Has anyone pivoted from ETA to Franchise- either new start or ETA?

October 20, 2025

by a searcher from University of Pennsylvania - The Wharton School in Tucson, AZ, USA

I've had a couple of small business ETA deals fall through- considering the pivot to the franchise world. Has anyone done this successfully? What are some quick lessons learned for someone considering this move?

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Reply by a searcher
in San Antonio, TX, USA

I am currently selling my franchise business after 7 years and can speak to this. A franchise was a great way to get started in owning and operating a business. But I felt like I did not get a return on the royalty and ad fund we paid monthly on gross sales. Make sure you choose a franchise system that has good solid processes in place that are efficient. Make sure they have good technology in place that can track sales, track and forecast labor costs, can track inventory and track your inventory costs. My franchise 'upgraded ' our POS system from a robust system to a cheaper one (Square) and it is terrible. Square is if youre a sole proprietor not a real business handling large sales volumes. I can no longer forecast labor in the POS system and have to do so manually in excel. Make sure the technology is built for growth and not cutting costs. My franchise was also not investing in improving processes and technology and we had to forecast our day ahead needs on paper everyday. Make sure they have a reliable supplier with fair pricing. We had to buy all of our supplies from a single supplier designated by our franchisor. Some items were more expensive than buying elsewhere. Make sure there is corporate support when it comes to best practices, training, documentation, and easy communication lines with other franchisees. Also how often does your franchisor communicate organizational sales performance to franchisees? We were receiving weekly sales ranking reports, but that stopped after a while for no reason. Make sure the franchise is growing in units and not declining. Make sure there have not been excessive lawsuits. My franchise had multiple franchisees lawsuits regarding our product supplier and our costs. If the franchise is growing make sure its not too fast. Fads come and go. My franchise had 90 units 5 years ago. Its down to 25 today. Product was on trend and is now slowly fading out. Find out how the franchisor advertises. They take an ad fund, how are they using it to grow the franchisees? How is the franchise innovating and staying relevant? These are some questions to ask when considering this path.

Reply by an investor
from University of Wisconsin in San Francisco, CA, USA

With the royalty and ad fund requirement, a franchisor effectively has a sizable equity stake in your business if you're a franchisee. Broadly simplifying here, but it can be helpful to frame the royalty as a percentage of the profits/earnings instead of the revenue. If your cash flow margin before royalty and ad fund is 20% (which is decent), and your royalty is 8%, franchisor effectively owns 40% of your business. No, of course they did not put up any capital to start or buy the franchisee business, but they own a big chunk of the earnings stream.

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