Franchising is a thriving, vibrant industry. Even in 2020, when a pandemic hobbled the economy and shuttered many businesses, the total number of franchise establishments in the U.S. grew by about 12,000 locations. So it’s no surprise that new franchise concepts are constantly coming online.
If you’re in the market for a franchise, you might be wondering: should you sign on with one of these new companies? As with many other business decisions, the answer is “It depends.” Keep reading to learn the pros and cons of buying into a new franchise concept, so you can figure out if it’s the right fit for you.
The Pros of Buying Into a New Franchise Concept
Lower Cost
New franchise concepts are often a more affordable choice than established brands. They typically charge a lower up-front franchise fee, and even royalties and marketing fees may be less than with bigger, better-known companies. New franchisors who are eager to grow may also offer sweeter deals for multi-unit owners or area developers.
Growth Potential
New franchise concepts often have huge growth potential. If the founders have a solid business model, you could be getting in on the ground floor of something big. You’ll likely have more territories to choose from and more expansion markets waiting for your footprint. And with lower entry costs, even a single-unit investment may return a large ROI.
Better Partnership
Franchisors often have a more collaborative relationship with their first franchisees. They typically provide more personal support and are often more willing to accept input from owners in the early days of a brand. If something doesn’t work for you, a new franchisor is more likely to take your feedback and partner with you to improve the model.
Flexible Requirements
Especially in the very early stages, a new franchisor may be less rigid about the requirements of their business system. You might have room to tweak the space plan, choose your own business software, or even negotiate financial terms, such as your revenue share or marketing fee.
The Cons of Buying Into a New Franchise Concept
Less Brand Recognition
New franchise concepts typically cost less because they have less brand recognition. You may have no built-in customers at all, or just a small pool of fans. That means you’ll have to work harder for your sales, especially at first. New franchisors also typically have less leverage with suppliers and contractors, which could erase some of your cost savings on franchise fees or royalties.
More Responsibility
Early adopters can often buy into a new franchise concept for less money – but the franchisor may expect something in return for that affordability. They may want you to provide regular feedback on your experience or test new products, services, or software as they refine their business model. They may also expect you to play a key role in mentoring new franchisees as the company expands. (Then again, you might be the kind of person who jumps at the chance to do these things.)
Higher Risk
Overall, buying into a new franchise concept means being a pioneer and maybe even a guinea pig. Both those roles are higher-risk than becoming the newest member of a well-established franchise network.
New franchisors also don’t have the track record and extensive historical data of an established company, so their predictions about performance are less reliable. Growth or customer retention rates may end up being significantly lower than expected, or operating expenses may be significantly higher. And with less real-world testing completed, new franchise systems may be less efficient or less prepared for hiccups than established systems.
The Verdict: Established Franchise or New Franchise Concept?
So what’s the verdict? Is a new franchise concept the right choice for you? I’d say yes, if you…
- Are good with ambiguity and love to be the first to do things
- Want a great deal on something that could be a big success, but you’re able to absorb the loss if it fails
- Have a significant financial cushion to protect against unexpected issues
- Have extensive business experience and are willing to be a hands-on, problem-solving owner
- Care more about growth than about predictability
- Are good at both managing up and mentoring others
Want to chat one-on-one about the pros and cons of new franchises? I’ve bought into new concepts myself and am happy to help you think through what’s best for you. Book a free, 20-minute consultation with me to start the conversation!
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