Hi folks, 

Michael Girdley and I had a great Q&A session last month on tradeoffs in business.

I wanted to recap some of my favorite franchising questions that came up, plus my honest answers.

(By the way: If you want to talk through how any of this applies to your specific situation, book a call here.)

Let’s do it!

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Q: How do I handle negative feedback when I'm talking to existing franchisees?

Validation - that is, picking up the phone and talking to existing franchisees - is the most important part of buying a franchise. Nothing else comes close.

But most people forget to weigh the feedback they receive. 

Some franchisees are relentlessly positive. They'll put a happy spin on a mediocre operation and tell you everything is great. That's not useful intel. 

Then there’s the flip side. If things aren’t going well, it’s easy to blame the franchisor even if the problem is actually the operator.

What you're actually doing in validation is pattern recognition. One negative franchisee is a data point. Three negative franchisees saying the same thing is a trend — and a red flag. Talk to enough people to tell the difference.

→ Related read: This article has a shortlist of key questions you should ask franchisees. 

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Q: What payback period should I be targeting for a franchise?

Payback math starts with two FDD items: Item 7 (total investment to open a location) and Item 19 (financial performance). Cross-reference them.

Here's my quick filter: if the average location earns $200K in EBITDA and costs $800K to open, that's a 4x payback. That's not exciting — especially if things go sideways. The same $200K in EBITDA on a $500K investment is a completely different opportunity.

One variable to factor in: how much does the business require of you? 

I've worked with people who had a 15–20% cash-on-cash return and were perfectly happy, because the business ran without them. I've also seen people make back their entire investment in year one and still complain, because they're working in it every day. 

Return and lifestyle are both inputs. Model for both.

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Q: Do brick-and-mortar franchises still make sense?

As with any franchise - some do, most don’t. 

But keep in mind: most of them aren’t worth your time. That’s true of all franchises, regardless of format. Brick-and-mortar doesn’t change that calculus.

It’s much more about whether the specific opportunity justifies the capital and the real estate dependency. Some do. Most don't.

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Q: What metrics tell you whether a franchise concept can actually scale?

Two things cap almost every franchise: sales/marketing, and labor.

On the marketing side, I’d look for paid digital channels. It’s expensive, but it scales: you spend more money, you get more leads. That model is replicable across locations. B2B-oriented businesses that grow through networking and outreach can be more challenging to scale in the short term because time doesn't multiply the way ad spend does.

On the labor side, I look at how labor intensive the operation is. A staff of 6 vs 10 may not feel like a big difference at one location, but the difference adds up fast when you’re getting to unit three, five, or ten. 

Then there’s the meta perspective: look outside the franchise system entirely. Has anyone built this type of business at real scale in the open market? How did they do it? If you can't find a clear answer, that tells you something about how hard scaling is going to be.

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Q: Emerging brand vs. legacy brand — how do you think about that trade-off?

Emerging brands have two real advantages: better territory availability, and franchisees who started recently, meaning their experience is more relevant to what you'll actually face today. A franchisee who opened 20 years ago can't tell you much about current digital marketing costs or today's labor market.

The downside is you're underwriting forward projections, not a track record. Less data, more risk.

Legacy brands flip that. More stability, more validated unit economics, but tighter territory availability and franchisees whose early-stage experience won't map to yours.

My general bias: be skeptical of extremely early stage brands unless you have a very clear reason to believe the concept will hold. The upside is real territory availability and fresher franchisee feedback.

And, for what it’s worth, here’s my deeper dive into this question: 10-unit vs 10,000-unit franchises.

That's the mailbag for this issue. 

If you’ve got more questions, just reply to this email. 

And if you’re keen to buy, book a free strategy call and we can talk through where you’re at in your search. 

Talk soon, 

Connor