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How To Evaluate An Emerging Non-Food Franchise

by | Aug 15, 2023 | Blog

When you’re searching for a franchise to buy and operate, it can feel daunting to weed through the thousands of different concepts there.

According to FranData, there are over 3,800 different concepts franchising their business model across America. 

And you know what else FranData says?

Only about 16% of franchise concepts grow to have 100 locations or more. 

Which means just over 600 or so franchisors have over 100 locations. 

Peeling this one more layer back, think about how many of these franchisors are food businesses. 

Using this quick math, you can quickly see the pool of quality non-food franchises gets pretty small pretty quickly. 

But, every franchise business starts as an emerging brand with one unit. 

Some grow successfully. 

Others can falter and stall out. 

Here are some indicators to look for in emerging non-food franchises to figure out if they’re poised for greatness and the right fit for you. 

 

Unit Economics 

It’s important to keep an open mind when you hear about a surprising non-food franchise because the good ones have revenue potential and margins that will surprise you. 

And, sometimes, a business you “love” on the surface, doesn’t make near the amount of money you might think. 

Simply put franchises with strong unit economics perform well.

 

The Market 

Some quality non-food franchises identify niches that are ripe for professionalization and scale. Others have figured out a business model in a massive and fragmented market and might only need a small market share to be successful. 

Look at the amount of demand in your area and the percent market share you need to have a business that fits your goals is important to look at. Sometimes, simply looking at the number of customers you need to have a certain size business makes this easier to figure out. 

 

Leadership 

Just about every organization’s success is determined by the people at the top so it’s critical to size up the leadership talent and team assembled to franchise a business successfully. 

Some founder-led companies try and bootstrap their growth (which can be risky). 

Others have built successful regional operations they use as the foundation for their franchise expansion. 

Some bring in outside capital early to hire talent and invest in other areas to support their franchise expansion. 

And a growing trend for many emerging brands is to partner with parent companies with franchising experience and infrastructure already in place. 

Regardless, of who’s involved with a brand, it’s critical to do your homework and investigate key leaders’ track records. 

My personal preference is a leadership team with experience with the company and in the industry and a track record in franchising because franchising is a different business in and of itself. 

 

Capital (not yours, theirs)

It takes a long time for franchise companies to become profitable and sustainable, so knowing how an emerging franchise will fund its growth is important.

You can look at the company’s financials in its FDD to get a feel for its financial position. 

You’ll also have to do some of your own investigation to get the full picture, especially if there’s a parent company involved. 

 

Scalability 

Simply put, how big of a big business has the franchisor proven their business model can be?

Do they have multi-unit franchise owners?

Have they put the right systems and infrastructure in place to help you scale?

How does it scale (brick and mortar vs service based)?

What territories are open around you to ensure you have the ability to scale?

Staffing 

What are the key positions you need to staff for in the business model?

What kind of labor force is required to operate the business?

How do you feel about working with this type of labor?

How easy is it to train staff or do you need to hire experienced workers?

What kind of training does the franchisor provide to your staff?

 

Customer Acquisition 

This is one most overlooked areas when evaluating a franchise because every franchisor says they have a “marketing and advertising plan.”

So, you need to investigate their “plan” closely to understand how good their plan is to bring customers to your business. 

The quality franchise companies understand customer acquisition down to a science. 

They know what works. 

And, just as importantly, they know what doesn’t work (which saves you a lot of time and money). 

Regardless, they need to have a robust plan for your to use to acquire customers and generate revenue. 

 

Operating Model

Some franchise models are designed to be manager-run and others are owner-operator to start. 

And some will tell you their business can be “semi-absentee” but you need to know what that really means. 

It’s critical to understand what the owner’s role in the franchise needs to be in order to make it successful. 

 

Training, Systems, and Support 

You’re going to hear every franchisor tell you they have “great training, systems, and support” in place.”

The key question to investigate is how good their training, systems, and support are around the key drivers of the business. 

How easily did the franchisor make the process of getting the first unit open and operating? 

Was there assistance in site selection, lease negotiation, construction and design assistance, financing assistance, permits, or any other factors unique to getting this business up and operating?

How effective are the ongoing support services of the franchisor in terms of helping franchisees deal with the problems that come up in operating their business?

 

Franchisee Validation and Performance 

In the perfect world, an emerging non-food franchise will have a handful of franchise owners who’ve been operating their business for a while. 

These franchisees can be one of the most valuable sources to validate how everything is playing out into reality. 

That said, I’m seeing a growing trend where young brands are coming out of the gates with nationwide expansion after opening a handful of regional, corporately owned locations.  

The reason this is so valuable is that talking to franchise owners helps you get dialed into the key drivers of the business and the levers you can pull to drive performance. 

For instance, you can gain insight into questions like…

  • What are the top middle, and bottom third numbers (revenue and cash flow)?
  • Why are the top performers doing better than the rest? Was it luck, location, talent, or another reason? 

Find the answer to these and other questions and you’ll be calibrated. 

 

Final Thoughts

This isn’t everything you need to look at when evaluating an emerging non-food franchise, but it’s a good start. You’re never going to have all of the information, but the more homework you do and the better informed you are, the more likely you are to make the best decision for you and your family. 

The First Step is a Conversation.

If you have that burning desire to build your own successful business so you can live a life you can only have working for yourself, let’s talk.

The First Step is a Conversation

The first step is a pretty simple one: We have a conversation.

After we speak, we’ll be able to figure out if there is a good fit to work together.