How to Spot a Franchise Fad vs a Lasting Industry

Some industries look hot - pickleball clubs, boutique fitness, indoor golf - but heat doesn’t always last. These are like a candle that burns bright then quickly flames out. You want to find an industry that's like a candle- slow burn and long lasting. How can you tell if you’re buying into a lasting opportunity or a short-lived fad?

1. Industry Growth Trends

Look for at least 2–3% year-over-year growth for several years, with forecasts pointing the same way. When you speak to franchisees, even the veteran franchisees should see year over year growth.

2. Barriers to Entry

If everyone can start one tomorrow, oversaturation will kill margins. Barriers can be licenses, complexity, large startup costs, or dirty/dangerous work most people don’t want to do.

3. Customer Habit Formation

Is this a passing hobby or a sticky need? (e.g., child education vs boutique axe throwing). This is more important for a low ticket, recurring revenue type of business. You want to speak to franchisees about churn- the percent of people who stop buying from the franchise year over year. The greater the churn, the less sticky the service. For high ticket, one time services like roofing or new windows you won’t ask about church, you will ask about how good the marketing support from the franchisor is.

4. Franchise System Health

High closure rates, low support, and rapid uncontrolled expansion are red flags. In Item 20 of the Franchise Disclosure Document you will see the amount of franchises that have closed down or were bought back by the franchisor the last 3 years. Less than 5% a year is good, 5-10% is questionable, over 10% means you should move on.

5. Exit Opportunities

Will private equity or multi-unit buyers still want this in 5–10 years? If not, you may be stuck. You won’t want to be the biggest player in the system and the first one to try and sell for a significant amount of capital. You want to see others in the franchise who have done what you want to do.

Bottom Line

A slow growing, essential service (like home repair, child services, health) is a safer bet than chasing today’s “hot” franchise trend. Choose wisely, because a fad could leave you with empty units and sunk costs.