Thoughts on a Franchise as a Search Alternative?

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?
from Harvard University in San Francisco, CA, USA
from Yale University in Chicago, IL, USA
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!