Franchise Secrets
Evaluate your tolerance for risk
Opening a new business is a scary prospect. There’s a lot of personal, professional and financial risk to consider. It’s natural when contemplating such a profound step in your career to look at ways to manage your risk and increase your chance of success.
The Small Business Administration (www.sba.gov) conducted a survey that found 62% of non-franchised businesses failed within 6 years. A separate study by the United States Chamber of Commerce (www.uschamber.com) found that 97% of franchises were still open after 5 years.
The research conducted by these independent third party organizations clearly demonstrates that choosing a franchise business carries significantly less risk than starting a business on your own
No business is recession-proof
There’s no such thing as a business that can’t be impacted by a faltering economy.
There are, however, certain industries that are considered recession “resistant.” These are generally products and services people can’t do without no matter how much they’re cutting the budget.
The good news is there are hundreds of great franchise opportunities in recession resistant industries. The following are just a few examples:
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Top five recession resistant industries:
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Clothing
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Automotive maintenance, parts and repair
Weight loss and fitness
Resale shops and discount (dollar) stores
Education (tutoring) and child care
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Tune out the hype
Never before was the adage “if it sounds too good to be true, it probably is” more applicable. You’re going to hear a lot of hype – good and bad – while assessing potential franchise opportunities.
Between marketing blitzes and human nature, it’s easy for success stories to spread like wildfire. Think about the guy who lost weight eating Subway – that story is so pervasive it’s become almost impossible to separate the allegory from the restaurant in the public’s perception. The hype surrounding that marketing campaign will have an impact on potential Subway franchisees for the foreseeable future.
It’s also natural for people to look for something to blame when things go wrong. Because of this there are also going to be negative, emotionally charged franchise stories in circulation. However, keep in mind the nuanced details that created such situations are never discussed; only the attention-grabbing outcomes.
No one is suggesting you completely ignore these stories, because hidden beneath the hype there are likely valuable lessons to learn. Learn from them what you can while keeping in mind what they are: unique situations with complex backstories that probably have no bearing on your success whether or not you choose the same franchise.
Look beyond the big brands
Sometimes it’s easy to forget there are thousands of franchise opportunities out there, because the big name brands get all the attention. When you’re in the early stages of your search, it’s a good idea to bypass the overblown marketing of the huge franchises and make an effort to learn about the “no-name” franchises in your industry of interest.
There are quite a few advantages to lesser known franchise brands. For instance, they are often cutting edge concepts that can get a lot of marketing attention. Lesser known franchises haven’t yet saturated your local market. And they’re usually less expensive to start up, which means less financial risk.
Of course, you may be looking for the security and benefits that come with a big name franchise. Criteria such as national marketing campaigns, standardized employee training, management support and strong purchasing power may be at the top of the checklist for what you’re looking for in a franchise, and there’s nothing wrong with that. But if you’re not interested in being another instantly recognizable box in another strip mall, then a ‘no-name’ franchise might be for you.
Do your due diligence
All franchises are not created equal, and it’s your job to sort them out. The information is out there – all you have to do is go get it.
Conducting due diligence on a franchise opportunity should include:
- Check with the Better Business Bureau for complaints
- Check with the State Attorney General for complaints
- Speak with the franchisor
- Request a Franchise Disclosure Document (FDD)
- Attend a discovery day with the franchisor
- Make at least 10 calls to current and separated franchisees
- Make appointments to meet franchisees and visit the operation
- Job shadow a franchise owner (or owners) for at least a day (longer, if you can)
- Repeat as necessary
The purpose of due diligence is to reduce your risk. All the steps are necessary, but the most important step is interviewing and job shadowing a current franchise owner.
Some franchise owners will allow potential franchisees to spend weeks at their business learning the ropes. They may be willing to share detailed financial data, and can confirm or refute claims made by the parent company. A franchise owner can answer questions the franchisor may be legally bound from discussing. You may be able to make assessments about your own management style or potential business location by observing theirs. Visiting operating franchises in the course of due diligence may be the single best method for evaluating your potential success with a franchise opportunity.
If you don’t love it, don’t buy it
Confucius said “Find a job you love and you’ll never work a day in your life.”
If you wake up in the morning and dread going to work, your franchise will not be successful. It’s as simple as that.
The beauty of franchising is the endless variety of options – there’s literally something for everyone. You just need to devote the time and effort to figuring out which one will make you hop out of bed every morning, happy to be doing what you love.
