McDonald’s started with a single restaurant in San Bernardino, and Chipotle started with a single location in Denver. Every large chain started with just one outlet. The earlier you get into a successful chain, the more upside. The only reason to franchise is to get wealthy, and the best way to do that is with an emerging franchise brand.
In 2022 would you rather buy a Wendy’s, or an emerging brand like Rise Southern Biscuits and Righteous Chicken? If you’re looking to get wealthy the answer is a no brainer. Wendy’s may have the name recognition, but they don’t have the money-making upside anymore. Today these mature chains have weak sales to investment ratios, low ROI, and no prime territories left. Established companies aren’t better; they’re simply more expensive.
If you buy an established brand the multiples are so high it generally takes six to 10 years to get your money back and even longer when you consider ongoing, mandatory refurbishments. On the flip side, emerging brands return an initial investment in one to three years. Savvy franchisees compound those returns by reinvesting that free cash into more locations, and build a much bigger, more valuable business on the same investment.
While there is risk with an emergent brand, the rewards far outweigh it. With the right knowledge and expertise on your side, you can mitigate the risk and reap the benefits. For entrepreneurs considering a franchise there are five strong reasons to go with an emerging concept.
1. Wealth building
Emerging franchises provide a way to invest relatively little capital and build extraordinary profits and then get a second bite at the apple by selling this much larger business for a life-changing amount of money.
In my own experience launching franchising for emerging restaurant chains, franchisees often secured larger territories than they originally paid for, spent less opening restaurants, and reaped higher sales and profits, giving them free cash to reinvest in more locations.
The first one-to-three locations self-fund additional growth for compounded returns. This is what I call ‘blitzscaling’, using the compounding profits to provide the capital to keep growing your franchise empire. These kinds of return aren’t possible with a mature brand.
2. Better deals
When you franchise with an emerging brand, you’re in a stronger position to negotiate better deals. In the early stages you can cherry-pick the best territories at lower cost, find franchisors willing to allow low-cost store conversions rather than a new build out, and otherwise enhance the return on investment (ROI). I recently heard of a franchisee who bought into Popeyes at a cost of nine times profit, and with a clause he had to refresh the location every five to seven years. That franchisee will never recoup the initial investment, let alone make a profit. In contrast, emerging franchises have an average of one to three years, not nine years, for franchisees to recover their initial investment.
3. Prime real estate
Securing the best location for your franchise is key to success. However, much of the prime real estate already has a popular brand like Starbucks, Five Guys, and Panera, but also tired concepts landlords want to recycle with stronger, up-and-coming new brands.
Emerging brands bring something new that will draw customers. Developers are always looking for more interesting tenant mixes and hot brands are exactly what they want, and often with attractive terms.
4. Marketing buzz
When was the last time you saw an influencer posting from an Arby’s or a Subway? Or the last time you saw a magazine running a feature story on Chili’s? In today’s social media universe, the free viral marketing impressions a brand can get from influencers is worth its weight in gold and that only happens with a hot, emerging brand.
Today emerging brands not only work to create compelling food, but to craft a restaurant design that invites influencers to post from the restaurant. With more and more people focused on peer-reviews when choosing where to dine, this kind of free buzz is priceless to a new franchisee.
5. Big fish
When you get in on the ground floor of an emerging concept you are a big fish in a little pond. With an emerging brand, you have the chance to be an entrepreneur with real influence. With a mature brand, a franchisee is a little fish in a huge pond; they’ll never know the ownership team, or have any say in directing the brand.
Finding the right brand
So, how do you find the right emerging brand? This is probably easier and more intuitive than you think. There are five things that signal a strong emerging brand:
• Unit economics. The numbers don’t lie. Customers vote with their wallets so you want to know that the restaurants are busy and profitable enough that you could make enough to self-fund additional growth
• Existing happy, referenceable franchisees that will keep reinvesting free cash to open more locations
• A long runway so you have plenty of time to compound your returns by making much more profit than you imagined and creating a business you can sell for a life-changing amount of money
• Confidence that the management team will successfully steward this concept over the next 10-plus years to a dominant position so you can sell your business at some point while the concept is hot
• Do you like the owners, and would you be proud to grow this business? The best gift in life is to get wealthy being passionate about what you are doing.
The fundamentals still apply – pick great real estate, staff for the sales volumes you want and the business you are trying to build, and overhire strong accounting and business management. Remember that marketing is like bathing: you have to do it every day, and execute the brand’s playbook 100 per cent right, 100 per cent of the time.
With more than two decades in the franchise world, I believe investing in an emerging franchise concept is the reason someone should buy a franchise. While there is risk, it provides a world of upside and is the only way to become cash-rich, asset-rich, and ultimately, wealthy beyond your wildest dreams.
The author
Dan Rowe is the founder and CEO of Fransmart, the leading franchise development firm for emerging brands
