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Sam Walton opened the first Walmart store in 1962 in Rogers, Arkansas. Today it is a global giant with over 10,500 stores around the world. The first McDonald’s was opened by the McDonald brothers in 1940 in San Bernardino, California, and the first franchise restaurant was opened by Ray Kroc in 1955 in Des Plaines, Illinois. As of 2023, it has 40,801 restaurants worldwide.
Both global giants began with one unit. You can also. In fact, today’s technology allows a franchisor – or franchisee – to extend brand recognition and do business faster than Sam or Ray could ever dream of.
Go to the ground floor
It’s undoubtedly tempting for a potential franchisee to purchase from an established chain, and as a company that helps more mature businesses proceed to grow, we know that many of them still have loads of room to grow. But there is a price: you pay the franchisor more for no risk, which limits your ability to extend profits. Additionally, your geographic reach could also be limited – if your chosen market is already exhausted, you may have to look elsewhere, which could also be far-off, each geographically and in terms of your comfort zone.
Think about the opportunity to get on the ground floor of an emerging network. It’s less known, so it’s probably much cheaper. As of 2021, the McDonald’s website states that a minimum of $500,000 in unborrowed personal resources is required to be considered for a McDonald’s franchise associate. A typical McDonald’s can cost a franchisee between $1.5 million and $2.5 million, and locations could also be limited.
Then look at an ever-growing chain like our client Halal Guys, which has lower than 500 restaurants open and planned. Typical domestic investment costs, including franchise fees, range from $542,025 to $1,459,425. An even newer chain, corresponding to Mexican fast-food restaurant Cilantro Taco Grill, needs costs ranging from $378,000 to $831,000.
You also have a much greater probability of getting your dream territory for much less money, which is a major profit for novice franchisors. Then, as your ROI gets higher, you’ll be able to proceed to speculate in more units at a still lower cost. Your connection is much greater than with a mature concept.
Social media marketing
Are you afraid of working with unknown people? Do not be. Thanks to social media, it is much easier than in previous years to create buzz around a latest concept. Young consumers are at all times looking for something latest, and when they find it and prefer it, they tell their friends and followers about it. They and TikTok/Instagram/whatever do a lot of your marketing for you. This unknown name won’t be unknown for long. And this marketing builds on itself because many influential people have followers in other regions. Can someone who likes one other franchisor’s restaurant in Boise, Idaho, influence your territory in Louisiana? Count on it.
With an emerging network, you are also much more prone to have more personal contact and support from the founders. (I bet few individual franchisors are on a first-name basis with McDonald’s CEO Chris Kempczinski, irrespective of how nice the guy is.) Meanwhile, early franchisees can get advice and sometimes even just sympathy from the franchisor’s founder and his co-owners of the first units . For example, Cilantro Taco Grill’s first franchisees will profit from the marketing expertise of Armando Christian Perez, an investor who is attempting to help Latino hourly staff turn out to be business owners.
You may know Perez higher as rapper/songwriter/actor Pitbull. We are all excited to work with him.
Family feeling
Over time, many early franchisees turn out to be almost like family. Over time, they may give you the option to show these experiences into latest investments.
Nearly 30 years ago, Donald Bauer, a small Domino’s Pizza franchisee, joined Philip Horn to assist him run the Papa John’s restaurant franchises. Together, they built this then-new chain to over 60 locations, and then built the then-relatively unknown Qdoba chain of 24 restaurants. They sold it and are now expanding their Jersey Mike’s franchise and opening quick-service chicken and salad restaurants. In fact, they’re doing so well in the restaurant business that they are applying their business knowledge to a different emerging concept – GLO30, a physician-founded skincare membership concept that Fransmart helps.
As any investor will let you know, it pays to get in on the ground floor – if you and the concept are smart. For example, someone who bought and held $10,000 value of Amazon stock during its 1997 IPO would have $16,454,196 in 2022. Of course, no one can predict such a return on anything – just think about the spectacular crashes of recent years (RIP, Blockbuster). Remember, Amazon has had some truly terrible days in these 25 years.
However, the stock market is much more volatile than a successful restaurant or franchised retailer. Franchising can remove some of the “scariness” from the emerging business equation. You already have a solid concept, support from the founders and other franchisees, and the ability to grow the business before it becomes too expensive an investment to contemplate. It really is value taking the risk to realize life-changing wealth.