3 Reasons to Invest in an Emerging Franchise
Choosing a franchise to invest in is similar to buying a house. It’s a long-term decision with big financial impact that you should research thoroughly. When doing your research, don’t pigeonhole yourself to large national brands. Many small, emerging chains offer unique opportunities and great return on investment for franchisees, and there are some advantages to being an early adopter in a brand that you can’t find in a large, mature chain.
You have a chance to connect directly with the brand’s leadership
Smaller franchisors have smaller corporate teams, which means it is easier to connect directly with the company’s top leadership. Often times, this even includes the brand’s founders, like in Rascal House’s case, who are connected to the history and values of the brand and are spearheading its growth with special care and tremendous passion. Huge chains also have layers of management and company politics that you can avoid with a smaller franchisor.
You are less likely to be just another cog in the wheel with a smaller brand. When you are an early franchisee, you aren’t one of dozens or more new franchisees that year; you are a foundational player. Because of this, it’s often easier to get more attention in a small franchise, so you can be as successful as possible as quickly as possible.
There is likely no market saturation yet
Typically, smaller chains don’t have saturation in many—or any—markets, which means you can choose where you grow. This gives you the opportunity to build out as many locations as possible and own an entire market, which is often impossible in a well-established chain with hundreds or thousands of locations. For a multi-unit franchisee that is willing to be a pioneer, the opportunity to get exclusive rights to your first choice of a market is unique. Multi-concept franchisees who already have industry expertise, operational knowledge, a strong team in place and real estate connections in an existing market can capitalize on all of those things with an aggressive growth strategy.
While there is sometimes a slightly higher risk, the potential upside of developing an entire market is unmatched compared to a huge national chain that already has locations in every state and no attractive empty markets left. To mitigate the potential risk, look for a brand with longevity that is just starting to grow. Some emerging franchises, like Rascal House, are small in size but have decades of history showing success and proving the concept. This allows franchisees to be part of the brand’s early growth without worrying if the concept will survive long term.
You can lay your own foundation
Buying a franchise is different than becoming an entrepreneur. There are systems to follow, and you should follow them because they are part of the value you get when investing in a franchise. That said, if you are more entrepreneurial in nature—or just interested in an option that is fresh and new—choosing an emerging brand gives you a greater ability to work with the founders and influence the direction of the brand.
You should always choose a franchise with strong foundational values—accepting every random idea a franchisee has is not the secret to success—but smaller chains will allow you to have a seat at the table and provide input from your outside expertise about how to strengthen the brand as it grows. In short, your voice is more likely to be heard and your input is more likely to be valued in an emerging concept.
Investing in a smaller franchise allows you to build your infrastructure knowing that your numbers should only improve. As a brand scales, new economies of scale will be created. Choose a brand that will pass those savings down to the operators and you’ll see increased profits as the franchisor grows. Before investing in a franchise, talk to franchisors about their core values to see if they are likely to take supplier rebates as franchisor profit or pass it down to their franchisees. Some brands are focused on franchisee success, so when buying power increases, they will lower the cost of goods for franchisees. Look for a brand that has low costs to start—you need to be profitable while the company is still growing—but know that with the right brand, those numbers should improve over time.
Big, national chains have grown to their size for a reason, and they have a lot of benefits to offer. That said, there are unique opportunities to grow with smaller chains. If you choose a small franchisor with strong core values and brand longevity, you can mitigate most of the potential risks and take advantage of the huge upsides of investing in an emerging franchise.
Niko Frangos is president of Cleveland-based Rascal House, a five-unit elevated quick-serve restaurant franchise serving pizza, burgers, wings and more.