Over the course of my career in franchising, I’ve been lucky enough to make connections with some incredibly smart people, but a few years ago I crossed paths and formed a relationship with someone (we’ll call him Mr. X) that probably deserves to be at the top of that list — at least when it comes to uncovering the next big thing in franchising.
Why do I say that? He took a chance on a small fitness concept called OrangeTheory Fitness before anyone knew anything about it. He then gobbled up territories, growing his portfolio to 30+ units owned while others were hemming and hawing about whether or not it would work in their market or whether they could buy in with such little data available.
“My market is unique, and there’s just not enough data,” is a common refrain from people evaluating early stage franchise opportunities. So is, “keep me in mind down the road.”
The problem with that attitude, while it may be a safe stance, is that the people who come in late to franchises miss the true window of opportunity, which is the ability to select the best territories and locations. That opportunity is usually long gone by the time there is sufficient data to digest. By then, somebody else has already proven that it works in your market.
Now, Mr. X has a high tolerance for risk, so you could say he got lucky. And he would likely tell you that both of those things are true. But after much back and forth, I learned about the lens he looked through when buying into OrangeTheory, which was the same lens he used for an emerging veterinary care franchise called PetWellClinic.
The Strategy Behind Finding the Next Big Franchise
It’s a simple strategy, but it’s difficult to execute. It’s difficult because you need to recognize something within an industry that’s not always visible at the start: fragmentation.
Fragmentation is when a market or industry is made up of various smaller brands with no dominant business holding a significant portion of the market share. And as is the case with OrangeTheory or PetWellClinic, this is often seen in emerging industries where there are no established leaders yet.
And, while it’s one thing to understand fragmentation, it’s another thing to recognize it before anybody else does.
With OrangeTheory, there was no dominant brand in boutique fitness. There were endless big box gyms emerging, but most of the class-based fitness offerings were local mom and pops. Mom and pops simply can’t compete with franchises once they’ve established a brand name, mastere marketing, and secured a budget to match. They had a good product, a good brand, and smart people leading OrangeTheory’s expansion—and that’s basically it. They didn’t have hundreds, or even dozens, of successful data points. But, they still had an opportunity to become a dominant player in a fragmented market.
The same is true for PetWellClinic. There are major players in the animal hospital market; brands like Banfield, VCA, and Blue Pearl. But when you look at small veterinary clinics, it’s primarily small regional players. Now, they’re driving to become a national brand of veterinary clinics, serving a very different purpose than the big-box animal hospitals.
Beyond that, there is something especially interesting about PetWellClinic in that it is one of maybe 30 or 40 walk-in only vet clinics in the country. Not only is it still fragmented, but there’s a ton of white space without regional businesses in the mix. The offering is good, the brand is good, and there are smart people leading it.
Check, check, check, and Mr. X now owns the rights to 60 PetWellClinic units across 5 states.
Tips On Finding the Next Big Franchise
To put Mr. X's strategy into practice and find your own next big franchise opportunity, try out some of the following:
- Research Emerging Industries: Look for industries with rapid growth but no clear market leader. Emerging industries often have high fragmentation and present a unique opportunity for new franchises to capture significant market share.
- Evaluate Market Fragmentation: Identify markets dominated by small, local businesses rather than national brands. These markets are ripe for a franchise that can offer consistency, brand recognition, and economies of scale.
- Attend Industry Conferences: Networking at industry events can provide insight into up-and-coming concepts and the chance to meet founders looking for early franchise partners.
- Consult with Franchise Experts: Engage with franchise consultants or brokers who have a broader view of the franchise landscape and can identify concepts that match your investment criteria and risk tolerance.
- Analyze the Concept’s Scalability: Consider whether the business model can be easily replicated across different markets. A good franchise opportunity should have a clear and scalable business model.
- Do Your Due Diligence: Before committing, thoroughly research the franchise's financial health, legal standing, and track record of franchisee success. Speak with current franchisees to understand their experience.
- Look Beyond the Numbers: Like Mr. X, don’t rely solely on historical data, which may be scarce for new concepts. Instead, assess the potential through market needs, competitive advantages, and industry trends.
- Be Prepared to Act Quickly: Once you've identified a promising franchise, be prepared to move quickly to secure the best territories. The early stages of a growing franchise offer the most significant opportunities for success.
If you want to be ahead of the curve with any franchise, you have to be ahead of the curve. Waiting for others to do it first means you are already falling behind. Obviously, the goal is not to invest your money aimlessly on a whim, but if you can identify an x-factor that isn’t reliant on data alone, you might reap the rewards of being an early adopter.
Mr. X seems to think the key is identifying fragmented markets, and he’s been right so far. Identify one for yourself, and you might find yourself ahead of the curve.
