Franchise Investment: Diversify, or Stick with One Brand?

The franchise industry produces thousands of new concepts each year, and with so many to choose from, it makes sense that some investors may favor a diversified approach.

But according to Adam Goldman, the franchise consultant behind franchisecoach.net, there’s an art to investing in the franchise space. 

“I believe in franchising you can expand either horizontally or vertically,” said Goldman. “You can have multiple units, like if you open three OrangeTheorys in one market, or you could have a home service brand and maybe go ahead and have a painting franchise and a mosquito control franchise that all feed off each other.”

Franchise investments differ from investing in a retirement fund or stock in that they require your time and physical management. In that sense, for many investors, buying multiple brands’ franchises could be biting off too much to chew. 

“If you’re looking for something semi-absentee, it’s pretty hard to run one service business, let alone multiple,” said Goldman. “Instead, buy a salon fleet where you don’t have any employees, it’s a real estate play. Like a WeWork for salon professionals, you’re just subleasing that space. It’s a great type of franchise for the person who has a day job.”

The equation changes if you’re looking to spend your days actually running the business. In this case, more options open up. 

“If you’re someone who has a few hundred thousand to spend and you have some time on your hands, maybe you could have a tree removal service,” said Goldman. “You’d spend a lot more time on this, but you’ll be able to run it as an owner/operator vs. a semi-absentee.”

Running a business as the owner/operator comes with the bonus of not having to pay a manager, so it can help your franchise investment see a greater return on investment, but the cost is hours out of your day. 

For the pure investor, say, somebody with a management company looking to buy into trusted brands, the option of picking unrelated brands becomes viable. 

“There could be a situation where someone wants to prepare for risk in the market,” said Goldman. “They want something COVID-19 proof and not COVID-19 proof. Something where they might have bought a boutique fitness situation and now it’s going through a rough patch, so they want something that’s more of an essential business.” 

But, overall, Goldman says these investors represent a small percentage of the total community. For almost anyone besides an institutional investor or a wealthy heir, investing in franchises should be a careful, controlled process where the investor waits to see how one brand pans out before jumping into another.

“I like the whole idea of having all your eggs in one basket, and then protecting that basket,” said Goldman.