Buying a Franchise
The Secrets to Finding & Buying the Right Franchise
So you’re thinking about buying a franchise? Congratulations, you are now part of one of the strongest emerging trends in the US today. The market is seeing record or near-record business volumes and franchise sales and no wonder, given going into business for oneself is arguably less risky than corporate employment these days.
The Corporate Crunch
Over the past several years, with few exceptions, we have seen the long-term permanent job with a guaranteed paycheck all but disappear. The vast majority of today’s prospective franchisees over the age of 45 have experienced employment cycles of just two to three years and, in between those jobs, unemployment cycles of six to 18 months. For someone who is now 45 and wants to work until age 65, this cycle creates at least three employment gaps that employment benefits will come nowhere close to covering. Further, when they do get their next job, it is usually at a lower level of responsibility and compensation than their previous position.
As one prospective franchisee recently put it, “corporate America expects us to fund our unemployment with our retirement savings while they take time deciding whether or not they want us.”
The US work environment has become more challenging and less pleasant with countless examples of continued downsizing and ‘rightsizing,’ with all remaining work still needing to be done by the few employees lucky enough not to lose their jobs. As a result, their workloads, responsibilities, stresses and frustrations increase, but in most cases without the benefit of increased compensation for their extra efforts. They are suffering from one of the most destructive forces in today’s corporate workforce morale: the ‘do more with less, for less’ syndrome.
As such, it is understandable why many people are looking to buy a franchise instead—but it is also absolutely important not to go into business for yourself simply as a strategy to escape the negative situation described above.
What drives your decision?
When your primary reason for becoming a franchisee is to move away from a serious career problem, all you’re likely to find is a ‘Band-Aid’ solution. This simply moves you from one ‘diminishing returns’ scenario to another, with the additional risk of investing a lot of your own money into the new business. Instead, you have to know precisely what you want your business to do for you.
By way of comparison, think about how you’d buy a vehicle. Any car or truck can get you from point A to point B in terms of distance, but you need to think about a lot of other factors, such as whether you mainly need to move yourself, your entire family and/or a bunch of stuff, which will determine whether you choose a car, minivan, pickup truck or sport utility vehicle (SUV). Also, if it’s important to have fun while driving, you might choose a sports car or off-road vehicle. And you’ll want to think about engine power, fuel efficiency, comfort and other criteria to suit your budget and style of driving. So, the process of buying a vehicle is not just about ‘getting there.’
A franchised business is also a vehicle, nothing more, nothing less. It is designed to get you from point A to point B in terms of time and money; the goal is to get you where you want to be financially by a certain point in the future, typically at least five to seven years from now. Similar to figuring out which car to buy based on your personal criteria, buying a business also requires a very clear idea of what you will want that business to do for you along your journey to your financial and lifestyle destination.
There are other points of comparison, too. As much as you might love a sports car and it looks beautiful sitting in your driveway, if no one is driving it or you did not know how to drive it, then it could only be considered an expensive pile of metal, plastic and rubber. The same holds true for a franchised business. As powerful as the brand and as solid as the business model may be, evidenced by the great success of many previous franchisees, the franchise requires someone to drive the business on a regular basis.
Even if you’re willing to put in that effort, this does not automatically guarantee success. If you do not have the right skills, particularly in terms of leading your team of staff, then you are quite likely to ‘crash.’ Instead of a car being wrecked, your bank account and lifestyle are at risk. Another way to think of franchising is through the responsibility of putting gas in a vehicle, which falls upon its driver. Business is fueled by customers and, contrary to popular belief, it is not the franchisor’s responsibility to attract customers, but the franchisee’s. The franchisor is certainly responsible for building the brand and helping to create awareness of the system’s offerings, but it is absolutely up to the franchisee to execute local marketing plans and strategies to generate a customer base. This is a process of attracting, serving and retaining customers. Indeed, one of the franchisee’s primary responsibilities is to ensure first-time customers have an awesome experience, so they will continue to come back in the future to buy the same offerings time and again. One of the main differences between owning a franchise and having a job is the degree of control you have over your lifestyle. When you’re in a job, it’s as though your boss is driving a pace car on a racetrack and you are required to follow behind as directed—and the company’s owners are like racetrack officials with the absolute power to wave a red flag and take you off the track even if you are performing well. Too many people have faced the red flag three or four times in their career before they are even 50 years old!
Will you know it when you see it?
When trying to find the right franchise, too many people go about their search with the attitude that “I’ll know it when I see it.” This type of feeling is akin to expecting to buy a car just because you like how it looks, without wanting to understand its capabilities or functionality. For one thing, even if a franchised business has worked well for other franchisees, that does not mean it will be a good business for you. Similarly, a business you might not identify as a good opportunity for you could actually be the ideal fit. Making decisions based on initial perceptions can be very dangerous, because those perceptions are very limited in their range and depth. Most people only look for businesses through a limited number of channels, for example, such as the Internet or franchise expos. While there are certainly plenty of franchise options that show up in these searches, it is important to recognize that those that show up the most frequently are not necessarily the best opportunities; they are simply the companies spending the most money to achieve greater visibility than others.
Often, the “I’ll know it when I see it” search is simply a default pattern for people who do not bother analyzing their own needs and wants before they look for a business. This is a serious mistake and, as a result, they can be easily swayed by limited information and persuasive arguments.
It is not uncommon for these people to buy businesses that are not the right fit for them. You will hear them say, “It’s not what I expected,” or, “I wouldn’t do it again,” or, “The franchisor doesn’t fix things.” They become unhappy and frustrated and may not meet their financial or lifestyle goals. This is the number one reason franchised and non-franchised businesses alike fail—a mismatch of the owner’s skills and the core requirements of the business.
Define and Research
A different pattern, therefore, is required to consistently ensure success. The first step—and it is a big one—must be to build your ideal business model as thoroughly as possible. This involves considering what exactly you want the business to do for you, both professionally and personally. You should compile an inventory of the skills you would bring to any business, focusing on aligning what you’re very good at with what you really enjoy doing. Different businesses have different requirements in terms of the core roles and activities for driving success, but the following are some of the dominant categories:
- Business generation activities—Marketing, networking and/or cold calling; needs assessments and problem solving; asking for the business; dealing with objections; collecting money.
- Business fulfilment activities—These will depend on the franchise’s specific products and/or services, but generally, this is the type of work that will be handled by your staff, not by you. If you have home improvement experience, for example, and open a franchise in that sector, you might start out doing construction and installation work yourself, but it shouldn’t be long before you need to hire tradespeople to handle those activities on an ongoing basis.
- Operational management activities—Facility management; staff management, including hiring, training and coaching; inventory management, including product quality assurance; financial management, including cash flow and bookkeeping.
- Customer experience management activities—These are the most important roles for the franchisee, as they will ensure a strong customer base for repeat business. Make sure your employees smile and establish a culture of always solving the customer’s problem.
Similarly, as you compile an inventory of your interests and passions, you should base the list on types of work you enjoy doing, not simply on products or services you are fond of (which may be fleeting). You need to also consider which roles and activities you would not enjoy handling yourself; sometimes these are the more important indicators. This is also a chance to ask yourself what’s been missing in your career that owning and running a franchise could help fulfil. There are all sorts of answers to this question, including those relating to career development, wealth creation, lifestyle, income stabilization and building business legacies for relatives. Your answer will determine the destination you want to arrive at once your business has achieved full stride and success.
The final components of your ideal business model will be more ‘logical’ criteria relating to the structure of a franchise, including investment level, number of employees, structure of weekly schedules and anticipated annual revenue. The most difficult aspect of determining your ideal business model is identifying which of your criteria are ‘must have’ and which are ‘nice to have.’ The former are non-negotiable, so any business opportunity that does not satisfy them should be avoided, but the latter will help you seek the perfect franchise while remaining open to new, unexpected opportunities. Now, the second step is to identify franchises that fit the model you’ve built, reducing your findings to no more than two to four of the most optimal business concepts at any one period, for further research. Any concept that is interesting but not necessarily optimal should be put to the side for the time being.
The third step, then, is to simultaneously research each of those few concepts in parallel, to gain a more thorough understanding of them. With this phase are three primary stages of research to consider:
Phase one: The franchisor
You can expect to be bombarded with information from the franchisor. These days, franchisors use multiple methods to share their business opportunity with you, from phone calls and webinars to printed materials, brochures and documents, including the disclosure document. The purpose of this phase is for you to gain a solid understanding of all aspects of the business model from the franchisor’s perspective, but it can prove a bit overwhelming.
Phase two: Existing franchisees Also known as ‘validation,’ this is probably the most important stage of your research. You should allow four to six weeks to complete it properly, talking to at least 10 to 12 existing franchisees in the system, including an even mix of top-performing, middle-performing and unhappy franchisees. This will provide a broad perspective of what a day, week and month in the life of a franchisee looks like. As you get deeper into this phase of research, you should start to see whether or not there is a solid fit between the franchise concept and your own skills, interests, natural abilities and passions.
Phase three: Franchise agreement legal review
It is critically important to have the franchise agreement reviewed by a lawyer—and not just any lawyer, but a franchise lawyer who can explain both your rights and obligations as a franchisee and the franchisor’s rights and obligations to you.
Phase four: Discovery day
By now, you should be very close to feeling ready to buy a franchise, but most of your franchisor-level discussions will likely have been with a salesperson representing the organization. It is highly recommended that you (and your spouse, if you have one) visit the franchisor’s head office to get a better sense of the team and infrastructure that support the franchisees. This visit is typically referred to as a ‘discovery day.’ You will need to make sure you and the senior management team are well-aligned in terms of business values, philosophies and corporate culture.
The Role of The Consultant
If you are like most people, you have never bought a business before, so all of the above research is entirely new ground to cover. It can be incredibly intimidating and daunting at first, so you may want to use a franchising consultant’s services. Just as most people would never buy their first house without the assistance of an experienced real estate agent, so too will the professional guidance of an experienced consultant help effectively assess franchise opportunities and identify any problems, so you can make an informed decision. Franchise consulting services are free to you, as the consultants are paid by franchisors for successful matches.
Getting Close to Your Dream
There are lots of good franchise opportunities in US today, but there are also many weak concepts, so it is important not to buy the hype. Just because a business has been franchised, that does not mean it is good, it simply means it can be duplicated. As the mantra in franchising goes, ‘investigate before investing.’ The aforementioned exercises will help you get closer to achieving your dream of finding the ideal business. It is better not to buy a franchise than to buy the wrong one, so take your time, do your research and only pursue a franchise you fall in love with both logically and emotionally.