4 ways franchisors can secure the right investors

By Nick Hall | 10 Feb 2020 View comments

Whether your business is a three outlet operation or a 300 store franchise giant, the prospect of network growth is a tricky one. But believe it or not, how you chose to fund your expansion is not actually the difficult part, it’s finding the right investors that will likely be your greatest challenge.

While some businesses will take a different approach to growth, be it self-fund, float or finance, the investor route is by far the most common. By partnering with the right investors, franchisors have access to an additional knowledge bank and increased capital to fund expansion.

However, the growth format is not without its challenges. Investors bring with them their own set of ideas and expectations, which, if not readily addressed can cause friction down the track.

To avoid the ‘too many cooks in the kitchen’ dilemma, Adala Bolto, founder of women’s only gym franchise, ZADI Fitness believes a measured approach is critical.

“Even if you’re approached by multiple people, you really have to make sure that they’re in it for the right reasons,” she said.

The fast-growing fitness franchise recently welcomed a suite of new investors to the mix to help facilitate ZADI’s ambitious growth plans. Bolto recently announced the chain is aiming to open 40 to 50 studios over the next 18 to 24 months, with international expansion already in discussion.

“The great news is that our growth plans are in-line with our investors, we’ve been very fortunate that way. That has been a major reason why the investors have joined; because they see the massive growth potential for ZADI globally,” she said.

So, rather than heading down the ‘Shark Tank’ pathway, how can franchisors take Bolto’s lead and ensure they find the right investors to help champion their growth?

1. Align values

The first step in assessing a potential investor is an analysis of business values. Having a firm understanding of the franchise’s over-arching goals will allow you to better set a foundation for how you want the future to look.

“You must also identify if you will work well together,” Bolto said.

“At the end of the day, you are going to be spending a lot of time together, delivering on the critical business outcomes, so it is important that you have a collaborative approach. Things won’t always go to plan, so having that alignment and faith in the whole team simplifies the process. It’s not just a money transaction, it is a business partnership.”

But further to that, Bolto reveals that values must also be met with trust. It isn’t good enough to suggest growth, both parties must have the confidence that plans are actionable and achievable.

2. Build trust

From a franchisor perspective, this can come in many ways. Whether it personal or professional, Bolto said that building trust is essential step in assessing the viability of a business partnership.

“There must be a level of trust. You really have to make sure that they’re in it for the right reasons; reasons that align with your personal and professional growth,” she said.

“After all, if they don’t believe in you as a founder to drive the product and growth, it just becomes a job.”

It’s a statement that rings especially true for Bolto, whose recent investor experiences have shaped her view of the sector. The entrepreneur and former franchisee said that clearly articulating her goals to prospective investors allowed her to better chart their belief in ZADI’s future.

“I shared with them my vision to become more than just a fitness brand, looking at venturing into apparel in the future and international growth, because it’s the big things that matter,” she said.

“If you are aligned on the big things now, in a few years when it comes time to take those steps, you have the full support of your entire network. You don’t want to have created something amazing and then not see it reach its full potential. Some investors come in with a very short term view.”

3. Look for non-fiscal credentials

While finding the right investors can seem like a purely financial task, Bolto also suggested franchisors seek out professional development opportunities.

“Look for people who can add value to your business. For me personally, I wanted investors that could play a mentor role as well,” she said.

“This way I had someone that I could talk to about the challenges from time to time. As an entrepreneur, it can be very lonely; it’s easy to take someone’s money but if they’re not someone that understands the lifestyle that you’ve embarked on, it can be difficult. Having the ‘been there, done that’ mentor is extremely helpful.”

In this instance, Bolto suggested that looking outside your direct scope of industry could be valuable.

“Even though many of our investors are not from a fitness background, the recognise the market potential,” she said.

“We aren’t a niche offering. We don’t just do boxing, or just Pilates, we’re a one-stop shop for everything, it’s a realistic approach to fitness. It was a great fit with the investors that we’ve brought on-board, because we shared a genuine alignment in what was missing in the market.”

4. Don’t be afraid to step away

While it’s easy to get caught up in the rush of cash-injection, it’s critical that franchisors stay firm on their expectations.

The right investors will believe in your goals and strategy while adding valuable insights and expertise. If discussions aren’t panning out the way you had hoped, Bolto said it is imperative that you step away.

“People can get excited but not think about the long term,” she said.

“You can’t dance around it. Sometimes it’s just a timing thing. The investors may have other projects that coincide with your business, and that may be a distraction or interruption.”

Finding the right investors

Whether your industry is fitness, fast food or retail, financial buy-in is critical for ongoing network growth. But before you seek out third-party investments, it’s worth taking the time to assess your current goals, structures and expectations.

Identifying an alignment of values is critical to securing the right investors for your franchise, reducing the risk of a business plateau later on.

Think about the type of investor that you would like to have. Is it purely a money boost? Or, is it a collaborative partnership that enriches the overall business objectives and furthers the brand’s goals? Much like entering into a new agreement with prospective franchisee, it pays to do your due diligence with regard to investors. Like Bolto said, a business is not a short-term venture.