Picking a Winning Emerging Brand Is How You Get Rich in Franchising. Here's How to Spot One. The key to generating wealth through franchising is to invest in an emerging brand. Here are 5 ways to help ensure you pick a winner.
By Dan Rowe •
This story appears in the March 2023 issue of Start Up.
Every major franchise — be it Burger King or Taco Bell — started with just one store. But if you buy into an established brand after it's become a household name, the costs can be huge. In general, it can take six to 10 years to get your money back. That's why, no matter what concept you choose to franchise, the best way to make money is to find an emerging brand: a franchise business ready to boom. With an emerging brand, you can see your initial investment returned in just one to three years, and savvy franchisees can then reinvest that freed cash into opening more locations and building a much bigger, much more valuable business.
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Although an emerging brand comes with a certain amount of risk, the rewards can far outweigh it. Emerging brands are less expensive to join. Plus, all the prime territories haven't already been taken, opening costs are lower, and better real estate can often be secured. But most important of all, new franchise concepts give franchisees a longer runway to make money.
For more than two decades, my company has helped grow brands like Five Guys and The Halal Guys from single-unit emerging concepts into powerhouse international brands. Although you can never be 100% certain that a new concept will be a runaway success, there are five things you can look for to help you determine whether you're backing the right brand.
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1. A passionate founder.
Many entrepreneurs are in it just for the money, and it shows. So when you're evaluating an emerging franchise concept, take a hard look at the owner. Are they truly passionate about what they've created? Are they committed to being the best in their segment? If not, run — don't walk — away. It's incredibly hard to make a business a huge success, and if the founder isn't all in, that's not going to happen.
2. An authentic purpose.
Passion alone isn't enough. An emerging brand must also have authenticity. Customers can sniff out brands that lack soul, and they stay away. For example, when I evaluated plant-based burger concepts, I eliminated brands where the owner wasn't a vegan. Instead, I went with nomoo, whose owner created his brand because he couldn't find a decent plant-based burger anywhere in Los Angeles. The more personal a founder's reasons to enter the business, the better.
3. A trending segment.
To make money with an emerging brand, the segment needs to be emerging, too. But be careful: Just because something is a fad now doesn't mean it's going to stay popular forever. Don't think in terms of next month or next year — think in terms of the next decade. Will the segment still be hot then? You're going to want to have a long runway of at least 10 years to see a brand expand to more than 500 locations while the segment is still growing.
4. Strong unit economics.
For a franchisee to get rich via franchising, a concept must have strong unit economics to back it up. How can you know that's the case? Data. Numbers don't lie. If a franchisor can't offer impressive numbers, look for another emerging brand to invest with. No numbers means they're either going in blind or operating too optimistically.
5. Swift ROI.
Every franchisee wants to get their money back quickly. When evaluating a concept, look for one where you will see a fast return on investment. This also means you will be able to use the power of compounding returns to reinvest in the concept and open additional units. After all, that's the best way to become wealthy in franchising: when you, too, have more than one store.
