What’s the difference between a good franchise and a hot franchise? What distinguishes a sound investment from a speculative one? Unfortunately, for most business owners and investors, such distinctions are only clear in hindsight.
The Temptation – Buying a franchise can be a tempting proposition; the buzz, interest, and customer anticipation surrounding certain franchises create the illusion of guaranteed success. Buzz and industry chatter, however, are almost always based on speculation rather than sophisticated analysis. Yet, in a competitive market, they trigger a primitive, gut-level impulse that can make even the savviest businessmen rush into an investment they have not fully considered.
The Problem – A “hot franchise” is usually classified as such due to insider knowledge; it’s a brewing business that only the most connected circles and desirable demographics are privy to. However, the value of any secret diminishes every time it is told, and so too is the allure and panache of these hot franchises. More likely than not, by the time you’ve been tipped about a franchise, you’re probably six months too late to profit from its momentum.
The Solution – Keep a level head. The strength of a business is not determined by word of mouth. The franchise that you should be interesting in buying will not fit other people’s molds for as a “hot franchise” but suit your own interests and talents. Look for businesses that serve a wide audience year-round. Find a franchise that can adapt to your situation rather than the other way around. In fact, you want a company that nobody recognizes as a “hot franchise” until after you buy it and invest your own time and energy into realizing your vision. The rewards—and profits—will be yours alone.