Thoughts on a Franchise as a Search Alternative?

searcher profile

June 04, 2023

by a searcher from Duke University - The Fuqua School of Business in Durham, NC, USA

Hi everyone,

Throughout my self-funded search, I have tried to keep different options open. In addition to the typical slog of deal flow searching business broker sites and trying to get proprietary deal flow, I have also looked at different franchise opportunities. At the end of the day, the goal of my self-funded search has been to find the right fit, become my own boss, and have a large percentage ownership in a business I am proud of.

I am curious if other searchers are also evaluating franchises as part of their process? Would a franchise be a viable plan B for most self-funded searchers?

Curious to hear your thoughts?

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commentor profile
Reply by a searcher
from Harvard University in San Francisco, CA, USA
During my search, I found a franchise business that was pretty interesting and started doing my homework, beginning with the franchise agreement. On this particular franchise, I realized very quickly that the franchisee and franchisor aren't necessarily aligned in two key areas - growth and exit. With my target, if I were to grow the business to adjacent territories to expand geographical footprint (very important to this particular business), the franchisor would have been more inclined to grant the new territory to a new franchisee vs an existing one. Also, when it came to potential sale of the franchise, the franchisor had a say over whether the franchisee could sell to a particular buyer or not. Both were dealbreakers for me, but certainly, your mileage will vary.
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Reply by a searcher
from Yale University in Chicago, IL, USA
^redacted‌ Thanks for the tag. Candidly, I am in the stage of continuing to learn more about the franchise model and would love to connect with anyone with experience in the space! Please DM or reach me at redacted

With that said, I see a self-funded acquisition of a franchise a legitimate plan A. To be clear, I am referring to acquiring existing units with proven cash flow at the onset versus building de novo. What appeals to me about the franchise model is 1/ a known universe of franchises with great diversity (even beyond QSR) and proven business models; 2/ the opportunity to leverage a programmatic acquisition strategy with reduced integration risk of new units; 3/ franchise brokers assisting with sourcing deals; 4/ fragmentation of the space; 5/ potential to limit geography.

However, I have had conversations with people who are cautious on the model. A few of the stated reasons that resonated with me: 1/ high current rates (consistent with all self-financed deals); 2/ FDDs are not legal documents and they are not all built the same - FDDs may tell one story of the financials (likely a good one). Talking to existing franchisees is a key part of diligence. Some franchisors may not want you to talk to others, and this could be a major red flag; 3/ Franchise consultants do not have a vested tie to your success in the franchise - for this reason, they may be trying to find you a "new home" fast. Their incentives do not always align with your own; 4/ Franchises aren't all built the same - know what you are getting for your royalty payment.

AJ Wasserstein's article linked above gives a much more detailed breakdown of the appealing characteristics of the model. He also recently released an article on how to select a franchise brand: https://yale.app.box.com/s/l778lo7dlgbmk4s1xxobnb025lxjwbeb

Hope this is helpful and best of luck!
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