Written by: Jeff Elgin
Successful franchisees are always looking for ways to grow their businesses. In the past, that usually meant adding more units of the same franchise. But these days, the hot trend is to buy into other franchise chains.
Two big factors are driving this new dynamic. First, in many franchise systems, there are long waits to open new units since markets are semi-saturated with existing stores. Second, many franchisees are looking to diversify their holdings, so they don't have all their eggs in one basket in a tepid economy.
Implementing this trend can be a blessing or a curse, depending on how carefully the owner chooses the new concept to invest in. If you're considering expanding this way, here are three steps you'll want to take to maximize success.
1. Decide if you want a similar industry, or a completely new one. For example, if you own Pizza Hut units, you might consider an option like burger chain SmashBurger, because it allows you to stay in the same industry segment, thereby shortening the learning curve for you and your staff. On the other hand, you might want to invest in a completely different franchise segment -- say, for instance, Jiffy Lube or Midas auto maintenance shops -- so that you're truly diversified and protected from adverse elements that might affect one industry but not the other. If you're in an industry that's been particularly hard-hit in recent years, look to add a business that stays consistent or even thrives during a recession, such as pet services, hair care or convenience stores.
2. Find a franchise with low initial investments or operating costs. While banks are loosening the purse strings, it's still tough to secure traditional financing. Do your homework and search out franchise opportunities that require less outlays of capital but still provide respectable margins. A number of "low investment, high return" franchises can be found in the service industries. In recent years, companies that provide non-medical senior care, residential and commercial cleaning, and handyman services (among others) have experienced growth for this reason. You can also find a number of franchises that have low overheard or operating costs. One example are "van-based businesses" that don't have fixed locations or inventory, where franchisees or their employees carry samples and make sales call on customers. Companies in the home or office decoration space -- think blinds/windows or floor covering -- use this model.
3. Lock up future expansion rights. Nothing is more frustrating for a successful franchisee who wants to expand than to find that others have built out all the remaining market area with their own units. So this time, don't forgot to lock in those future expansion rights for yourself. Typically, you can only do this with newer franchise concepts, so for that reason alone you might want to consider a younger chain rather than an established one. Younger chains may be willing to do this in order to recruit a proven operator as a new franchisee. An added benefit: Let your years of experience benefit a new chain.