5 franchises to avoid like the plague

Hey folks!

A big part of my job as a franchise consultant is warning people about bad deals. (Not all consultants do that, by the way… but I’ll write about that another day.)

So today: 5 types of franchises to avoid like the plague.

The 5 types of franchises to avoid

❌ THE SIDE HUSTLE FRANCHISOR

I don’t mean your side hustle (because sometimes that can work) — I mean when your business is someone else’s side hustle.

Here’s how it happens: a business owner has a successful business. One day they decide to franchise it out, and make some extra cash on the side. 

“It won’t be that much extra work,” they tell themselves.

Why it doesn’t work:

In any franchising arrangement, the franchisee (you) are a customer of the franchisor (the brand).

But if the franchisor’s primary focus is on operating their main business, they’re not focused on the success of their franchisees.

In this scenario, you’re the side hustle.

Side hustle franchisors typically underinvest in both brand awareness and personnel. So they’re not providing much value to you.

What to look for instead: a brand that is franchised by design — and the main focus is franchisee success.

❌ THE INDENTURED SERVITUDE TRAP

Some franchises have you wrapped up in red tape from the minute you sign on the dotted line.

They’ll often have policies that prevent you from hiring an operator underneath you. They might forbid you from owning multiple locations. 

The result: they’re selling you a job — but with all the downsides of business ownership. The risk-reward profile is way off.

Sometimes people say, well, I only want to own one location anyway. What do I care?

To me, that’s the difference between going camping and being homeless. Keep your options open!

❌ THE MONEY PIT

Sometimes a franchise costs more than it’s worth.

It’s not just about breaking the line into profitability, either. 

First, if you want to hire an operator/manager (and scale yourself out of a job), you need to cover that person’s salary and still make enough back. 

Second, you need enough cashflow for your business to be valued at a multiple of earnings. Otherwise, you’re not going to make your investment back.

❌ THE FREELOADER FRANCHISE 

This one’s a lot more subjective, but hear me out. When you buy a franchise, I think there are a few things you should get:

1. The proprietary service or product

2. Branding / brand recognition

3. Business development to drive revenue

You can have a great business with only two out of three. For example, if you’ve got great brand recognition and great systems, you can succeed without a proprietary service.

But if you’re lacking all three, you should ask: what value does this franchise offer that justifies paying a royalty?

A “freeloader” franchise has…

• nothing proprietary about the product or service

• fragmented (or nonexistent) branding

• nothing to offer to help franchisees drive revenue.

At that point, why not just start an independent business?

❌ THE PASSION PROJECT

I love it when people are passionate about their businesses. 

But if that’s why a franchisor is in business… run the other way. 

Because it’s pretty clear-cut: a franchisor should exist to sell a business model that enables their franchisees to make money.

Plus, they have a fiduciary duty to make decisions that maximize their franchisees’ profitability and their enterprise value.

So if a brand’s priority is anything other than the financial performance of their franchises — there’s nothing wrong with that, but you shouldn’t franchise the business.

It’s the same reason family businesses often have trouble when they go public. 

Suddenly they’re obliged to create value for shareholders. But if the company has been built around a different ethos, there’s going to be a ton of friction. 

—

Sometimes the problems with these nightmare businesses aren’t obvious at first.

But I’m hoping by writing this, I can save at least one person from sinking their time and money into a losing franchise. 

If you’re interested in franchising, get in touch — and we’ll steer you clear of nightmares like these. 

By the way…

I’ve been having a blast making YouTube content lately. Dave’s Hot Chicken is printing money!

Check out my channel here.

Thanks for reading!

Connor

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