Ground Floor to Sky High — The Unmatched Potential of Investing in Emerging Franchises


Opinions expressed by Entrepreneur contributors are their own.

Sam Walton opened the first Walmart store in 1962 in Rogers, Arkansas. Today, it’s a global behemoth, with more than 10,500 stores around the world. The first McDonald’s was opened by the McDonald brothers in 1940 in San Bernardino, California, and its first franchised restaurant by Ray Kroc in 1955 in Des Plaines, Illinois. As of 2023, it has 40,801 restaurants worldwide.

Both of these global giants started with just one unit. So can you. In fact, today’s technology allows a franchisor — or a franchisee — to grow name recognition and a business faster than Sam or Ray could ever have dreamed of.

Get in on the ground floor

As a potential franchisee, it’s undoubtedly tempting to buy into an established chain, and as a company that is helping more mature companies continue to expand, we know that many still have plenty of opportunities to grow. But there’s a price: you’re paying the franchisor more for that lack of risk, which limits how much you can compound your returns. In addition, your geographical reach could be limited — if your chosen market is already maxed out, you’ll have to look elsewhere, which could be far away, both geographically and in terms of your comfort zone.

Think about the opportunity to get in on the ground floor of an emerging chain. It’s less known, so it’s probably much less expensive. As of 2021, the McDonald’s website says it requires a minimum of $500,000 of non-borrowed personal resources to consider someone for a McDonald’s franchise. A typical McDonald’s can cost the franchisee between $1.5 – $2.5 million and you may be limited as to where you can locate.

Then take a look at a still-growing chain like our client Halal Guys, which has fewer than 500 restaurants open and planned. Typical domestic investment costs, including franchise fees, range from $542,025 to $1,459,425. An even newer chain, such as Mexican quick-service eatery Cilantro Taco Grill, needs costs from $378,000 to $831,000.

And you a have much better chance of getting the territory you want for much less money, a major benefit to first-time franchisors. Then, as your ROI is higher, you can continue to invest in more units at that still-lower price. Your compounding is much greater than with a mature concept.

Social media marketing

Afraid of working with the little-known? Don’t be. It’s also much easier than in previous years to create a buzz around a new concept, thanks to social media. Young consumers are always looking for something new, and if they find it and like it, they tell their friends and followers all about it. They, and TikTok/Instagram/whatever, do a lot of your marketing for you. That unknown name won’t be unknown for long. And that marketing builds upon itself, as many influencers have followers in other regions. Can someone who liked a fellow franchisor’s restaurant in Boise, Idaho, influence your territory in Louisiana? Count on it.

With an emerging chain, the odds are also much better that you’ll have more personal contact and support from the founders. (I’ll bet few individual franchisors are on a first-name basis with McDonald’s CEO Chris Kempczinski, no matter how nice a guy he is.) Meanwhile, early franchisees can access the advice and sometimes even just sympathies of the founding franchisor and their fellow early unit owners. Early Cilantro Taco Grill franchisees, for example, will benefit from the marketing expertise of Armando Christian Perez, an investor who is committed to helping Latino hourly employees become business owners.

You may know Perez better as rapper/songwriter/actor Pitbull. We’re all excited to be working with him.

Related: See the 2024 Franchise 500 rankings

Family feeling

Over time, many early franchisees become almost like a family. And in time, they can turn those experiences into new investments.

Nearly 30 years ago, Donald Bauer, a small Domino’s Pizza franchisee, joined Philip Horn to help him run his Papa John’s franchised restaurants. Together, they built that then-new chain to more than 60 units, and then built a 24-restaurant Qdoba chain, at the time relatively unknown. They sold that and are now expanding their Jersey Mike’s franchises, and opening quick-service chicken and salad restaurants. In fact, they’ve done so well in dining that they’re taking their business expertise to yet another emerging concept — GLO30, a doctor-founded skincare membership concept that Fransmart is assisting.

As any investor will tell you, it pays to get in on the ground floor — if you and the concept are smart. For example, someone who purchased and held $10,000 of Amazon stock at its 1997 IPO would have had $16,454,196 in 2022. Of course, no one can predict that kind of return on anything — just think about spectacular collapses in recent years (RIP, Blockbuster). Remember that in those 25 years, Amazon has had its share of truly scary days.

But the stock market is a lot more volatile than a successful franchised restaurant or retailer. Franchising can take some of the “scary” out of the emerging business equation. You already have a strong concept, the benefit of support from founders and your fellow franchisees, and the ability to grow a business before it becomes too expensive an investment to consider. It really can be a risk worth taking to make life-changing wealth.



Source link

About The Author

Scroll to Top