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Expanding Your Franchise Portfolio: Should You Double Down or Diversify?

By: Bill Bradley

 

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We’ve all heard the saying that we should never put all our eggs in one basket. This lesson is applicable in so many ways—including franchising. If you rely on a singular source of revenue and disaster strikes, you won’t have any “eggs” left.

In the world of franchising, there’s always the question of how best to expand your portfolio. Should you stick to the same brand, or should you spread your reach and opt for something new?

The good news is that whichever way you go, your first franchise is always going to be the most difficult. You’ve successfully tackled the steep learning curve and the next one will be simpler to set up and run, regardless of whether or not you’ve diversified.

So, how do you decide if you should diversify or double down?

Benefits of Diversifying

Let’s take a look at why you would consider diversifying first:

  • More Opportunities For Better Returns

As with any investment portfolio, diversifying gives you more opportunities to make money and see strong returns. If one area of your portfolio is down, the likelihood is that at least one will be up—if you’ve diversified properly.

The wider you diversify, the less chance there is that every franchise you own will struggle simultaneously. Each franchise will cater to different markets and offer different products or services. When you only have one brand that caters to a single market with the same offering, all of your franchises are likely to hit a rough patch at the same time.

  • Lower Overall Risks

It can seem like a risk to spread your portfolio out. But the logic behind it shows that you actually lower your overall financial risk when you diversify properly. It’s the same logic that says you have greater room for better returns through diversification. The risk of loss if one brand goes down becomes less because you aren’t only relying on just that brand to succeed.

  • Cross Promotion To Different Markets

Another major bonus of diversifying is that you can do it with an eye to cross-promote. Just because you’re operating two different businesses or types of business doesn’t mean that you can’t use one to help the other, and vice versa. If you pick the right franchise opportunities, you could use co-marketing strategies to help push both brands. However, it’s important to check if there are any restrictions placed on the brand owners before you purchase a franchise.

Reasons to Stick to One Direction

Diversifying your franchise portfolio may seem like a win-win situation. But it might not always be the right choice.

Here are some good reasons to stick with the franchise you know:

  • It’s The World You Know

We’ve said it before and we’re saying it again. This is the business that you know and understand. Buying another franchise in the same brand in another location, or sticking to a similar concept of franchise means that you don’t need to learn too much to get the business up and running. You can simply take what you already know about your successful franchise and apply it to your new business.

  • It’s Difficult To Truly Diversify

Diversification is not always as easy as it sounds, especially not in the franchise market. You need to look at exactly who the target market is, who the suppliers are, and what market forces impact the business.

To truly diversify, you need to ensure that there is little to no overlap in your new franchise when compared to your current one. The more overlap there is, the less you’re lowering your risk.

  • There Is Always Room To Grow

When you stick to the same brand, you’ll have a leg up, as you already have a relationship with your franchisor. This means that they’ll likely want to offer or assist you in finding a prime location or be willing to work with you to create a deal that will help you build more successful franchises. They want your business to be successful as it benefits them, too.

Another bonus is that you already have good working relationships with vendors and suppliers. When you add another franchise to your portfolio, you can get better deals on bigger stock orders. This means lower costs per unit and a greater potential for profit.

Tips For Making That Choice

There are pros and cons to both arguments. The key is to analyze your business and way of doing business to ensure that you’re taking the right opportunities. With the correct process in place, it’ll be hard for your new franchise to fail.

  1. Know Your Own Skills – The first step in any business venture should always be to do an honest assessment of your skills. Running a restaurant, for example, will have some overlap with running a sports equipment shop. However, there will be some key differences and you need to assess if you have the skills to do both.
  2. Keep An Open Mind For Opportunities – It’s vital to look at all opportunities with a level of critical thinking and with an open mind. Never jump to a conclusion about a business opportunity, good or bad. Take the time to analyze the details of the business and of the sale. If you have preconceived ideas that you can’t let go of, you could end up missing a good deal or signing the contract for a bad one.
  3. Use Your Experience To Weigh Up The Risks – Your experience as a successful franchise owner will always count for something. Look at what you’ve accomplished with your current business and the skills you’ve acquired through it, and see how those can help you to weigh up the risks of buying into the new opportunity before you.

There are currently over 750,000 franchises in the United States alone, proving just how popular this business model is. Choosing whether to diversify or double down will differ according to every person and business situation. But at the end of the day, as long as all your eggs don’t end up in one basket, you should be well equipped to weather any financial storm.

Published: May 12, 2022
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Source: America's Best Franchises

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Bill Bradley

Bill Bradley is founding member and CEO of America’s Best Franchises, LLC.  Bill founded three financial services firms, Ocean Shores Ventures, Denali International and William Bradley Enterprises. In addition, to launching America’s Best Franchises in 2005, Bill orchestrated approximately 20 private equity transactions in excess of $31 million, and launched five specific purpose private equity partnerships.

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