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Low, Medium, High: Franchisee Requirements by Investment Level

They all cost a little, a lot or a whole lot of money. But cash alone does not a successful franchisee make...

By Sharon Powills1851 Staff Writer
SPONSORED 9:09AM 06/08/17

Low investment: under $300,000; e.g., service-industry based and simple food concepts

A low investment franchise generally requires a lot of sweat equity. The most common is a home-based service where the franchisee has to roll up his or her sleeves and does the bulk of the work. In this case, the franchisee is the main asset of the business. A location is not usually involved. However, for a home based business to be successful, the franchisee has to go out and solicit business because, unlike a brick-and-mortar location, the location of a franchisee’s home doesn’t physically show that the business is open.

One misnomer about this type of franchise is that you need to know how to do the job beforehand. Although each franchise is different and has its own requirements, a lot of franchisors teach the franchisee the “know how” of servicing the customer. But the franchisee has to knock on doors, so to speak, to get business. Therefore, if you are introverted, and the job requires an extroverted personality to knock on doors and be successful, the “great deal” of having a low investment business can still be a low value proposition because the job assumes the franchisee can “take the ball and run with it.”

Industry feedback:

"It’s simple, but our most successful franchisees follow the system that we’ve laid out for them and adhere to our code of values. They also market aggressively... and cultivate a strong network of contacts and referrals. At the end of the day, our franchisees are able to grow their businesses because they’re delivering….." - Matt Kelton, COO of Showhomes

Medium investment: $300,000 - $1 million; e.g., quick-service restaurants (QSR); fast-casual restaurant; services like moving and retail

In a mid-level franchise investment business, it’s important to match up the experience of the franchisee with that of the franchise system. Dealing with QSRs, for example, the franchisees’ skill-set is going to be leading a diverse team of employees. In this example, if a franchisee comes from a high-level consulting background and has to manage part-time low-wage employees, different work-related norms can result in a disconnected set of expectations. A lack of experience in this area can ultimately cause the franchise to suffer.

A question potential franchisees often ask at the mid-level range is if they have to have experience doing what the brand does as a requirement and in order to be successful. Different franchises have different requirements. In franchise brands at the mid-level, there are a lot of complexities to the operations of a business. A lot of brands tend to want to have someone with experience in industry.  At a mid level fast-casual, for example, franchisors may prefer multi-unit operators who can open five locations, so they prefer to have a franchisee partner who already has restaurant experience and wants to operate at a higher level instead of just getting started in the restaurant industry. However, a simpler food operation with less choices and methods of preparation doesn’t necessarily need a franchisee with food operations experience.  

Industry feedback:

“At my old company, where we would see people fail would be former high level executives that couldn’t relate to hourly employees. Also, when I first started at a company I worked for, we only took franchisees with specific experience in our industry.  I said that if we can take people who understand marketing and sales, we can open up to a lot more potential franchisees instead of trying to find a needle in haystack. We exploded after that because we took people who didn’t have experience in the industry but had a skillset. These people were outgoing, understood retail, didn’t mind long hours, and that worked out well. Sometimes if the system has good operational training and support, then industry experience is less of a need.” - Sean Fitzgerald, CFE; Chief Development Strategist of No Limit Agency*

"The most important thing that our successful franchisees are focused on is quality. Our top franchisees consistently get out from behind the line and are engaged with their customers on a daily basis. That means becoming a part of the community by shaking hands and inviting guests to visit." - Charles Bruton, VP of Operations for Saladworks

Large investment: $1 million +:  e.g., full-service restaurants; brick-and-mortar childcare

In large investment operations, the franchisee  typically hires people to run the operations for them.  It requires the skillset of being able to manage higher level people at a much higher skill level. So the success of the franchise depends on this second level position. It is critical at this investment level to recruit the right manager. At this size investment, operational skills become more important than industry experience. High level investment franchisees have a strong background at management, but the background and expertise of the general manager underneath them is the most critical.  

Industry feedback:

"It’s all about getting the right people in the right places. Your team is never going to win if you have the wrong players taking on positions they aren’t trained for. That’s why it’s up to the franchisee to figure out where people’s skills and personalities will fit best in their business model." - Justin Griffith, former NFL player and current Famous Toastery franchisee

In any business, franchisees should match their skillset to the skillset required for success. At the end of the day, someone who doesn’t like talking to people isn’t going to be the right fit in a sales-based position. If you don’t like it, you won’t be good at it. However, the right skill set  does not necessarily mean one has to have pizza experience to own a pizza concept. It might be management experience and affability. It depends on the franchise and is a critical piece of the franchisee (and franchisor) due diligence process.

*This brand is a paid partner of 1851 Franchise. For more information on paid partnerships please click here.