Alex Hormozi: How to Grow ANY Local Business (my framework)

Last updated: Jun 18, 2023

The video discusses a framework for deciding whether to expand a local business through franchising or privately owned locations, based on factors such as cost, effort, scale, and personal preferences, and how to calculate the potential return on investment for each option.

This video by Alex Hormozi was published on Apr 5, 2023.
Video length: 07:19.

In this video, Alex Hormozi discusses his framework for helping local businesses decide whether to expand through franchising or opening more privately owned locations.

He breaks down four main variables to consider: the cost versus return of every dollar invested, the effort required to open a location, the potential for scaling the business, and the type of entrepreneur running the business. Hormozi emphasizes the importance of looking at the business from an investor's perspective and considering the enterprise value of franchising versus owning locations privately.

He also provides specific business metrics to consider when making this decision.

  • Four main variables for expanding a local business: cost versus return on investment, effort required to open a location, scale of the business, and personal preferences of the entrepreneur.
  • Business metrics to consider: top line per location, bottom line per location, cost to open a location, and when it makes sense to franchise.
  • Franchise economics: franchises usually have a higher rate of return and enterprise value than privately owned locations.
  • Centralized versus decentralized models: the decision to franchise or open more locations on your own depends on the model and return on investment.
  • Personal preferences and strengths of the entrepreneur should also be taken into account when expanding a local business.

How to Grow ANY Local Business (my framework) - YouTube

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Four Main Variables for Expanding a Local Business

  • Cost versus return on investment for opening more locations
  • Effort required to open a location, centralized or decentralized
  • Scale of the business and potential for a big exit
  • Personal preferences and strengths as an entrepreneur
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Business Metrics to Consider

  • Top line per location is about $500,000 a year
  • Bottom line for a location is $250,000 a year
  • Cost to open a location is $50,000
  • If a business gets less than 100% return on capital, it usually makes more sense to franchise
  • Franchises usually have a higher rate of return than privately owned locations
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Franchise Economics

  • Franchises usually get a royalty on top line revenue, around 7.5%
  • Franchises usually have a higher multiple for enterprise value than privately owned locations
  • For every location opened at the franchise level, the franchise valuation increases by $300,000
  • For every location opened on the privately held side, the valuation increases by $2 million
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How to Grow ANY Local Business (my framework) - YouTube

Centralized versus Decentralized Models

  • If the model is decentralized, it might make more sense to open more franchise locations
  • If the model is centralized, it might make more sense to keep opening locations on your own
  • Always consider the return on investment and potential for a big exit
  • Personal preferences and strengths as an entrepreneur should also be taken into account
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Framework for Scaling a Local Business

  • Consider the cost and effort of opening privately owned locations versus franchising.
  • Calculate the potential return on investment for each option.
  • Assess the scalability of the business and determine if franchising is a viable option.
  • Take into account the entrepreneur's personality and preferences, such as being promotion-driven or product-driven.
  • If there is a stark difference between the recommended option and the entrepreneur's preferences, identify deficiencies in the business that can be solved with additional support or hiring.
  • Use the checklist to make informed decisions and improve as a business owner.

Watch the video on YouTube:
How to Grow ANY Local Business (my framework) - YouTube

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