Don’t Buy Hot Franchises

One of the most popular questions that I am asked when I give seminars or workshops on investing in a franchise is this one:

 
“What is the hottest franchise right now?”

When I give the answer, the audience is usually surprised….

My answer is:

“The one that is the best fit for you based on your skill set, personality traits, investment comfort level, and exit strategy.” After giving that answer, the disappointment in my audience’s eyes can be overwhelming, but I can handle it!

Seriously though, wanting to invest in the latest “hot” thing does seem to make sense on an emotional level. Usually, by the time one hears that something is “hot”, it is too late. Think about a stock tip. You are hanging around the water cooler at work {or at your place of business}, and someone starts talking about a great technology company that has been doing very well. This person mentions the name of it, and suggests buying the stock, because “this company is hot”! You can guess how the story ends…you but this “hot” stock, and it goes into the tank, because you bought it when it was on it’s upswing. You were too late.

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Buying the latest “hot” franchise can be a similar experience, except the financial aspect is not just a few shares of a stock. Stories of “hot’ franchises becoming cold are rampant.
The ‘hot” franchises that have become rather cold of recent memory:

1. iSold It– an E-Bay drop off franchise/fad

2. Quizno’s– Legal headaches, stores not opening as promised

3. Curves– Infrastructure issues because of super fast growth

When I work with people that are interested in exploring opportunities in the world of franchise ownership, I tend to talk about what I call the “steady eddies.”
The “steady eddies” are franchise opportunities that are simple service and product oriented businesses, that a nice percentage of the population can buy and use.
There are also some interesting niche businesses that target specific growing segments in our area like health care and technology, for instance. Or how about businesses that target specific growing demographics, like the baby boomer’s that are retiring, or the time starved dual income couples.

In summation, please be careful what you decide to invest in, when it comes to franchise ownership.

There are over 3,500 different concepts to choose from. Check out some “steady eddies.”

Need help doing so? Here