🍟 2/20/2023 – Two Strategies for Multi-Unit Franchise Ownership
2 Strategies for Becoming A Multi-Unit Owner
If you’ve been following me long enough, be it this newsletter, on twitter, or my podcast, you’ll note that just about every time I’ve talked about multi-unit ownership, it’s via 1 of 2 strategies:
- Find an promising emerging brand, secure a large territory, and build out your units
- Break into a large established brand, and acquire existing locations from retiring owners (or owners who are looking to sell)
Both strategies come with their own pros & cons. Let’s review each:
Finding An Emerging Brand
This can be difficult as franchise research isn’t made easy for buyers.
If you google franchises to buy, you’ll end up on a bunch of websites known as “franchise directories”. These websites offer little information, and are usually collecting your email and phone number so that they can sell it to franchises, who will then contact you relentlessly.
I know this as I used to work with franchise directories when I worked in franchise development. My coworker and I would also submit ourselves as “dummy leads” on various websites to see how they truly operated. It was SHOCKING to see how after 2-3 months, you’d get contacted again by a new set of franchises.
Lead gen is a shady business folks. But I digress..
Beyond the discovery problem with emerging franchises (that’s what I’m here for ), once you do find a promising emerging brand, you have a much higher chance of securing a territory relative to a brand that has units built nationwide.
Read: my past newsletter “5 Criteria of an Emerging Franchise” for how to analyze emerging brands.
He spotted a winning brand, secured a large territory, and built out his units. He could’ve stopped there and enjoyed making 7 figures in cash flow per year, but he took it a few notches higher and partnered with private equity to build a national platform.
You don’t have to go that HAM if you don’t want to, as 4-8 locations of many brands will still create a nice life for yourself and your family.
Acquiring Locations For Established Brands
This strategy requires more finesse, tact, and nuance than the previous strategy.
To break into an established brand isn’t easy. Unlike an emerging brand that’s trying to make a name for itself, you can’t just fill out the request info form on an established brand’s website and expect a response.
You’ve got to network, either by finding franchisees, or by doing cold outreach on LinkedIn to find the franchise development employees at the brand.
My conversation with Michael Horowitz (ex Wall Street gent in his low 30’s who now owns 20 Wingstops) provided amazing insight into this in our conversation on Franchise Empires.
Before deciding on Wingstop, he was able to get into the due diligence process for just about all the massive food brands:
- Pizza Hut
- Burger King
As a first time buyer, just getting meetings with those brands is an accomplishment. His strategy was brilliant and is one you can use too.
But why is the juice worth the squeeze, Wolf?
Because once you’re in with an established brand, you’re apart of a massive private network of business owners i.e. the other franchisees. And with older brands, at any given point, there are up to reasons why franchisees may be looking to sell:
- Older franchisees want to retire
- Under performing operators are looking to exit
- Franchisees that have grown their units may just want to cash out (and chase the next brand)
When you’re a part of the club as a franchisee, you can network with every owner, and let them know you’re interested in acquiring locations. Brian Beers has acquired 20+ Midas locations from existing owners by doing this.
He’s also been able to preserve capital by negotiating most of his deals to be seller financed. This is where the finesse comes into play, as you need to hone your negotiation skills. But Brian gives his full on playbook in our conversation.
There can be many shades of gray with each strategy.
Many franchisees start out building then start acquiring later on. This works out great because by building locations, the franchise owner learns the business inside & out and has likely worked every job possible that the franchise offers.
This granular understanding of operations not only makes it easier to pinpoint if another franchisee is worth acquiring, it helps culturally within your organization, as employees respect those who have done the work themselves.
It’s the difference between a General who has fought in the field with her/his troops, vs the one who makes decisions from afar.
Regardless of the strategy you choose, picking the right brand for you is your biggest decision. And regardless of what anyone says, the best resource is to speak to existing franchisees of a brand.
An old colleague of mine tries to find franchisees in the New Jersey/New York area, because he says “east coasters tell you how they really feel”.
Food for thought there 😂but hopefully this gives you a good macro perspective for how to look at becoming a multi-unit owner.
Why Pizza Hut Red Roofs & McDonald’s Play Places Are Gone
I wrote about this awhile ago, but this article is a reminder of the signs of the times. Big dining rooms, large structures and experience focused assets are out, and compact, drive-thru only units are in.
Burger King Looks to Reclaim The Flame
The franchise is now being run by Domino’s legend Patrick Doyle, who is leading a $400M investment into stores to revamp their branding and tech. He’s also put healthy incentives in place, such as not being able to increase the brand fund until average franchisees profitability reaches $175K per store (currently at $140K).
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