Invest in Lines, Not Dots

by Steve Tanner

Mark Suster is a prominent 2x entrepreneur turned Venture Capitalist in Los Angeles who came up with a concept that will stay with me forever – “invest in lines, not dots.”

I had the pleasure of hearing him discuss this philosophy in a USC classroom last year and thankfully he wrote a blog about it that you can read here.

The due diligence process that Suster and all investors undertake is very similar to what prospective franchisees should do when researching a franchisor. You should be looking hard at the company’s management team, product, business model, market, financial viability and track-record of success.

So what does it mean to invest in lines instead of dots? Here’s a loose translation of how Suster described it in that USC classroom:

“An entrepreneur sends me a business plan. That’s a dot. They follow up three months later with an update on securing their first customer. Another dot. I see them at a networking event a few weeks after that and they tell me a major player is moving into their space. Dot three. A month after that they stop by my office to tell me how they maneuvered around the giant and are back on pace with their projections. Dot four. Then, a month after that, they tell me about a significant strategic partnership they just formed. Yet another dot. And so forth. After a while, all these dots turn into a line with a clear trajectory. Invest in the lines that are rising quickly.”

Translated into the franchise world, there are many data points a prospective franchisee can and should get:

• How well does the franchisor understand the business model and product?
• How quickly do they respond to emails and phone calls?
• Are they accessible and happy to talk for as long as you want?
• What level of assistance do they give you through the process of researching the opportunity and putting together a business plan?
• What is the level of franchise turnover?
• What does an attorney say about the Uniform Franchise Disclosure Document?
• Is the franchisor more concerned with selling the franchise or making sure you’re a good fit for the business?
• What feedback do current franchisees provide? Are they passionate? Happy about the decision they made? Would they make the same one today?

And so forth.

The important thing is to gather enough dots to form a reasonable, consistent line. Be objective about the analysis. Then decide if that line is worth your investment.

This concept is transferable to many other aspects of business and life as well – i.e. when making decisions on your key employee hires, marketing investments, growth opportunities, strategic partners, etc.

So whether you’re researching a franchisor, running a business or potentially committing money/time/resources to anything else – I encourage you to invest in lines, not dots.

Good luck and happy entrepreneuring.

Steve Tanner
COO, Author of GolfEntrepreneur.com
TGA Premier Junior Golf

Learn more about TGA Premier Junior Golf at topfranchises.franchisebusinessreview.com.

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