Buying a Franchise

Can You Judge a Franchise Opportunity by Growth?

beanstalk1Many franchise business opportunities point to their growth as a sign of success. Statements about big numbers of franchisees who are signing on to open locations do seem promising—but should you judge a franchise based on growth? Growth numbers can tell you a lot about a franchise but the strategy behind growth is equally important.

A classic example is the Subway franchise. They notoriously grew their franchised locations in unusual places, including one location inside of a church. They looked for “white-space” on the map where there wasn’t a saturation of franchises, according to one Forbes article, which meant that existing franchises and new franchises were often suddenly competing for the same business. As a result, Subway topped many lists as the fastest growing fast food franchise in the country… but faced some push-back from franchisees, too.

Expansion, after all, was Subway’s ultimate goal. Individual franchisees weren’t always happy, but those who could work with Subway’s approach benefited.

A franchise can approach growth less ambitiously, with the goal of building successful individual businesses, and still have healthy growth rates. Farmer Boys and Shane’s Rib Shack, for instance, like to point to their growth as an indicator of franchise health too, but their approach is less aggressive — and might be a better fit for many potential franchise business owners.

Fast growth can also spell danger for a business; a new franchisor who is pushing to open as many franchises as possible might not be prepared for the scale they’re working to achieve. A franchise that goes out of business or that can’t maintain quality control can put franchisees in a difficult position. At the same time, getting in on the ground floor and growing with a fast-rising company is a classic American success story.

How do you tell the difference between a franchise with sustainble growth and one that is growing too fast — or taking a path you won’t find comfortable? You’ll need to ask questions during the franchise interview process. Here are some questions to start with:

  • How many locations were opened in the last year?
  • How many was your goal?

Judge the franchisor’s answers on the difference between the goal and the target. Are they very different? Asking follow-up questions on how excessive or stagnant growth affected their franchise is a smart idea if there’s a big gap between the two numbers.

  • What is the franchise’s location growth strategy?

Subway was looking at unconventional ways to expand and fill in the gaps— this can be a sign that there might be too many franchises for the market. Be sure to think about how the response fits the franchise’s products. Does the strategy for growth make sense for the products and customer needs? If these don’t match up, your franchise might be a misstep on the part of the franchisor and a bad investment for you.

  • How do franchisees’ needs and preferences affect the franchisors’ goals?

If the franchisor lets everyone give the franchise a try and relies on natural selection to weed out the weak, decide how comfortable you are with that. For some entrepreneurs, that’s an exhilarating idea, while others will disapprove or find it frightening.

Patterns of growth are worth looking at — and asking about — when you’re deciding on a franchise business opportunity.

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