If you’re wondering if you should invest in a franchise business, consider these facts
Often, I am asked, “Why should I invest in a franchise?” Or “Why do I need a franchise when I can start that concept on my own without paying royalties?” I tell people that there are many benefits to buying a franchise, but it’s not for everyone. If you’re considering franchise ownership, you should know the facts—both good and bad. Below, I outline franchising’s benefits, myths, and realities to help you determine if franchising is right for you.
The benefits of buying a franchise
Yes, it’s possible to successfully launch a business without a franchise, but going solo is a riskier option and takes more time and energy. With a franchise, the pains of developing the business have already been done. The franchisor did all trial and error so the franchisee can step right into a proven business. Savvy investors look to franchising for a proven business model. Here are some of the main benefits that they are after:
- Start-up stage: When investing in a franchise, you can skip the often grueling start-up phase of launching a business. You don’t have to write the business plan, conduct the market research, test the product, etc. Essentially, you are reaping the benefits of the franchisor’s hard work.
- Training: Most franchise companies provide initial training for new franchisees and often their staff. They may also visit your location as a follow-up to help guide you during the grand opening phase and retrain the necessary areas. A lot of brands keep franchisees on top of the latest technology and methods with educational videos and webinars.
- Marketing/advertising: The franchisor will help you execute effective marketing campaigns and develop a plan based on your specific market and budget.
- Access to purchasing power: Some franchises may buy large amounts of inventory or equipment, providing you with reduced costs that are far less expensive than if you were buying these items independently.
- Financing: Some franchise companies provide in-house financing options or guide you to resources that provide access to funding your new business.
I could go on and on about the benefits of franchising. There are many. But, probably the most unique and significant is the sense of community that comes with franchise ownership. When you join a franchise system, you become part of a family. You can call on fellow franchisees for advice and to share best practices. They say with a franchise you are “in business for yourself, but not by yourself.” That is true. Now, here are some things that are simply not true—but often assumed—about franchising.
Common myths about franchising
There are many myths associated with franchising. In all of my years in the industry, I have heard some good ones. If you’re considering investing in a franchise, don’t believe everything you hear. Talk to a Certified Franchise Consultant who will give you the facts. Here are some of the most common franchise myths and misconceptions I have encountered:
- Franchising is all about food: Although food is a major category in franchising, it only represents one of more than 75 categories available—or as I say “there is life after food.”
- Franchising is too expensive: Not true. You may be surprised at the number of low-cost options. There are franchises to fit almost every budget, from low-cost, home-based models to large-scale, brick-and-mortar businesses and everything in between.
- I cannot manage a business where I have no experience: For the most part, experience is not necessary. Many franchises prefer you enter the business with no experience. This way, they can train you properly on the methods of success with no bias. Folks with experience often will be less successful since they are more likely to change the system (thereby changing the results). If you look at the haircutting franchises as an example, most of the franchisees could not cut hair to save their lives. Running a haircutting franchise is more about sales, marketing, and management, rather than cutting hair.
- A franchise will run itself: Not true!!! Franchises require your involvement. True, some concepts need less personal involvement than others, but they don’t run on autopilot. A franchise is a big investment, why wouldn’t you make it count? Although there are manager-run concepts available, you are vested financially and should know what is going on in the daily operations of your business. Your business will not grow if you are just sitting around and staring at the numbers.
- I need a brand name people can recognize: I love this one. Most people believe a strong brand name will equate to success. A brand name does not always mean customer loyalty. It could be the opposite. I often do an exercise with my candidates by asking them to name as many franchises as possible in one minute. Most folks can come up with about 10 familiar franchise brands all in the food category. There are more than 3,500 franchise brands available. Most likely you have been a consumer of many of these brands, never realizing they were franchises.
- I cannot use my creativity in a franchise: This is not necessarily true. Of course, you must follow the process to achieve the highest potential for generating revenue. But you still have the power to make your own decisions on marketing or hiring and firing. Many franchisors welcome new ideas from their franchisees. A perfect example is the McDonald’s filet of fish sandwich created by one of their franchisees.
- If you buy a franchise, you are guaranteed success: Unfortunately, I wish this one were true. Like life in general, there are no guarantees of success. Yes, owning a franchise has a higher rate of success than starting out alone. You will receive support and the tools provided for success, but you still must work hard and follow the guidelines to achieve the best results.
The realities of franchising
Of course, there are downsides to franchising as well. There are rules to follow and contracts to sign. A major reason franchises fail is non-compliance. You have to follow the system. Once you change the system, you change the results. In other words, “you can’t paint the golden arches green.” It is up to you to determine, through your due diligence, if you can live with the minor cons to take advantage of the many “pros.”
You can’t paint the “Golden Arches” green.
The ultimate decision in starting a business really comes down to who you are. Knowing how much risk you can stomach, and how much effort you’re willing to give, can help you determine if franchising is for you. I find people fall into two categories when it comes to business ownership.
- Entrepreneur: An entrepreneur is a person who organizes and operates a business taking on greater than normal financial risk to do so. To me, this is the person who goes on Shark Tank looking for a “shark” to invest in his dream. Many of these folks have leveraged all their savings, borrowed from family members, or even second mortgaged their homes all for the sake of their vision. They live and breathe what they created and will not give up on their dream.
- Frantrepreneur: This is the name I give to folks that have the dream of owning their own business and being self-employed but want to reduce the risk that a true entrepreneur must take never knowing the outcome.
As I describe them, true Entrepreneurs may not necessarily be a good fit for a franchise as they may want to do it all on their own and create their own brand. The Frantrepreneur, on the other hand, wants to minimize the risk and is better suited for franchising.
I do believe that franchising, or business ownership, is not the right path for everyone. The only way to find out is to educate yourself and learn the options that are available. Do not shortcut your due diligence. At the end of the day, you should know the good, the bad, and the ugly about the franchise you are exploring.
As Elon Musk said, “I could either watch it happen or be a part of it.” Wherever your journey takes you, I wish you the best.