By spreading your investments across a range of assets in several sectors, you can protect yourself from serious loss if one business faces unforeseen challenges
Diversification is key to a successful business portfolio. Similar to you keeping a portfolio of different stocks to diversify your investments, as a franchisee, you would profit from owning several franchises. By spreading your investments across a range of assets in several sectors, you can protect yourself from serious loss if one business faces unforeseen challenges. It is for this reason that it is so important to vary your franchise portfolio and avoid putting all of your eggs in one basket.
To grow your franchising portfolio, you do need to be strategic when choosing your concepts. By following your passion rather than randomly selecting franchise brands, you will achieve long-term success and be a more engaged franchisee. Having seen the disruption brought on by the pandemic, many people are cautious to start a new business right now. But for those with an entrepreneurial mindset, this is the ideal time to diversify and grow your portfolio.
Adding concepts in different industries will not only add further income and stabilise your portfolio, but it will reduce volatility and risk. It will also provide you with the opportunity to apply your business acumen, market knowledge and creative energy to another brand.
· Protecting your investments
Business ownership can be unpredictable so by having all your investments tied up in one brand, you are exposing yourself to greater risk, particularly if that brand loses some of its value. With a larger portfolio, however, you will experience far less of a hit and be able to recover your losses through your other ventures. Diversification can help you remain competitive in more than one market, increasing the opportunities for greater return.
· Reduces risk and volatility
One of the main reasons for diversifying is that it reduces your overall risk. The more you broaden your investments out, the less likely it is that one event, such as a pandemic or global recession, will negatively impact your whole franchise portfolio. Likewise, the volatility of a market is a key variable in the decision to make investments. For example, if a particular market has high volatility, your risk may increase but your opportunity for greater returns is increased.
· Cross-promotion with complementary concepts
There are some franchise brands that naturally complement each other and provide an opportunity for owners to grow through cross-promotion. Within the food and beverage sector, for example, it would seem right for a coffee shop owner to diversify with a fast-casual restaurant business, developing crossover sales and building relationships with customers through two different businesses. Though it might be alluring to invest in a number of similar concepts, it is, however, important to make sure they are suitably differentiated, and not direct competitors.
· Multi-units or multi-brands
When diversifying your portfolio, one of the biggest decisions to make when expanding your franchise portfolio is whether to buy multiple units of the same franchise or invest in another or several more brands. There are obvious benefits to buying multiple units within the same brand as you already know the system, have a relationship with the franchisor and know the product or service you are selling. Investing in different franchise brands, however, may take more work in the initial stages as you have to learn new systems, but it may offer opportunities where your portfolio could be lacking, and at low risk to you.
· Dynamic brands
Experienced franchisees are attracted to concepts that are both forward-thinking and profitable. As proven by the pandemic, brands that can adapt to the times have more staying power and will continue to be dependable revenue streams in the future. This is a mark of a good investment, so you should bear this in mind while researching concepts to add to your portfolio. For example, fast food concepts have been gaining traction for years, but with consumers now leaning into brands that are socially and environmentally friendly, fast-casual restaurants are able to meet this demand and become a more appealing choice for many – these concepts are not passing fads, so look for franchise brands with products or services that are agile and will be long-lasting.
“The key to intelligent investing is diversification – it’s all about minimising risk when investing capital,” says multi-brand and multi-unit franchisee and CEO of Döner Shack, Suj Legha. “Having been involved in franchising for 20-plus years, I know the industry well and believe there are plenty of benefits of diversification in franchise ownership. It allows for a certain amount of high-return investments by offsetting possible risks through more stable alternatives.
“From my experience as a franchisee who has had successful businesses, including ActionCOACH and Papa John’s, I’ve always felt that entrepreneurial pull to open another business. Having a diversified franchise portfolio is an attractive option that can lead to success if you have solid foundations in place and a good track record to secure funding and approvals. I am always looking for new opportunities, but for the moment I’m 100 per cent committed and focused on scaling Döner Shack as we have an aggressive growth plan this year to open new sites across the UK. The diversification is more likely to come from different markets as opposed to different franchise brands for now, as we grow in the UK and take our first steps into the USA.”
If you are looking to diversify your franchise portfolio, now might be the ideal time to make the leap. As the events of 2020 showed us, anything can happen, and sometimes that can impact a business’s source of income. With diversification already in place, should something happen to one revenue stream, you are able to pivot to another area of the business to shore up your sources of income. A franchising portfolio that combines your aspirations with long-term concepts is central to successful diversification. So put your eggs into different baskets and this will help reduce some of the risks.