Exploring Franchise Ownership

We’re now going to briefly introduce the three types of franchise models that you’ll want to consider:

Full-Time Owner Operator
These are businesses where, through the life of the franchise business, the owner wants to and needs to be full-time active in that business. Some owners may be completely independent and have to perform all aspects of the business—in other words, they are the sole employee. Or, some owners want to build a small team of three to ten employees. So, the owner is hands-on and sometimes leading and managing those employees, and also sometimes performing the frontline tasks of the business.

Full-Time Executive Owner
These are more complex businesses where the franchisee wants to launch the business and then build it, often into a team of 20 to 60 employees. We classify these types of businesses as owner-builder models, and this is often where multi-unit ownership comes into play.

The owners of these types of businesses typically want to build something sizable over time, but they need to work hands-on in the business for the first couple of years as they learn all aspects of the business and while they establish and build their team. Often, the first couple of years for this type of owner look a lot like the first couple of years of the owner-operator that we just described.

The real change happens once that foundation of team and processes is established. And once it is established, they start scaling their business—either by adding locations or by adding salespeople and customers. That’s when they evolve as the owner into more of a general manager. They’re no longer performing the day-to-day functions, but they are managing their team, their people, and the overall operation. That’s why we call it the executive owner.

These types of owners are focusing on working on the business in later stages, rather than in the business. These types of businesses usually appeal to the senior executive individual who wants to leave the corporate employment market.

Semi-Absentee Owner
Sometimes known as passive engagement, the owners of these types of businesses often keep their corporate jobs and run the businesses on the side. Most people aren’t familiar with this type of business, so let’s look at it a little deeper.

Semi-absentee or passive engagement businesses are those where the business is open full-time, but the owner isn’t involved in the day-to-day running of it. Instead, they hire a full-time experienced manager for that type of business, so the manager can handle daily operations and staff scheduling.

The franchise owner is going to manage the back office or the dashboard of the business: the metrics, the finances, and managing that manager.

Please remember that with this model, it is not a short-term income replacement strategy. Instead, it’s a long-term wealth creation strategy. These businesses often take 18 to 24 months to get to full stride. Only then do they start delivering that annuity-style income—after manager salary—for many years to come.

We’ve seen a lot of increased interest in these types of businesses in 2017 and 2018, when the economy and the job markets had gotten a lot stronger. People were telling us they liked their jobs and were getting paid well, but they didn’t want to let that corporate opportunity go. They wanted to maximize their corporate horsepower. So, they bought these types of businesses while remaining employed and used it as a long-term hedging strategy against future corporate employment uncertainty.

Think about it this way: if things take a turn on the job front, the purchasers of these types of businesses have a safety net. So we like to plant a seed here, because running this type of business on the side, in addition to your corporate career, might be something you’ve never thought about before.

Some owners buy this type of business while already retired, using it as a long-term wealth creation strategy—and sometimes to shore up some of their retirement income.

When it comes to passive engagement business models, multi-unit ownership is very common, with many owners owning two to five units. As people get to three units and beyond, the amount of income these types of businesses generate is often able to replace their corporate income. This gives the owners a lot more career path flexibility.

The final comment I’ll make about this business model is one of the most important things you have to consider: this is a management business. You’re managing people, processes, finance, and the back office. So, this type of business absolutely requires previous management experience in order to drive success in the business model.