The Drive to Diversify: Branching Out with New Brands and Different Sectors

The oft-repeated phrase, “Don’t put all of your eggs in one basket,” has survived the centuries because it points to a universal truth about business.

At the basic level, diversification spreads the inherent risk of doing business and, if done right, can smooth out the tumultuous ups and downs that can roil the marketplace. Branching out with new franchise brands creates fresh challenges while also providing opportunities to develop operational abilities and leadership skills.

Diversification makes good sense as a business strategy, but to use another cliché, “The devil is the details.” In other words, which specific eggs should go into which baskets?

The following multi-unit and multi-brand operators decided to move forward with new brands and possibilities.

Freedom

One business wasn’t enough for Ray Harrigill to achieve the freedom he wanted. “It can be very fulfilling but also very restrictive to be a small owner-operator of one small business,” he says. “While you can make a salary, it’s hard to take time off. It’s hard to do other things because you’re kind of tied to the business all the time.”

Before becoming founder and president of Sunray Companies, Harrigill studied business and worked for his father-in-law, Dr. S.L. Sethi, a multi-unit and multi-brand franchisee who got his start in 1973. Diversification was built into Sunray’s DNA.

Sunray owns and operates seven hotels, including Hampton Inn, Hampton Inn & Suites, Holiday Inn Express & Suites, and Home2 Suites. The portfolio also includes 19 Palm Beach Tan units, 13 Massage Envy clinics, and three My Salon Suite locations. All of Sunray’s businesses are in Mississippi and Louisiana.

He’s in an enviable position now, but it took years to grow his business and develop the talented team at Sunray. Early in his multi-brand career, Harrigill took pay cuts when hiring new team members.

“Over time, you hope that you can do more because you have different people doing different things, and it works together,” he says. “For me, it’s also a feeling like you’re making an impact on the world by giving other people more opportunity. That’s important. How can we help our people grow?”

Having the right team in place means he can focus on looking for new ventures. He attends conferences, including Franchise Update Media’s Multi-Unit Franchising Conference in Las Vegas, and talks with franchisees and franchisors. “We’re always asking, ‘Hey, what’s working? What’s not working? What do you see? What don’t you see? What challenges do you face in the business you’re in?’” Harrigill says.

When considering a new brand, it needs to be scalable, and the right fit is important. The business needs to earn enough to provide a good living for the people working there while also generating a profit for Sunray. That might sound like a no-brainer, but not every business meets the threshold.

“We’ve entered a business and failed, and we got out and said, ‘Okay, that didn’t work for us for whatever reason,’” he says. “If we can’t make it work, we can’t make it work.”

When Harrigill finds another brand to add, he doesn’t decide by himself. His wife, Monica Harrigill, managing member and co-founder, and other team members provide their input. 

“They have good opinions,” he says. “They’ll say, ‘That’s a good idea,’ or ‘Hey, I don’t know.’”

In addition to freedom and the opportunity to provide secure livings for himself and others, Harrigill has another reason to diversify his business: It shakes things up.

“It’s invigorating to go back and start another concept because I have to learn a new business, and I have to learn the language of that business,” he says. “It’s always exciting to start something new because it gives me fresh wind.”

A different approach

Wes Snyder of Fishers, Indiana, wanted to leave the corporate world, so he purchased a Fastsigns franchise in 1999 after his oldest daughter was born. He liked that it was a B2B business that allowed him more free time with his family than he might have had with a QSR business. 

“There are about 700 Fastsigns nationwide. We built ours into one of the seven or eight biggest ones in the network,” Snyder says. “In the fall of 2016, my oldest daughter was a senior in high school, and I just kind of had this feeling that it was a great business—I loved the business—but I just had this feeling that that wasn’t the last thing I was ever going to do.”

He kept equity in the business when he sold it. He also retained his appreciation for Fastsigns and its parent company, Propelled Brands. A couple of years after the sale, he and his business partner, Jeff Parsons, developed a new approach for investing in Fastsigns locations. They look for general managers who want to become owners. 

“Maybe they’re financially qualified from a bank standpoint, but they’re not financially qualified by the franchisor,” Snyder says. “We’ll partner with them. We’ll give them some equity up front.”

He says franchising continues to provide a comfortable living for his family. It also gives him the ability to affect other people’s lives in positive ways. 

“Franchising allows us to partner with some good people, to really build leaders, and to give people, who maybe otherwise wouldn’t have the opportunity, a path to ownership,” Snyder says.

He has seven Fastsigns locations in his system. He didn’t have a plan to diversify, but a broker approached him about Pirtek locations in Indianapolis. The company makes hydraulic hoses.

“It’s an industrial franchise, B2B, and there’s not many of those around,” Snyder says. “It made sense.”

He now owns five Pirtek units, and he’s also developing another brand. “I wish I could say I had this all planned out, but it’s really more happenstance than anything,” he says. “Once Propelled Brands bought My Salon Suite, it just made a lot of sense.”

My Salon Suite became his third brand, and he owns four locations. Snyder says he’s still interested in expanding his business in other ways, but the details have to be right. When checking out a fresh opportunity, he takes a firsthand approach. 

“I’ve got to really do my market research,” he says. “What are the businesses there that would be buying my product? Are there enough that are going to support this territory?”

Research might start on the Internet, but he drives or flies to potential locations. “I’d much rather go to the market and drive around to see what’s there,” he says. “I actually put my own two eyes on it, talk to people, and figure out really what’s going on.”

A taste for change

When looking to expand in the restaurant business, relying on the sense of taste makes good sense. Zach Rogers and the team at Rogers Restaurant Group were looking to diversify beyond their 16 Fuzzy’s Taco Shop locations in Colorado. 

“I love breakfast and brunch, and my dad does too,” says Rogers, the group’s chief development officer. “A space next to our Fuzzy’s Taco Shop in Fort Collins opened up, and it was previously a breakfast location. We thought, ‘What better than to put a breakfast concept in there?’”

Their research led them to Another Broken Egg Cafe, and Rogers Restaurant Group entered into a five-unit deal to develop the brand in Fort Collins and beyond.

Nostalgia and business sense also led the company to purchase a pair of Newk’s Eatery locations. When Rogers was born, his father operated a Schlotzsky’s Deli in Texas. Some of his earliest memories include running around the kitchen.

“We looked for a sandwich shop. I love sandwiches. They’re one of my favorite things to eat,” he says, “so that’s kind of how we decided to get into the Newk’s Eatery. We wanted to diversify.”

Rogers Restaurant Group also agreed to a 10-unit deal to develop Bobby’s Burgers by Bobby Flay locations in Colorado, and another deal will result in 15 Fuzzy’s stores in the Phoenix area. The company also owns Mash Lab Brewing, an independent restaurant and brewery. 

“We’re growing. We’re not super huge, but we have a decent number of restaurants at the moment,” Rogers says. “I would say that most of the decisions we’ve made to diversify are based on saying, ‘What do we like as guests?’”

Most of the restaurants are in Colorado, and both franchisees and franchisors have taken care to make sure none of the businesses pull customers away from the others. “Part of the philosophy that we have is to not try and compete with existing brands,” he says. “Technically, you can’t do it in terms of noncompete agreements.”

The management team also sidestepped the competition issue by picking different segments. Another Broken Egg Cafe’s ambiance is nothing like what Fuzzy’s offers. If someone wants a burger, they can go to Bobby’s Burgers. If they want a sandwich, they can go to Newk’s.”

“That was part of our philosophy and how we decided to diversify,” Rogers says.

There’s a bonus to operating with different franchise companies. After the team at Newk’s helped negotiate rates with third-party platforms, Roger Restaurant Group reached out to Fuzzy’s for similar assistance.

“We have the luxury of being a part of four brands,” Rogers says, “so I have the benefit of picking four different companies’ brains and then using that information however I see best for my company.”

Taste and personal preference helped guide Rogers to specific brands, but the main driver was to reduce uncertainty.

“If I only have Fuzzy’s, and Fuzzy’s goes through ups and downs, that’s the only thing I have to ride,” he says, “but maybe I can counter it with these other brands.”

Balancing the portfolio

When Chris Paret was ready to leave his day job and become his own boss, he went with a well-known national brand. 

“I was trying to find something that was local in State College, and at the time, there were three Subway franchises for sale,” says Paret, a Pennsylvania resident, “and so I explored that opportunity further and made the crazy decision to quit my job and go in on three Subways.”

That was in 2017. At the time, he had limited restaurant or franchising knowledge. His parents had operated a Bonanza, but that was a long time ago. He’d also done a little restaurant work in college. To adjust to his new life, he hired a pair of experienced managers to train him in the business.

“I said, ‘I’m taking this risk. I would like to have people who know what they’re doing to be involved in the store,’” Paret says. “They continued to work for this other person, but I paid for their services to help train me.”

Subway also provided a playbook to help develop Paret into a successful operator. After adapting to the restaurant business and developing a management infrastructure, he decided to expand. In 2020, he bought four more Subways. 

“The previous owners didn’t want to deal with the hassle and headaches of the pandemic,” he says, “and I knew eventually it would go away, so I just wanted to take the risk.”

One of the stores never recovered from Covid and had to be shut down, but Paret was dedicated to expanding his portfolio.

“I was looking at additional Subways but was struggling with the labor challenges that we have in this market,” he says. “When I was looking at other opportunities, I was looking at ones that didn’t have employees, and so that’s what attracted me to My Salon Suite.”

He’d considered the company before the pandemic, but the timing wasn’t right. When the opportunity came around again, he and a business partner built two locations. In two and a half years, Paret put 55,000 miles on his Tesla as he traveled to his different businesses.

“I live where two of my Subways are located. The other four subways are about an hour away, so I’m able to go up there once a week,” he says, “and I’m able to visit the My Salon Suites once a week, so I really only have two trips a week. But they’re in complete opposite directions.”

Paret doesn’t manage people at My Salon Suite. He rents space to beauty professionals. If they don’t show up for work, that’s their problem. But it’s far from a cold-hearted relationship. While working for others and then for himself, he learned how to run a business, and he’s happy to share with those who want to learn.

“This is their opportunity to become a business owner,” he says. “I’m helping people become entrepreneurs.”

Leaving real estate

Joshua and Ashley Rodgers started investing in real estate while working at their corporate jobs in the Kansas City area. After the birth of their second child, she went home to look after the children and oversee their two, three, and four-unit apartment complexes. 

Real estate looked like a solid investment for the long term, but the upheaval of Covid-19 brought unexpected challenges. “When things were starting to shut down, we would get messages from tenants obviously concerned,” she says. “They’d say, ‘Hey, I saw on the news that people don’t have to pay rent right now.’ And we were like, ‘Well, we still have to pay our mortgages.’”

There was talk at the time about potential regulations on rental property. New rules never materialized, but real estate lost its luster. “We didn’t feel comfortable moving forward and growing in that space any longer,” Joshua Rodgers says.

His wife had a Facebook friend who ran a Camp Bow Wow. Before the pandemic, she suggested opening a franchise. Besides, they had three dogs and didn’t have a good place to board them in their area.

“I’m like, ‘Man, we need a Camp Bow Wow, Josh,’” she recalls, “and he’s like, ‘You’re crazy. You’re crazy.’ This was 2018, I believe.”

They visited her friend’s business and started boarding their dogs there. Joshua Rodgers agreed that it would be a solid business. They met with corporate but decided the opportunity wasn’t right for them.

“We actually decided to purchase an Airbnb in Florida instead of doing our first Camp Bow Wow,” she says.

“We didn’t know short-term rentals, but we knew we could figure it out quickly,” he says, “and it would be a lot easier to figure out than going into a new business with employees, payroll, and everything else.”

Then came Covid and the rent issues. They met with the Camp Bow Wow corporate team again in June 2020, and the territory they’d discussed two years earlier was still available.

“It’s in our backyard, basically,” Joshua Rodgers says.

Building materials were expensive during the pandemic, but they opened for business in April 2022. It turned out that they were filling a serious need. “Within five weeks, we broke even,” he says. “I think we broke the corporate record on the fastest camp to break even.”

They sold many of their real estate holdings and invested the money into growing the business. They have two locations in the Kansas City area and also purchased three units in Colorado. In June of last year, Joshua Rodgers stepped away from his corporate job to focus on Camp Bow Wow. 

While the Camp Bow Wow business is doing well, the pair recently sold the last of their rental properties. In effect, their eggs are back in one basket, so it’s time to diversify again. They’ve talked with multiple franchisors in the health and beauty space and expect to expand with a new brand. They’re also taking multiple steps to meet whatever the future holds. 

“I’m working on getting my pilot’s license right now, and we’re going to end up buying a plane eventually,” Joshua Rodgers says. “That’s going to provide another level of freedom that we didn’t have before, where we could just fly to our locations and check in on them quickly. It also expands the investment opportunities in other states and other markets. It’s going to be interesting.”

Proud family legacies come together

Usually, diversifying is a business decision. For Tom McGwire, it was also a family decision.

“My parents met at a conference for family businesses,” McGwire says. “My mom was there from Honey Baked Ham, and my dad was a third-generation owner of a manufacturing business that my great-grandfather started in 1921. He invented a product called the ceramic band heater.”

Industrial Heater Corp in Connecticut makes parts for companies that build plastic components. It still makes the ceramic band heater, but it’s a relatively small part of the business. 

McGwire started doing assembly work on the production floor when he was 16. He went away to college, came back for a sales role, went away again, and returned to become the owner and CEO.

His family also has an ownership stake in Honey Baked Ham, which was started by his great-grandfather on his mother’s side. Multiple family members have been franchisees. 

“It’s not very popular in New England. It’s kind of ubiquitous in the Midwest, down South, California, and some places,” McGwire says. “I would always be at my family’s house out in Michigan, and they’d have it in the fridge all the time. They’d always be talking about it, trading war stories. I’d go home to Connecticut, and I’d tell my friends about Honey Baked Ham, and they didn’t really know about it.”

An uncle brought the franchise to New England, but it hasn’t developed in the region as well as it has in other parts of the country. McGwire felt like something should be done.

“I was inspired at a shareholder meeting, and I said, ‘How can I help?’ I wanted to do my part and grow the brand in New England,” he recalls.

He’s the managing partner of Red House Connecticut, which bought two stores in Connecticut and then a third in New Jersey. A fourth restaurant is under construction in Rhode Island and is expected to open by the end of the year. The plan is to develop a total of 10 Honey Baked Ham units. 

Management and leadership skills carry over from Industrial Heater Corp. Food service and manufacturing are both regulated industries, so that wasn’t a surprise., but there’s been a learning curve to go from B2B to B2C.

“The standardization within the franchise system, I think, makes this business model easier to adapt to for an entrepreneur,” he says. “In my manufacturing business, I can’t call my competitor and ask him for his P&L. I can’t ask them how much they’re spending on labor. But in the franchise system, we have a whole network of stores that are successful.”

He also has the benefit of a solid team. In addition to the experienced employees who came with the stores Red House Connecticut bought, McGwire has family members around the country who know what it takes to successfully operate a Honey Baked Ham restaurant. He also has his dad and brothers to contribute, and his fiancé does bookkeeping and accounting for both of the family businesses.

“It always comes down to people,” he says. “All businesses are hardworking people who come in every day and do a good job.”

Now that he’s at the helm of two family legacies, McGwire doesn’t anticipate adding more brands. It’s time to focus. “We have a lot to accomplish up here that we’ve committed to,” he says. “I’m not going to waver from that until we’re done.”

Franchise Portfolio Diversification Strategies

Just like a well-balanced investment portfolio, a diversified franchise portfolio can significantly reduce risk and enhance long-term returns. Sure, a single franchise brand can be rewarding, but relying solely on one brand exposes you to the potential pitfalls of economic downturns or other industry-specific challenges.

Benefits of diversification

•  Risk mitigation. Diversification helps protect your investment by spreading risk across multiple industries and brands.
•  Market reach. Targeting noncompeting brands and complementary businesses allows you to tap into new customer segments and expand your market reach.
•  Revenue stability. A diversified portfolio can provide a more stable revenue stream even during economic downturns.

Key strategies

•  Noncompeting brands. You’ll want to avoid adding franchises that directly compete with your existing businesses (many brands forbid it anyway) to maintain a strong market position.
•  Complementary businesses. Look for brands that can complement your existing offerings, creating synergies and attracting a wider customer base.
•  Industry diversification. Consider franchises in different industries or sectors to hedge against economic downturns that may impact specific sectors.
•  Food, non-food, emerging, legacy. There are risks, rewards, opportunities, and challenges throughout these different sectors and brands. For example, emerging brands could include the risk the brand won’t survive. But legacy brands can be more expensive with fewer territories available than emerging brands.
•  Similar operational models. Owning franchises with similar operational models can leverage your existing expertise and infrastructure.
•  Geographic expansion. Identify available markets within your existing footprint to build synergies and leverage your local knowledge.