Content.