“I know someone who owns a Subway franchise and they are in the store 7 days a week!”

“I have a friend who owns several wellness related franchises and for the longest time, I wondered what he did for a living because he seemed like he was always on vacation!”

The quotes above are both from conversations with clients I’ve had and highlight two very different perspectives on what franchise ownership looks like. When you consider the fact that there are somewhere between 3,000 and 4,000 active franchise brands in the United States today, there can be a wide disparity in what franchise owners are doing on a day-to-day basis. For physicians exploring investment opportunities in franchising for physicians, it’s crucial to understand the various business models available. While franchising offers a structured business approach, the key to success lies in selecting the right ownership model that aligns with your professional commitments, financial goals, and personal preferences. This article provides an in-depth look at different franchise ownership models, helping physicians make informed decisions about their venture into the business world.

As highlighted in the opening quotes, not all franchises are going to have the same time commitments and structures for the franchise owner. There are three primary franchise ownership models, each with distinct characteristics:

1. Owner-Operator Model:

   – Involvement: High

   – Time Commitment: Full-time

   – Scalability: Limited

   – Ideal For: Career changers, hands-on management

 Overview: As an owner-operator, you will be deeply involved in day-to-day operations, from delivering the product or service to managing staff. This model often requires a lower initial investment and is suitable for those seeking a career transition. However, it will likely not be ideal for active physicians due to its high time commitment.

2. Semi-Absentee Ownership:

   – Involvement: Moderate

   – Time Commitment: 10-20 hours/week

   – Scalability: Moderate to High

   – Ideal For: Current professionals, investors

Overview: The semi-absentee model allows you to maintain your medical career while owning and scaling a business. It requires hiring a manager to handle daily operations, with the owner overseeing strategy and finances. Semi-absentee ownership strikes a balance between personal involvement and leveraging management skills, making it a viable option for many physicians. In many cases, semi-absentee models will need some degree of schedule flexibility from the owner in the early days which could pose short-term challenges for some physicians.

3. Executive Ownership:

   – Involvement: Low

   – Time Commitment: Minimal

   – Scalability: High

   – Ideal For: Rapid expansion, minimal involvement

Overview: If you’re seeking aggressive growth with minimal personal involvement, the executive model is going to be the ownership model to pay attention to. It involves hiring staff for all operational aspects, allowing you to focus on high-level strategies and expansion. This model requires significant financial investment in the beginning but offers substantial scalability and earning potential. The key to the executive ownership model is establishing the right team; many of our clients who pursue this ownership model will even provide their general manager or key person a pathway to equity in the business or a profit-sharing arrangement to give them skin in the game.

The choice of model should be based on a balance between time, financial resources, and desired returns. Physicians with limited time are likely to find the semi-absentee or executive models to be the best fit to allow for business ownership without compromising their medical practice. However, these models require a higher financial investment and strong management skills so understanding the franchisees role in the specific franchise you are evaluating is crucial.

After exploring the different ownership models available in franchising, do you have a better sense of how franchising might be able to work for you without giving up your medical career?

Now that we’ve covered the different ownership models, let’s look at another important concept in franchising; pathways to scaling your franchise investment. If you are going to put your time, effort and capital into a franchise, it’s important to understand the roadmap to scaling the business to maximize your outcomes. At a high level, there are two different pathways you can take to scale your franchise:

1. Single Unit Ownership: Start with one franchise unit, focusing on establishing and optimizing it before considering expansion. The main appeal to single unit ownership is the lower initial capital commitment; this is akin to dipping your toes in the water of franchising.

2. Multi-Unit Ownership: Own multiple franchise units, either from the outset or by expanding over time. This approach is common and can lead to improved performance, economies of scale, and potentially reduced royalty fees or other financial incentives. Many franchise brands will even have area development opportunities which allow a franchisee to secure multiple territories up front at discounted rates and open them up gradually on a predetermined development schedule. This provides a clear and structured path for multi-unit ownership without the increased capital and operational pressure of opening multiple locations at once.

For physicians considering the semi-absentee or executive ownership models, you should be focusing on the multi-unit ownership aspect as well. While it is possible to run a single unit franchise with a semi-absentee or executive ownership model, it will pose a different set of challenges, namely the higher employee costs as a percentage of revenue and retention of key employees. Having multiple locations is going to enable you to bring on a higher caliber manager to oversee the operations by spreading the managers compensation cost across the multiple locations as well as creating more growth opportunities for the other employees. High caliber employees want to know there is more long-term opportunity for them and multi-unit ownership for you provides a clearer path to advancement for them.

 

Conclusion

For physicians considering franchising as an investment, choosing the right ownership model is critical. Each model offers unique advantages and challenges, and the best choice depends on your personal and professional circumstances. By carefully considering your time, financial capacity, and management skills, you can select a franchise model that aligns with your investment objectives and lifestyle. Remember, the journey to successful franchise ownership begins with a well-informed decision. If you would like to take a deeper look into franchising, please reach out to me or my colleague David Floyd and we would be happy to explore options with you.