Franchising – A Road to Entrepreneurship
Junior: “We goin’ Sizzler, we goin’ Sizzler,” – dialogue from the movie “White Men Can’t Jump”
Sorry, but when I thought about franchising, this was the first thing that came into my mind; that ought to tell you something.
So, the purpose of this blog is not to convince you to open a franchise or promote any particular brand (I do have clients in this space) but to give some pointers about exploring franchising as an avenue to becoming a business owner. Some points to consider:
If some of the surveys that I see are correct, a higher proportion of people would prefer to own their own business than work for someone else. We all have theories behind the reason for this. I think the biggest is that most don’t see a long-term bond between employer and employee. I was at EY for 35 years until I retired; I am not sure today’s generation sees that in their future. Many view themselves at risk as a business changes versus the stability of the “old days,” so the theory goes that if I am at risk, then let me be where I feel I can have some control.
While many would like to own their own business, they do not know where to start. Strategy, marketing, funding, execution, etc. are all great concepts but can be overwhelming when you have to start each with a plain piece of paper. Enter the concept of owning a franchise. A good franchise arrangement provides the following:
– guidance – an operating plan with details on strategy including execution procedures
– branding– a name and approach which has been proven before
– training – on how to operate your business and make the most out of it
– marketing and sales – proven techniques that have worked before to promote your business
It all sounds so good because in many respects, some of the typical risks in starting a business have been mitigated. But, when it comes to considering how it may work for you, my thinking is that there are two different approaches. The first is an investment approach. You invest in a location with the idea of opening a second or possibly more. You may “work it” in the beginning to learn the ropes but in the end, you hire location managers, spread your overhead over a number of locations and look for return from the underlying operations. The second is what I call a lifestyle business. You work one location to bring in a salary and perhaps a little profit, but you just look to pay back what you borrow. In either case, you can become an owner with appropriate rewards.
There are two final items you should consider. First, there is a Federal Disclosure Agreement which a Franchisor must file. You should get it and read it for any franchise you are considering to study potential risks like excessive turnover and burdensome fees. You are usually committed to minimum fees for a long period of time once you sign so consider this carefully before you do. Second, how do you get out? If it doesn’t work out, what is the market to sell out? Is it a closed market and can you expect some terminal value when you decide to leave?
Many entrepreneurs have found their place in a franchise operation. Perhaps you can become one of them.
