Franchising is still a viable entry strategy even in the current economy.
The downside is that franchises take capital to launch, and capital is tight right now. But if you have a bucket of money and are an accidental entrepreneur in search of a business, it may be a good option.
Make sure that you temper any projections to the current economic conditions. Also, look for franchise opportunities that create value for the customer. I believe that this will be the best business model for some time to come.
There are some sticky contracting issues with buying any franchise. Make sure to work with an attorney who has experience with franchising.
But, beyond the contractual issues that arise in franchising, there are
some fundamental business and personal concerns that many franchisees
experience after it is too late.
One of the biggest sources of frustration among franchisees is that
they perceive that the value added from association with their
franchisor diminishes over time. A franchise will charge a significant
monthly percentage fee (this can average about 7% of sales) associated
with all that they offer in terms of systems, marketing, purchasing
power, and so forth. Over time, many franchisors realize that they can
be just, if not more effective on their own without paying the monthly
percentage of sales to the franchisor. This on-going monthly fee is
often glossed over by franchisees during start-up planning, as they
tend to think only about the initial fees and capital expenditures in
their planning.
Another concern expressed by franchisees is that with all of the
rules and standardized procedures, they tend to feel more like an
employee than a business owner. Those who try to break away from the
predetermined model and processes can face the wrath of the franchisor.
Larger franchisors have entire staff dedicated to franchisee
compliance.
A financial risk to consider is that many first time entrepreneurs
can only afford newer franchised concepts, since well established
franchises can cost hundreds of thousands of dollars to buy in. These
start-up franchisors can begin to experience their own growing pains.
Some don’t survive. In some cases they may take the franchisees down
with them.
It is critical to understand all of the ins and outs of franchising
as a general business strategy first. Then if the idea of a buying a
franchise still makes sense, do your homework on the company and its
concept. All franchise opportunities are not created equal.
Maureen Farrell at Forbes offers their top choices for franchises in this article. These types of rankings can offer some good insight into the ins and outs of various business models.
Hi Jeff,
Although we have never met, I have read your articles for some time, and really enjoyed this one. {It’s right up my alley}
You made several good points, including looking at franchise offerings that create value for customers.
I’d like to add that when the economy is tight, look for opportunities that provide services and products that people need, as opposed to what they would like to have.
Also, I trust that you know that you were included in “20 Small Business Blogs That Have The Right Stuff,” over at one of my blogs-The Franchise King Blog.
Hope you are not mad at me for coming in at a lowly #2!
The Franchise King
Joel Libava
I like how you noted that franchisees tend to feel more like employees than business owners. Considering that many entrepreneurs become business owners because they want to develop a specific company culture, franchising as a business model could have more negatives than at first glance for these business people. When an entrepreneur is assessing different opportunities, I think they must consider the cultural implications of becoming a franchisee as a major factor.
You made several good points, including looking at franchise offerings that create value for customers.
I’d like to add that when the economy is tight, look for opportunities that provide services and products that people need, as opposed to what they would like to have.
Sarah James Vision Statement Examples