Bringing the Franchise Industry Into The 21st Century
By The Wolf
For all the progress that’s been made technologically since the dawn of the internet, franchises have been painfully stagnant.
Few products have evolved that meaningfully change the way that consumers and franchised businesses interact. While Elon Musk is simultaneously changing the auto industry and space industry, businesses in the franchise industry feel like they haven’t changed since the 1990’s (just look at their websites for a starter).
A new startup called FranShares could be ushering in a new wave of innovation however. Before we get to them, let’s discuss why franchises are important in the first place for entrepreneurs.
Franchises vs Your Own Business
Many people dream of starting a business someday. The freedom it brings is enticing: freedom to build your own brand, to call all the shots in the business, to hit the golf course on a Friday afternoon without any repercussions from a boss, the list goes on…
Yet what is not talked about as much is the difficulty of starting and running your own business. As the owner, YOU have to figure *everything* out.
Simple things such as your company website, name, and color scheme, to more complicated processes like the supply chain, marketing, hiring, etc. have to be done by you, or you have to pay someone to do it for you.
When entrepreneurs realize this, they start to see the value of franchises…
Yes, franchises require you to pay a franchise fee, as well as ongoing royalties on the revenue you generate. It’s not uncommon to have to pay a $40k franchise fee when you purchase the rights to build a location, and then pay a 6% royalty fee on the revenue that location generates.
This means if your franchise does $1 million per year in revenue, $60,000 of that would go to the franchisor throughout the year. But what the Jedi realizes is that when you pick a good franchise, the royalty and franchise fee is a small price to pay for a proven business model and brand. Here’s 6 key advantages of franchises:
Six Key Benefits of Franchises
- Speed to Market
Franchisor’s give you the playbook for site selection, buildout, marketing and more. You don’t have to figure out these details yourself.
The average person that buys a franchise today will open FAR quicker than the same person who is starting a business from scratch.
- Risk Mitigation
If you’re starting a business for the first time you’re likely going to make mistakes. Mistakes cost time AND money.
A good franchise largely eliminates mistakes for you, because the franchisor already made them and has adapted the playbook accordingly. Additionally, there’s like some proof of concept for this business via other franchisees who have already opened locations.
The more locations that are opening and operating successfully, the less risk there should be for you!
- No Experience Required
Top franchises have their marketing and operating systems dialed in, enabling them to turn people from many backgrounds into successful operators.
If your dream is to own a restaurant but you have a 20 year career in corporate america, your chances of making it in the restaurant industry are far higher going the franchise route.
- Supply Chain Efficiencies
At scale, many franchises offer cost savings on the inputs to your business. With hundreds of locations open, the franchisor can negotiate lower prices on supplies for the system as a whole.
This means that you should be able to purchase your goods for cheaper than if you had opened up your own independent business.
- Strength in Numbers
As the franchise you join opens more locations regionally, nationally, and even internationally, the increased awareness and marketing for the brand will undoubtedly benefit your locations.
A rising tide lifts all boats.
- Brand Equity → Higher Exit Multiples
Because of the strength in numbers, franchises can create some incredibly strong brands. This is a key reason private equity firms love franchises, because the brand becomes a moat against competition that drives dependable returns.
Assuming all else equal, a private equity firm will pay more for 12 Dunkin’ locations than 12 locations of a 1-off coffee chain.
Why? Dunkin is an international brand with a huge customer base and a seven to eight figure marketing fund. Investing in a small coffee chain competing against that offers potentially more expansion upside, but conversely much more downside risk!
The independent coffee chain could be displaced, but it’s hard to see Dunkin’ disappearing anytime soon.
Access at a Lower Cost
While franchises do offer many benefits, the reality is, as with starting just about any business, they cost more money than the average person has. Yes, there are financing options and other funding strategies available to the more sophisticated operator, but for the average person, investing $100,000-$500,000 in a franchise business isn’t attainable.
Now that you see the value of franchises, you might be interested in getting in on the action.
That’s where FranShares comes in. FranShares is democratizing access to franchise ownership with their fractional trading platform. If you’re familiar with Rally Road, which allows you to buy shares in expensive collectibles like luxury cars, or FundRise, which lets you access real estate investments, FranShares is doing the same thing for franchises!
Here’s How it Works
By investing in FranShares platform, starting with anywhere from $500 – $500,000, you can own pieces of franchise businesses around the country. No caveats or strings attached.
The FranShares team is selecting specific franchise brands to work with, building the locations, and bringing in experienced management teams to run all the locations.
The brands they are working with will range from fast-casual franchises to junk removal brands, offering investors a diversified portfolio of businesses that aren’t susceptible to the risk of just one specific sector.
When you invest your money, there truly are no caveats – the FranShares team does not charge any management fees for buying shares or managing your money. In fact, they’re actually co-investing alongside you!
Whatever the cost of building locations is, FranShares is covering 20% of the costs directly, while investors (possibly you!) are covering the other 80%. When the locations are open, operating, and cash flowing, the return structure is the exact same – meaning 80% of the profits will be distributed to the investors, and 20% goes back to FranShares.
Given that FranShares is still pre-launch, the first fund will require investors to hold for 12 months before the profit distributions begin. After the 12 month hold period however, dividends will begin to be paid out and will continue on a monthly basis!
FranShares is expecting to launch a variety of funds that offer access to more and more franchise businesses.
With more businesses available for purchase, and more users on the platform buying shares, liquidity and swapping of shares have the potential to trade the same way buying/selling stocks do.
It’s an incredibly interesting platform that is dramatically changing the game. Before FranShares, most franchises were only available to wealthy individuals and institutions. Now it is opened up to the everyday person.
As of today there are 24,000 investors on the waitlist, and it continues to grow. Don’t miss your chance to get in on this excellent investment opportunity – join the waitlist and secure your spot today!