Trends are very alluring to entrepreneurs. Who doesn’t want to be part of an exciting, innovative concept with high returns?
In this article, you’ll learn the pitfalls of jumping on a trendy franchise opportunity. You’ll also learn the importance of choosing a business that is part of a long-term trend and that can adapt to changing market conditions.
You’ll get to meet a person I’ll call Jordan, an entrepreneur who rode a high-flying trend with a virtual reality gaming franchise. From her story, we’ll uncover two questions you need to ask to find a franchise that’s built to last.
The Allure of Trendy Franchises
Whether it's a new coffee shop concept or a dog-grooming salon that's taking the market by storm, many entrepreneurs measure their investment prowess by their ability to select the next big trend.
But here's the catch: Trends can be fickle. What's hot today might be out of fashion tomorrow. Instead of chasing trends, focus on finding a sustainable franchise with a proven track record.
The FOMO Factor: Why We Jump on Bandwagons
We jump on bandwagons because of FOMO, the fear of missing out on a lucrative opportunity. The idea that if you don't act now, you'll miss the chance to be part of the next big thing.
We’re all vulnerable to FOMO, but if you’re a social extravert, a risk taker, or you have some insecurities, you’re even more prone.
Take a step back and you can probably tell that FOMO isn’t the best way to choose a franchise. You don’t need me to tell you this!
Still, knowing something intellectually and forcing yourself to recognize the signs of FOMO and guard yourself against acting on it are two different things.
So, let's explore this further with a story.
Jordan's Story: A Cautionary Tale of Trend-Chasing
Meet Jordan. She’s an entrepreneur with a keen eye for trends.
One day, Jordan came across a franchise opportunity for a virtual reality (VR) gaming center. Unlike her friends who stuck with safe ideas, Jordan knew all about VR. She had used Oculus herself, and she knew what was missing from the experience with the chance to experience VR in a big space with friends. What’s more, Jordan knew about the market. She saw the concept taking off in major cities. Anytime she Googled “VR”, she only saw positive stories. Every time she looked, she only saw more buzz than before.
It was time to pull the trigger.
Jordan signed a deal with a franchise to open her own VR center. The local press and influencers hyped her launch. When she finally opened, her VR center immediately became a popular spot with gamers and tech enthusiasts.
The Downfall of Following a Fading Trend
As time went on, Jordan realized that the novelty of VR gaming was starting to wear off.
No new competitors entered the market. But her regulars stopped coming in. The trend cooled. She had a huge space without enough customers to support it. And she had to pay franchise fees from her topline revenue.
Jordan was struggling to keep up. Then the pandemic hit. Then Jordan shut down.
What went wrong?
Well, VR was a trend. By nature, trends look like they have unstoppable growth. Until they moon. Then people move onto a new trend. (In this case, work from home.)
Even without the pandemic, a VR center in Jordan’s city was not a viable business model. The local demand did not support renting out a massive space in a popular neighborhood.
So, what can we learn from Jordan's experience?
Find a Sustainable Franchise
What I want you to remember from Jordan’s story is the importance of a sustainable business.
You want a business with longevity.
Before you launch any business, including a franchise, ask yourself:
- Is this part of a long-term trend, or is it a “new trend”?
- How well can this business adapt to changing market conditions?
Look for Long-Term Trends
If you have limited capital and you don’t want to lose your investment, look for a business that is going strong and is still going strong. A “new trend” might be skyrocketing now, but it can fizzle or dump sooner or later. Don’t invest in a “new trend” unless you have enough money to pay for the loss and start over with a different franchise should things go south.
Ask Yourself How a Business Can Adapt to Change
Even if the pandemic never happened, the VR business idea depended on so many factors beyond Jordan’s control: how much gaming companies and content creators wanted to invest in VR, how effective they were at getting funding, how fast Meta was able to improve headsets to make them more enjoyable, whether people have the spare time and spare money to keep coming to pricy VR spaces with their friends week after week… I could go on.
Due Diligence Can't Save an Unsustainable Business
Jordan wasn’t swayed by flashy marketing or bold marketing claims. She read her franchise’s FDD. She talked to other franchisees.
She had real evidence that VR was the next big thing.
It just didn’t pan out. And, unfortunately, Jordan didn’t have enough funds to start over with a new franchise.
Ultimately, Jordan didn’t have the data to assess VR’s long-term sustainability. She didn’t have information on how a VR center would adapt under changing circumstances.
If you’re in a position like Jordan, look for the proven, sustainable business, not the trendy one. Look for a business that follows a long-term trend.
Then assess what market conditions a franchise depends on. Pick one that is adaptable to marketing conditions.
In short, look for a sustainable business.
Investments Should Be Boring
You’ve heard all this before.
Remember Warren Buffet’s advice: “Lethargy, bordering on sloth, remains the cornerstone of our investing style.”
People questioned whether he had “lost his touch” back in 2018-2020. But his tried-and-true “boring” style came out ahead when the tech bubble popped. Whether you look at the last 5 years or 10 years, he beat the SP500 when it comes to long-term investing.
This comes back to value investing. If you’re looking for a solid investment, you should be paying attention to a franchise’s long-term trend and its adaptability.
I know, it’s not a fun strategy. And it’s kind of hard to do something that’s so easy. But “easy” and “boring” work, and when it comes to safe investing, they work better than “hard” and “creative”.
When Betting on Trends Might Make Sense
Now, if you have a lot of investment capital, and your franchise is just one of many “bets” in your portfolio, and you like risk, and you wouldn’t mind losing your investment too much, then you could take a flier on a trendy idea. It truly might work out for you. If you’re into this type of investment, I have a number of recommendations based on some hot trends in the market.
That’s just not the type of investment that suits the majority of my franchise candidates.
As always, it comes back to what your goals are with your franchise, and your individual preferences and financial situation.
The key to consistent, profitable franchising is to find a sustainable business model that’s built to last. If you’re like me, your goal is to have a business that produces a growing cash flow 10, 20, 30 years into the future.
A freshly sprouted trend isn’t going to guarantee that. So, let Jordan's story be a cautionary tale.
Trends come and go. If you would not be okay with losing your investment, prioritize longevity over novelty. To do that, assess a franchise’s long-term viability and its ability to adapt to change.
If you could use help finding franchise opportunities, assessing their viability and adaptability, and matching them to your individual personality, financial situation, and goals, then we should get together. It’s free for you to work with me (franchises pay a small commission when I make a match). So, if you’re ready to take the next step toward a profitable franchise venture, schedule a free strategy session, and let’s get you on the path to success.