How to Spot the Next 500-Unit Franchise I've taken 10 franchises to more than 100 international locations because I know how to spot emerging brands that are primed for success. Here's what I look for.
By Dan Rowe Edited by Jessica Thomas
Opinions expressed by Entrepreneur contributors are their own.
The only reason to get into franchising is to get rich. Franchises are a dime a dozen. It's taken me 30 years to train my eye, but I know a winner when I see one.
I've taken 10 different brands to more than 100 international locations. I don't know anyone else who can make that claim. That's why I started Fransmart — a company devoted to accelerating the growth of America's next great franchise concepts. We help emerging brands — usually with fewer than 10 locations — develop better operations, marketing practices and real estate selection. We connect those brands with potential franchisees who are looking to build their wealth.
For years, I was short-sighted when it came to investing in a brand. It was all about getting that franchise fee. Now, I'm focused on brands that have the potential for long-term rewards. Royalties and a potential future exit are the names of the game when it comes to building wealth in franchising.
Remember, the second bite of the apple with franchising is building a company you can sell someday. Franchising an established brand is a risky play when it comes to future sales. Investing in an emerging brand that's poised for growth means you're getting in when costs are low and returns will be much higher. Think about the long game.
You should be looking to sell your stores at the apex of interest. I used to be in the bagel business. I built a brand to 200 units — we were crushing it. What happened next? Atkins. It took me too long to recognize the trend, and by the time I sold, I'd missed out on a much bigger exit.
If you're looking to buy a franchise, knowing what I know can help you find the next big thing. Here's what I look for.
Related: Considering franchise ownership? Get started now and take this quiz to find your personalized list of franchises that match your lifestyle, interests and budget.
Unit economics is king
People vote with their wallets. When people see a line outside a business, they make a note of it. Potential investors should do the same.
At Fransmart, half of what I look for is the next big thing, and half is the potential for a category winner. The common aspect is always good unit economics. We know the levers to pull to raise sales and lower costs. At the end of the day, it's all about driving more profit.
A lot of people focus on vanity metrics. Things like followers, likes and flashy anecdotes on websites are nice, but they're easily fabricated and don't tell the whole story of a brand.
Do you know what always tells the whole story? Sales.
Related: Want to Become a Franchisee? Run Through This Checklist First.
The "scrappy" factor
We probably all dreamed of having a McDonald's in our backyard when we were kids, but grown-ups know the money is in finding a brand that's still scrappy.
I define "scrappy" as a brand that's hungry to grow. Its owners are cutting the fat, friendly to cheap conversions to drive growth and marketing like mad. The brands that are hungry to grow offer the biggest and quickest returns on your money.
Target brands that are still under 200 locations. That's when they're still scrappy.
Related: Everything To Know About Financing Your Franchise
Quick to ROI
Remember: Every check you write is an investment, not a cost.
Real estate and the Dow Jones don't hold a candle to franchising. It's the safest investment you can make, and if you find the right brand, the quickest to full ROI.
At Fransmart, we develop brands that have the potential for a 50% ROI after year one. That's two years to profitability. Historical returns on the Dow Jones are 10%. Real estate would have to be five times better than historical averages to keep up with franchising.
Profitability in franchising can lead to quick growth. It's called blitzscaling. You can use profits from one location to open your second. Profits from those to open four locations. Then eight. Soon, you'll have a big business that you can eventually look to sell.
Related: How to Maximize Each Stage of Your Franchise Sales Funnel Using Video
Find a disruptive category-killer
Remember: The market pays a premium for leaders of a segment. That's another reason to target emerging brands — you can pay entry-level prices for a brand that could become a household name. Invest in a brand that has the potential to carve its own path or destroy the competition.
Employment is a challenge for any business right now. Quality talent will gravitate towards a business with a plan and a future. Partnering with a brand that has a clear vision puts you ahead of the competition in the hiring game. No one brags about having a dead-end job.
Look at Subway. Estimates have its average unit volume coming in at just over $400,000. Ike's Love and Sandwiches, a company Fransmart partners with, crushes these unit numbers year after year. Both businesses are just putting things between bread — but Ike's is the disruptor. And customers are voting with their wallets.
Related: 20 Questions Franchisees Must Ask When Interviewing a Franchisor
Soul
The biggest success stories that I've been a part of were authentic visions from passionate people. Five Guys was a family business of a mom, a dad and five sons who care about food quality. The Halal Guys were three guys who wanted to serve authentic halal cuisine to New York City's massive Muslim population. GLO30, a brand I've recently partnered with, is a facial skincare business run by a doctor who left her highly lucrative career because she wanted to help people with the same kind of skin disorders she's had. These authentic brands, built by people with real passion, generate big numbers.
In my opinion, in most cases you should be avoiding franchising a brand that's owned by private equity. Once private equity gets ahold of a brand, the authenticity and passion go out the window. A brand that's lost its soul isn't growing, and potential franchisees shouldn't be concerned with investing in anything that's past its prime.
Related: The 8 Rules to Live By in Franchise Marketing, According to Top Franchise CMOs
