Finding the Next Big Franchise

Publication Date:
July 1, 2021
Author:
Joseph Sexton
next big franchise

Over the course of my career in franchising, I’ve been lucky enough to make connections with some really smart people, but recently I crossed paths and formed a relationship with a guy (Mr. X) that probably deserves to be #1 on that list. At least when it comes to franchises.

Why do I say that? He took a chance on a little 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. “Keep me in mind down the road.”

The problem with that attitude, while it may be a safe stance to take, is that the people who come in late to franchises miss the true window of opportunity, which is the ability to cherry pick the best territories and locations. That opportunity has long passed by the time there is sufficient data to digest. Somebody else has already proven it works in your market and they’ve done it by snatching up the prime areas.

Now, back to Mr. X, you could say that he has a high tolerance for risk. You could say he got lucky. And he himself would tell you that both of those things are true. But over lunch last week, I learned about the lens he looked through when buying into OrangeTheory, which was the same lens he used for PetWellClinic.

The Lens

It’s a simple strategy, but it’s very difficult to execute. It’s difficult because you must recognize something within an industry that’s not always apparent at the surface: fragmentation. We’ve written a blog post explaining fragmentation and consolidation. It’s one thing to understand it, and another to recognize it before somebody 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 and mastered marketing with a budget that dwarfs a mom and pop’s budget. They had a good product, a good brand, and smart people leading OrangeTheory’s expansion. That’s basically it. They didn’t have hundreds, or even dozens of successful data points. Again, most importantly, they had an opportunity to become a dominant player in a fragmented market.

The same is true of PetWellClinic. You have major players in the animal hospital market; brands like Banfield, VCA, and Blue Pearl. But when you look at small veterinary clinics, it is primarily mom and pop’s or small regional players. The opportunity is to become a national brand of veterinary clinics, serving a very different purpose than the big-box animal hospitals. Beyond that, there is something particularly 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 fragmented, but there’s a ton of white space without even mom and pop’s in the mix. The product 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.  

If you want to be ahead of the curve with any franchise, you have to be ahead of the curve. Waiting for other people to do it first means you are behind the curve. Obviously, the goal is not to invest your money aimlessly on a hunch, but if you can identify an X factor that isn’t reliant on historical data, but instead is something you can research on your own, 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 be the one ahead of the curve this time.