How to evaluate a franchise for growth potential

Hi everybody,

A lot of people I chat with as a franchise consultant want to be empire builders — in other words, they plan to scale their business through acquisition.

But here’s the trap: most first-time buyers evaluate the wrong things first. They chase fragile growth, headlines, or hot brands… but skip the fundamentals.

So here we go: the Baseball Diamond Method. 

This is my framework to answer the question, “Is this franchise a good fit for an empire builder?”

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Here’s how it works. 

In baseball, you have to round the bases in order. If you don’t get to first, you can’t go to second. So you’re only focused on one base at a time.

If you’re looking for a growth-oriented business, here are three pillars you want to see:

Focus on one at a time, in this order. If you cross all the bases, your home run is a signed deal, and you’re a happy new franchise owner.

Let’s look at each base.

1st Base: Unit Economics

How much money do they make relative to how much they cost to start?

This is your first filter. No matter how exciting a brand sounds, if it doesn’t make financial sense at the unit level, walk away.

Here’s how to think about it:

• What does it cost to open? Total investment, including equipment, buildout, fees.

• What does a successful unit earn? Look for “SDE” — seller’s discretionary earnings — which tells you how much an owner/operator could take home.

• How do these numbers compare? If it costs $300K to open and makes $100K per year, that might be reasonable. If it costs $500K and makes $50K? Not so much.

Why this matters:
If you're acquiring existing units, owners who are upside down will have unrealistic valuation expectations that are anchored to how much money they invested in the franchise. 

I call this concept “basis bias” and it’s a real headwind when it comes to getting deals done in a system where the Unit Economics are out of wack.

Most people are laser focused on the Item 19 of the FDD (“Financial Performance”) when it comes to assessing Unit Economics. But as I always say, the Item 19 is the starting line, not the finish line. 

→ Relevant read: How to read an FDD

It is imperative to validate Unit Economics with franchisees and hear how they’re actually doing on the ground.

A good brand has clear, healthy economics that make you say, “Yeah — let’s double down!”

2nd Base: Growth Trajectory

How strong would my deal pipeline be?

Once we’ve validated that the Unit Economics check out, we need to make sure the pond is big enough to fish. 

Here’s why it matters:

• Emerging brands (adding 50–100+ units/year) with strong growth have seeds being planted that you’ll be able to harvest in the coming years. You can become a major player quickly and when others want out, you’re the preferred buyer.

• Mature brands (hundreds of units already) can work too, but you might face more internal headwinds or restrictions since other potential buyers have a multi-year (or potentially multi-decade) head start. White space is also likely to be limited.

Let’s be clear: a rapidly growing franchise system will very likely face operational growing pains. Empire builders are often willing to accept the tradeoff because of the acquisition opportunities on the back-end.

3rd Base: Franchisor Leadership

Do they support people like you?

Some brands only want full-time owner-operators. Others actively encourage ambitious, empire-minded franchisees who want to scale up.

You’re looking for franchisors who:

• Support executive ownership (putting a manager in place) after an initial period of heavy involvement

• Encourage multi-unit expansion

• Have systems and support for people who want to grow

Red flag: A franchisor who says, “We want owners who use this business to pay their mortgage.” That’s code for “We want you trapped you in the day-to-day.”

Green flag: A franchisor who says, “We love growth-minded owners, and here’s how we support them.”

Because the bottom line is, the “right” franchisors (in this context) should favor 10 units being owned by 1 person over 10 units owned by 10 people. Their revenue is based on unit revenue, not who owns what. Consolidation should actually make their job easier in the long run, and if they fail to acknowledge the value you’re bringing to the table, run away.

→ Relevant read: Why consolidation is win-win in franchising

By rounding these bases in order, you can keep from getting overwhelmed by the data. 

And once you’re past these bases, you’re headed for home plate / a signed agreement.

If you’re starting to look at franchises and want to use this framework together — hit reply or book a call. I’ll walk you through it and help you find brands that check every box.

Talk soon,
Connor

P.S. Want to learn how this fits into your long-term strategy? Check out my “Triple Option” framework for finding what fits your endgame. And yes, I do love sports metaphors.

Ready for the next step? Here are 3 ways I can help you: