Buying a Franchise: Slow-Growth Versus Fast-Growth Franchises

When you're shopping for a franchise, you are faced with many decisions. One of those decisions involves choosing whether to sign with an established franchise or one with lots of potential, but less business experience.

As with most decisions you have to make in business, there's a trade-off involved. An established franchise gives you security with less chance for failure, but doesn’t give you as much of a chance for rapid growth.

On the other side of the business spectrum, an up-and-coming franchise with lots of potential does give you the opportunity for fast growth, but at the expense of the security and support you would get from an established franchise.

Advantages/disadvantages of slow-growth and fast-growth franchises

Because buying a slow-growth versus a fast-growth franchise is a trade-off situation, make every effort to examine the advantages and disadvantages of both types when deciding which franchise will work best for you. Here are the pros and cons of each.

Slow-growth franchises

The advantages of a slow-growth franchise system are that the franchisor is usually an established company with a conservative business plan which calls for steady, gradual growth. This type of system offers a great deal of support to its franchisees in the form of marketing, choosing the right real estate, training, and financing. These franchise companies usually have a business history that you can see and franchisees you can talk to regarding their experience with the franchisor.

Overall, the basic advantages of slow-growth franchising are:

• Name recognition
• Proven marketing methods
• Strong business plans
• Good training program
• Experienced management teams
• Solid history as a business
• Lots of personal attention

The main disadvantage of a slow-growth franchise system is it doesn't give someone with a lot of franchise experience the opportunity to reap a larger reward for having this experience. If you have many ideas, enjoy taking chances, and are looking for a faster return on your investment, then you might feel held back by an established slow-growth franchise.

Questions you need to ask are “Why is the franchise growing slowly?” and “Is this slow growth part of the franchisor's business plan or does it reflect a downturn in the marketplace?”

The basic disadvantages of a slow-growth system are:

• Saturated market
• Higher franchise fees
• More competition between franchisees
• Less overall opportunity
• Slower return on your investment

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Fast-growth franchises

Fast-growth franchise systems offer you the opportunity to be on the ground floor to what could potentially be a highly profitable growth opportunity. Because they are usually in their beginning stages, fast-growth franchises can reward those with franchise expertise, and it might be possible to invest in several franchises and further increase the return on your investment.

Questions you need to ask regarding a fast-growth franchise are “What is fueling this growth?” and “Is the fast growth being fueled by consumer demand or strong financing?”

The advantages to fast-growth systems are:

• Higher market potential
• Lower franchise fees
• More flexibility for franchisees
• Greater opportunity to expand at a faster rate

The main disadvantage of a fast-growth system usually lies in its inexperience. Often the business model has yet to be proven and new franchise outlets are the proving ground. Products and services that begin with hot sales and rapid growth can sometimes reach their peak faster and oversaturate the market. You need to examine the franchise company’s growth charts to see where in their cycle they are in regards to sales and market potential.

The disadvantages of a fast-growth franchise system are:

• Lack of name recognition
• Less experience
• Little or no history
• Less franchisor support
• Higher risk of failure

Slow-growth or fast-growth?

No matter whether you choose a fast-growth franchise or a slow-growth one, before investing in any franchise opportunity, it's important to do your due diligence to ensure the franchise is the best fit for you.

RELATED: Buying a Franchise vs. an Independent Business: What Are the Pros and Cons?