Why Executive-Type Franchises Are Attractive for Executive Types
It takes intelligence, talent, and perseverance to make it to the top in the corporate world; it’s not for the meek. Corporate executives are a special breed; they thrive on pressure, have no problem working extremely long hours, and are usually willing to do whatever it takes to ensure that the companies they run are highly successful. Kind of like what it takes to be the owner of a thriving franchise business.
Over the years, I’ve worked with lots of corporate executives who’ve wanted to “explore their options,” usually * after being downsized (link is external) from the positions they’ve worked so hard to get. I’m going to show you what types of opportunities they’ve been attracted to, and why.
For the most part, former high-level executives who are looking for opportunities in franchise ownership want something that they can grow into something substantial; they’re not going to be satisfied with a franchise that can’t scale well. It’s just not in their DNA, for the most part. Now, I have run into former executives who’ve wanted to slow down a bit, and want more of a “lifestyle” type of franchise that can provide some of the flexibility that they crave after years and years of having very little.
Multi-Unit Franchise Opportunities
Multi-unit franchise opportunities are very attractive to former corporate executives; they can actually witness their growth, first-hand. In a multi-unit franchise contract, franchisees are obligated to open a certain number of stores in a certain amount of time, and in a specific geographical area. To reserve that area, and the future units that you’re required to open, you’ll pay a either a portion of the franchise fee for each future unit that you’ve agreed to open, or the entire amount; it just depends on the franchisor.
For example, the initial franchise fee for a single unit franchise may be $30,000; if you sign a 3-Store agreement, the fees for the 2nd and 3rd store may be discounted if you pay them in full, to let’s say $25,000 each. So, when you sign your 3-store multi-unit agreement, you’ll write a check for $80,000, total. Sometimes, the franchisor only requires a partial payment for your future stores; again, it depends on the franchisor. The bottom line is that you’re reserving a specific geographical area in which you agree to develop a certain number of franchises. I go into a little more detail about multi-unit franchising, (including a discussion with a multi-unit franchisee) in * this post over at Small Business Trends (link is external).
Master Franchise Opportunities
Another popular way that former executives have used to “own what they do,” is by purchasing what’s called a Master Franchise. In this model, the franchisee purchases an entire area, controls it geographically, and expands the franchise by selling sub-franchises to others. The Master Franchise holder usually receives 50% of the upfront franchise fee and 50% of the ongoing royalty stream. In addition, there may be opportunities for the Master Franchise holder to earn additional income by selling supplies or providing additional services to the sub-franchisees, and by offering financing packages, which allows them to earn money from the interest.
Because of the way the Master Franchise model is structured, the up-front investment can be high; franchise fees for a Master Franchise are usually based on population. It’s not unusual for those fees to run $150,000-$200,000, or more...up front. That’s just for the territory; there are lots of other expenses involved in starting a franchise.
The Master Franchise model is unusual in the fact that the more you invest, the more you may be able to make as the owner; in other words, the larger your territory, the more franchises you can sell. Of course, the “selling” franchises part of a Master Franchise is quite different than your typical franchise business in which you are either selling products, like pizza, or services, like lawn-care or house cleaning.
The income potential isn’t the only reason that former executives are attracted to a Master Franchise type of opportunity. The other major reason has to do with how it’s structured. Look at this organizational chart of a typical Master Franchise:
CEO (The Master Franchise Holder)
Sales Manager Operations/Training Manager
Owning a Master Franchise is like having your own franchise company. That’s very attractive to people that are used to running the show. Like former corporate executives.
Multi-Unit franchises and Master franchises have the potential to satisfy the former executive who’s looking for a way to stay in the business world, and accomplish even more. While there’s certainly no guarantee that these executives will be successful as franchise owners, most of them are savvy enough to realize that doing great research along with putting together a thorough business plan will go a long way in helping them decide if one of these two franchise models that I described can work for them.