Is it finally time to chuck the cubicle, endless conference calls, and 9 – 5? Are you ready to start your own business? Running a business can be an incredibly empowering experience, especially if you perform a service or provide a product that speaks to a true passion. Starting your own business also comes with plenty of risks, as you know. As a small business owner, you will need to develop a workable operating system that will be able to grow with your business. You’ll also need to handle all of your own marketing, educate potential customers about your products or service, and do your own bookkeeping (or pay someone to do it for you). You may also have to lease a storefront or office, remodel the space to the specifications of your business, develop relationship with vendors, and much, much more.
If this seems like a lot of work, or if you feel uncertain about your ability to successfully manage all these different aspects of your business, you can most likely find qualified consultants to help you in each of these areas. Another option is to see if a franchise system already exists in this same space. A franchise operation may have already done a lot of the legwork for you, depending on the quality and experience of the franchise. You will have to make some important compromises if you become a franchisee (more on this below), but the best franchises offer their franchisees the following benefits:
An Existing Operating System
If your business idea is complex or you aren’t exactly sure how to turn it into a profitable business, a franchisor may have already figured this out. The best franchisor opportunities feature and require adherence to an operating system that should allow the franchisee to quickly and efficiently get to business. A proven operating system is often (and properly) touted as one of the seminal advantages of owning a franchised business. But not all operating systems are created equal, and a mandated operating system may not sit well with those with an independent or entrepreneurial spirit. Moreover, many franchisors claim to offer a proven operational system and then deliver a subpar system or fail to adequately support the franchisees throughout the business. That’s why it’s so important to do your research before signing up with a franchise. Make sure you look deeply into the business’s performance and speak with current and former franchise owners. Also, ask to observe operations and review the operations manual.
An Existing Brand
Franchise businesses also offer franchisees the benefit of an existing brand. The value of this benefit will vary greatly from franchise to franchise. A franchise like McDonalds offers a huge amount of existing brand awareness within the population, while many smaller or new franchises have barely any. If you and the people in your network have never heard of a particular franchise, its brand awareness might not be such a benefit after all (unless you are not the intended customer or the franchise is very new).
Marketing can be time-consuming and expensive for an individual business owner. Many franchises promise to provide local or even national marketing for their franchisees. Again, the value of this benefit ranges from franchise to franchise. Smaller franchises likely cannot afford a large amount of marketing or anything close to the national campaigns you see for McDonalds, Pizza Hut and other famous franchises.
When you start a new business, you are likely to confront a lot of obstacles that you would have never imagined. Early mistakes could slow down momentum or even permanently handicap your business. One purposed benefit of the franchise model is that franchisors often provide training to the franchisee and even their management team in certain instances (you’ve probably heard of McDonald’s Hamburger University). I know I’m starting to sound like a broken record, but the quality and depth of this training will vary by franchisor. Some brands offer limited training and expect franchisees to learn on the fly. The best franchisors may require on-site training and provide lots of supporting materials.
Vendor Connections/Group Discounts
One area where a well-constructed franchise system can really excel is in negotiating collective purchase discounts on the products, goods sold, and materials that their franchisees need, such as food ingredients, napkins, printers, and more. When a franchisor mobilizes its collective buying power for the benefit of its franchise owners the result can be some very welcomed discounts for each franchisee. Unfortunately, we’ve seen certain franchises abuse this power. Robert Purvin, Chairman of the AAFD, has long warned that one of the worst abuses he’s seen in the franchise industry is when franchisors force their franchisees to buy from a specific vendor at an inflated price, or when franchisors receive rebates from vendors at the expense of their franchisees.
Again, this is an area where it behooves you to do your research and speak with current and previous franchise owners before starting a relationship with a franchise. Make sure you research and compare the cost of goods sold and the cost of supplies claimed by the business you are investigating in comparison to other similar businesses. The results may surprise you.
A Mentor on Your Side?
Striking out on your own, and being entrepreneurial, may excite you – or may terrify you. A franchise offers the promise of the International Association slogan of being “in business for yourself, but not by yourself.” Many quality franchise systems endeavor to deliver on this promise. But buyer beware! Not all franchisors have a track record of caring for the success of their franchisees—some even disavow a duty to act in good faith in their franchise relationship. Only with careful research and scrutiny can you determine if a franchisor opportunity is the answer to your dreams, or your worst nightmare.
Is A Franchise Right For You?
Franchises often sell themselves as a much smarter, safer choice than opening an independent business. Many of these claims (especially the average success rate of franchise businesses vs. independent businesses) are inflated, but that doesn’t mean that there isn’t a kernel of truth in that reasoning. Some franchises may represent a good business opportunity if you worry about starting a business by yourself and do not mind working within an established system. The key is to determine the right opportunity for you and to be aware that investing in a franchise carries a significant risk just like starting your own business.
I strongly suggest you read Robert Purvin’s book, The Franchise Fraud, to better understand the drawbacks of franchising or purchase the AAFD Franchisee Info-Pak which includes the book. This will be money well spent if it prevents you from making a decision that you will later regret.