🍟 4/24/2023 – Yale Releases Case Study On Franchises


Yale Explores Franchises

Over a month ago I was contacted by a professor at Yale who had come across my content, and wanted to chat to learn more about franchises. 

The professor let me know he was writing a case-study for his MBA students on the pros & cons of franchise ownership. That case study was released about a week ago, and provides incredible depth on the pros and cons of being a franchisee. 

If you want to dive into the full-case study, you can do so here. Below I’ll give the highlights and some interesting facts I found that are helpful for you to know!

Obvious Disclaimer: You Don’t Need an MBA To Be A Franchisee

The beauty of franchise ownership (and small business ownership in general) is that your network, resume, degree, etc. don’t matter. There are no prerequisites that need to be met to be invited to have a seat at this table of entrepreneurship.

If you want to own your own business, all that’s required is the will to go out and get it. Folks like Lucas Mitchell are a great example of this – a college dropout who now owns 15+ Five Guys locations. 

That said, much has been written about the “Silver Tsunami” in the past few years, and it seems people are starting to wake up to the benefits of small businesses that are franchises. 

Given that, I do think franchise ownership will become more competitive in the coming years, as more people, such as MBA students, look to strike out on their own versus work for a mega corporation or consulting firm. 

While having an MBA doesn’t truly mean anything in the world of small business, the skills these students bring to the table can certainly be a differentiator, namely financial modeling, intelligent capital and resource allocation, acquisition valuation, cap table structuring, organizational management, etc. 

Michael Horowitz, whom I had on Franchise Empires in season 2, is a great example of the MBA caliber franchisee. A graduate of Harvard Business School, he got into franchise ownership by acquiring seven Wingstop’s in 2018, and has quickly grown it into a 20+ location empire. 

Many of the skills I previously listed are not only what helped make him a successful multi-unit owner, but also assisted him in even being able to break into a nationally competitive brand like Wingstop as a first time franchisee.

To reiterate what I said at the beginning, below are some of the highlights of the case study that are helpful/interesting to anyone interested in franchise ownership. 

12 Reasons Why MBA-Students Shun Franchises

  1. Social stigma – this is as uncool as you can get
  2. Royalty payments
  3. Most franchised businesses lack contractual recurring revenue and are B2C
  4. Same-store growth can be capped and therefore growth could be capital intensive
  5. Organic and acquired growth requires franchisor approval
  6. Barrier to entry in a system
  7. Limited buyer pool when exiting
  8. Constraints on operating policies
  9. Many franchisees have low-wage labor with very high turnover rates
  10. Low awareness or resources in elite MBA programs – no peer momentum
  11. Franchisor might overdevelop and impair economics
  12. Low perceived social impact

My Take

Many of these reasons overlap with why most people in general will overlook franchise ownership. 

You have to pay royalties, the franchisors may sell a location down the street from you, and you have zero operational freedom! Right? 


As you know, this isn’t the case the large majority of the time. If it was, there wouldn’t be people like Greg Flynn who have become multi-billionaires by just being a franchisee. Nonetheless, these preconceived ideas exist because there have been bad actors in franchising that give the industry as a whole a bad name.

On that note, the case-study did dive into what gives the franchisee the highest chance of success.

Brand x Location

Back in early February I wrote a deep dive titled “Don’t Forget About The Real Estate”, which was effectively a reminder that while the franchise brand you choose is critical, so is the location you secure, and the geographic market you operate in.

Depending on your market, a brand may or may not be a good fit. 

Yale’s study also finds this to be the case, that to set yourself up for the highest chance of success, it’s not just about picking a strong brand, but also operating in a market that strongly supports said brand.

12 Reasons Why MBA-Students Should Consider

  1. Proven business model
  2. Stable revenue and cash flow streams
  3. Highly fragmented acquisition opportunities once in the system
  4. Easier integration of acquisitions
  5. Opportunity to rent the brand
  6. Community of shared knowledge
  7. Some banks have specialty lending units that focus on franchisees
  8. Some systems have extremely compelling 4-wall ROIC and unit economics
  9. Unique real estate economics
  10. No need for a great idea
  11. Shallow competitive talent pools
  12. Franchisor might favor a professional, credentialed CEO

My Take

I’ve harped on quite a few of these over the last 12 months, in particularly point 3 & 4. 

If you’re looking to build a multi-unit platform, franchises offer more acquisition opportunities once you break into a brand, and each location is easier to integrate thanks to the uniformity of franchises.

This is contrasted against the “search entrepreneur” that is looking to acquire numerous mom & pop businesses who all have a different brand, culture, operating system, website, etc.

Overall, these 12 reasons are all great indicators of the benefits of franchises, and is why you see successful multi-unit operators out there.

Interesting Nuggets

Below are some of the more interesting facts on franchising in general that Yale found from doing numerous phone calls like the one they did with me. 

Franchisor Acquisition Multiples

Given the capital light and recurring revenue model of franchisors, they trade at significantly higher EBITDA multiples than franchisees. An excerpt from the case study reads:

According to a tier-one private equity firm, with twenty-plus franchisor acquisition observations totaling more than $30 billion in trading value, the average buy is 5x revenue and 16x EBITDA, with some deals touching nearly 20x EBITDA.

Being a franchisor is a much more difficult game than being a franchisee, but damn those are impressive numbers!

MBA / College Programs Based Around Franchising

Overall, there are very few courses dedicated to franchising, as well as very few faculty members researching franchising. 

A few institutions that do have a curriculum that sheds light on franchises are Palm Beach Atlantic’s Titus Center for Franchising, Northwood University, The Tariq Farid Franchise Institute at Babson College, and the Yum! Center for Global Franchise Excellence at University of Louisville College of Business.

To read the full case-study, click here.


Hooters Turns 40, Offers Special Deal for New Franchisees

As Hooters celebrates its 40th anniversary this year, the company offers 40 royalty-free weeks to franchisees who sign agreements by Dec. 31. The leadership of the full-service casual-dining brand, which is entering its third year of growth in same-store sales, plans for ambitious domestic growth in 2023. The Hooters franchise has premium territories available around the United States.

International Operator McWin Bets Big on Burger King, Popeyes in Europe

Danielewicz is chairman of Rex Concepts, the newly created platform under McWin Capital Partners to develop Burger King in Czech Republic, Poland and Romania, and Popeyes in Czech Republic and Poland. The master franchise and development agreements call for some 600 restaurants to open in these countries over the next 10 years, scale that appears daunting before considering the experience of McWin’s founders and its leadership team.

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.