After fifteen years as a franchise consultant, I have worked with many people looking to grow into their second, third, or fourth business. In fact, 62.5% of the people I placed into businesses last year were current business owners looking to diversify.
Successful business ownership can be addictive (in a good way), as many business owners who own multiple businesses can attest. True wealth may be built through owning multiple businesses; if one location makes X amount of profit, owning three locations should triple that amount. This strategy will also help to develop a superior management infrastructure and will enable the owner to work on the business, and not in the business. And, of course, all of these factors, successfully implemented, will maximize your equity, if you plan to sell in the future. Diversification into multiple businesses can be a great strategy for the right person. There are two ways to diversify:
- One, own multiple businesses of the same brand. This strategy is the most popular, and a very smart way to grow into multiple businesses. Once you learn a business, it is much easier to do it again the second, third, or tenth time. You can also share resources and have economies of scale with, for instance, staff and marketing. Perhaps you can grow to eventually “own the market”. The downside to this strategy is that you have all of your assets into one brand, and one industry. If there is a change in the market, or a downturn in the economy, you will most likely experience that in all of your locations.
- Two, own multiple businesses, but in different brands. I wouldn’t recommend starting two separate businesses at one time for a new entrepreneur. Not only is this more difficult but also time-consuming, as you must learn multiple business models, and may actually ending-up blunting your entrepreneurial momentum. Most people that have successfully utilized this approach already have multiple locations of one business, and grow into their other brand over time. This can be a very strategic way to diversify into different industries without having “all of your eggs in one basket”. For example, if one business is in the housing industry and you worry about a downturn, your next business may be in something unrelated, like education or fitness. You may be able to share resources between multiple businesses, however, this approach will take more time than owning multiple locations of one brand.
Owning multiple locations or brands in franchising is not for everyone. The most successful multiple-unit franchisees are experienced, want to build an organization, develop and implement their personal strategies, enjoy growth, and want to control their market. Their biggest driver is a fear that the market will sell out while they are building one location. Being a multiple unit franchisee does not happen overnight, however it is where family empires have been built, and can be an effective strategy to build wealth over time.
