Considering a Second Brand? Here’s What You Should Look For
A couple of weeks ago, I sat down with Eric Danver, a 63 Multi-Unit Franchisee from Hand & Stone and former Papa John’s Franchisee, as part of my Franchisee Wisdom podcast.
In the first part of our conversation, he shared his journey from Unit Manager to Multi-Unit Franchisee. After working many years at Domino’s Pizza, he bought his first Papa John’s unit in 1996. In 2014, he got into the Hand & Stone franchise, and for six years, he ran both brands. Then, in 2021, he sold his pizza business.
This is the second part of our interview, where Eric and I explored what people should look for when choosing a franchise brand to invest in, whether it is your first time as a franchisee or you are already a Multi-Unit Franchisee looking for a second brand.
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1. A Product or Service That Aligns With Your Preferences
Eric had been a Papa John’s Franchisee for many years, and the business was doing very well. However, he decided to explore investing in the beauty Hand & Stone franchise after his wife learned they were offering franchising opportunities and suggested it to him.
They were both clients of that brand and really liked the services and attention they received at the spa, so the move caught his interest. “I have always been an active person, and just love massages. So, that's how I fell in love with it”.
He tied the knot when he started doing his due diligence and discovered a robust, growing industry, propelled by a diverse and expanding consumer base, and supported by continued innovation and diversification. “I got surprised by how many moving parts there are to this business”, Eric shared.
“Nowadays, in our business, esthetics makes up about 35%, and massage accounts for 65%. The esthetics, particularly the facial side of our business, continues to grow rapidly; when we started, it was around 15%. So, it has just kept growing over the years”, he explained.
If you missed part 1 of our conversation, click below to check Eric Danver’s Multi-Unit success journey:
2. The Economics
Of course, you should review the unit economics, assess your budget, and ensure you have the financial support to operate that franchise brand.
Some franchises may require $250,000 while others may need up to $1.5 million, so you must calculate your investment capacity, your access to capital, and clarify your risk tolerance before engaging with any particular system.
“You have to know how much it is gonna cost you to build and how much working capital you need, especially to get the thing off the ground. You should be careful, be smart, and have a plan”, Eric said.
Numerically speaking, Eric also looks for the average unit volume (AUV) and other KPI metrics that “tell a story”.
“One of the things that attracted me to this business, which I was blown away with, was the double-digit growth in mature locations. Also, the high percentage of prospects, which are consumers who have never been into a Hand & Stone before. And gift card sales, since that's an indicator of happy clients”.
You should also inquire about hidden costs that might not be immediately apparent, as well as the investments in remodeling or technology upgrades. Thoroughly investigate both current and future expenses to make a smart decision.
“I think franchising is a wonderful, wonderful model to build net worth and generational wealth if you really hit it right. But like anything, there's risk, so you must do your due diligence”, Eric affirmed.
Keep learning: 6 Key Financial Insights for Multi-Unit Franchisees
3. The Leadership Team
Another aspect that Eric and I agreed on is that when investing in a franchise, whether for the first time or when considering a second brand, franchisees should research the leadership team of the franchise brand. In fact, Eric mentioned that this was one of the decisive factors in choosing Hand & Stone over other competitors in the sector.
“One thing you learn in franchises is how reliant you are on your franchisor and that leadership team, and when I analyzed that aspect, I really thought the leadership team in Hand & Stone was very strong. They had a plan, and they were gonna execute it”, Eric shared.
It’s true: knowing who the founding leadership team is will give you the brand's long-term vision. However, you should also remember that those leaders may change or leave, especially if a private equity firm acquires the brand.
Don’t miss: Do you Have the Right Franchise? 5 Clues to Find Out
4. Talk to Other Franchisees
If you want to get into franchising or invest in a second brand, you should also talk to those who have already gone through the process and are part of that franchise system.
As Eric mentioned, talking to other franchisees can help you better understand if the brand is really profitable. “If franchisees are making money, they're growing more units. Plus, you can verify how the growth is happening within the system, whether it’s organic or coming from outside. I want to see that existing franchisees are continuing to grow, and that they're happy in the business.”
5. Ensure the Other Business Doesn’t Suffer
Before deciding to invest in a second brand, Eric carefully analyzed what that would mean for his first franchise, the pizza business. Especially because, as it had happened with his first franchise, he intended to scale the spas and go multi-unit.
Although the business was doing quite well and was operated by very capable people who knew it back and forth from having been in charge for many years, he didn’t take it lightly. Thanks to taking this precaution, he was able to spend much of his time building up the new brand he had invested in.
I applaud this decision because, while diversifying your investments is a good idea, you need to make sure that the units you already have and the teams operating those businesses won’t suffer because of your absence.
In the end, investing in a second brand will take up a lot of your time and focus, especially during the first few years, so you can grow that second business and take it to the next level. And you shouldn’t neglect your other businesses because of it.
In case you missed it: 7 Essentials for a Thriving Franchise Enterprise
6. Time to Leave
This aspect may or may not happen to you. Leaving a franchise brand to focus 100% on the other will depend on many factors. In Eric's case, he decided to exit the Papa John’s system in 2021, after six years of operating both the beauty and the pizza brands.
“It was bittersweet, but the timing was right. My business partners taught me a long time ago that when you have the right buyer, you should take the bid and go”, he said.
It also helped that the spa business was doing so great that it made sense for him to make it his only franchise business. On one hand, the membership model provided strong stability for the company, as it involved a monthly fee paid by members for an average of 3 years, which is the typical duration of their membership.
Additionally, Eric chose the path of mergers and acquisitions (M&A) to grow his business by acquiring units from existing owners. The result of this strategy: Eric now operates 63 units in eight states, and made 95 million in revenue last year.
“It’s just a great brand, with great leadership, and I love, love, love what I'm doing. So much so that three of my kids are all in the business with me. It’s just been a lot of fun!” he shared.
Keep learning: Best Practices For Aspiring MUMBOs (Multi-Unit, Multi-Brand Operators)
Eric and I recommend those six elements before investing in a second brand or becoming a franchisee for the first time. I hope you found this helpful!
You can get more information and valuable tips for your franchise journey by subscribing to our YouTube Channel. And, if you are looking for resources to train yourself, your Unit Managers, or your District Managers so they can excel at their roles, consider the American Franchise Academy.
We have three training programs specifically designed to provide franchise leaders and operators with the knowledge, tools, and resources they need to be successful:
- COMMAND, A Multi-Unit Franchise Ownership Certification
- LEAD, a Multi-Unit Leadership Certification Program for District Managers
- MANAGE, a basic & advanced Unit Management program
If you have any questions about our programs or would like to schedule a commitment-free call, feel free to reach out! We'll be glad to help you!
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