Most people are under the mistaken assumption that a franchise operation is the easiest way to run their own business. However, what people need to understand is that running a business – especially a franchise business – is never easy and it’s not actually theirs.
UnhappyFranchisee.com publisher Sean Kelly sheds a little light on the darker side of the franchise industry. According to him, many entrepreneurs find themselves realizing they should have done some in-depth research before opening their business. Kelly started his own business in 2007 and, since that time, he’s heard one horror story after another regarding blind spots and mistakes that business owners often make. And, it’s for this reason that Kelly decided prospective entrepreneurs needed to know the truth – to reduce the stress they feel before and after their doors have opened.
If entrepreneurs don’t want to fall prey to this ever-common problem, then it’s best to hear what Kelly has to say in terms of getting a business right… from day one… regardless of what industry they’re going to be involved in.
1. Don’t Go For Popular Businesses
Many entrepreneurs think that the best way to become a successful business owner is to buy into a trendy new business. However, Kelly cautions that people need to actually look at established businesses – ones that have fought the wheels of time and have succeeded – to find success.
2. Franchise Ownership Doesn’t Mean Complete Control Over Business
When it comes to buying into a franchise, entrepreneurs need to know they are not in total control of the business. Sure, they’re the boss of the shop they’ve purchased. However, when it comes to a franchise, they are subjected to all the rules and regulations the home office dictates. They tell the entrepreneurs what to wear, how to decorate the building, etc. Franchisees have little control in that regard.
Kelly said it’s best to view a franchise business as the military – they have to use the same uniform and complete the same mission.
3. Franchises Have Same Fail Rate As Independent Businesses
Another assumption people make is that franchises are not going to fail like small businesses will. Here’s a sobering reality: they fail in business at similar rates. Kelly said it all depends on the franchise they invest in that makes or breaks their success. There are some franchises that never fail while others have a 90 percent failure rate. The best thing an entrepreneur can do is research on the franchise they are looking at.
4. Ignore Positive Press
Kelly said many website members have noted franchises tend to have lots of positive press spinning – article after article. However, it’s best to ignore this press because it’s a testament of their aggressive PR efforts, not the franchise’s strength.
5. Look For Online Complaints About Franchisee
Before an entrepreneur signs a legally binding contract with any franchise organization, they need to be sure of what critics are saying – news/discussion sites, message boards and forums. Franchisees’ complaints – past and present – can give entrepreneurs some perspective of what to expect. Go over it with a fine tooth comb.
6. Hire An Experienced Franchisee Lawyer
Too many people purchase a franchise without letting a lawyer look over the contract. Kelly said ignorance, in this case, is not bliss. In fact, it can be a nightmare. He said people are putting thousands of dollars into the franchise, using their home and anything else they can put toward the purchase. They are putting their next 10 to 20 years on the line – failing to hire someone who knows what they’re looking at in a contract and can explain it to them.
7. Don’t Trust Free Franchise Consultants
Kelly said franchises will hire consultants from the web, thinking they’re actually getting help. However, these people have little to no knowledge on franchises other than bringing prospects to franchisors.
8. Franchisors Have All The Cards
Franchisees want to have some say in what happens, but it doesn’t happen that way. Kelly said franchisors have the power to change product lines, make unpredicted overheads, procedures, etc. Franchisors can sneak in things that absolve them from lies and misdirection in the franchise contracts. They can even take away the rights of franchisees to air their grievances.
9. Don’t Look For Government Help and Protection
Franchisees are not considered consumers and, because of that, they don’t have the same protections that consumers do. Franchisees are business investors and entrepreneurs, and there is limited government oversight within this industry. Kelly said the FTC (Federal Trade Commission) demands franchisors release specific kinds of data to their franchise buyers, but they don’t ensure that this is done.
Kelly said if a franchisor doesn’t do as they should or if a franchisee feels they’ve been misled or lied to, the only recourse they would have is to employ the services of a lawyer and file a lawsuit against the franchisor.
10. Franchisors Can See Success Despite A Franchisee’s Failure
Believe it or not, a franchisee’s success or failure will not necessarily harm the success of the franchisor’s home office. The reason is that the majority of franchisors will get a percentage of a franchisee’s gross sales, whether or not that franchise is seeing a profit. Kelly said some franchisors will increase the amount of equipment, supplies and products a franchisee must have to buy. Some franchisors will ‘roll’ franchise locations, selling them over and over to make a profit.
Kelly said Quiznos’ 2009 free sandwich giveaway is one example of this. Millions of people came to the restaurant demanding the free food. Franchisees were required to purchase their ingredient from the company’s home office, which is how it would have made its money if franchisees didn’t resist the promotion.
11. Franchisors Should Spend Time In The Business They’re Considering A Franchise In
Kelly said a good way to see if people want to work as a franchisee is to work in the franchisor’s business before buying into the company. This ensures they get the experience and knowledge they need to make a sound decision. There are some franchises such as Dominos that demand that people work in the business before they buy into it. Entrepreneurs should talk to as many franchises of the chain they’re interested in to see what kinds of things they can expect, what the company expects and how they are doing overall.
12. Think About Failure
Entrepreneurs need to be confident in themselves and their skills to start their own business, established business or not. They want to keep their hopes up but if they’re up too high, they could overlook the possibility of failure. Entrepreneurs should always keep the potential negative outcomes in their mind to avoid financial downfall.
13. Create Their Own Business
Instead of getting involved with a large franchise organization and paying the home office money each month, entrepreneurs should consider the pros and cons of starting their own business. Is it more lucrative to start a company from the ground up? Or, would it be best to invest in an established business?
“If a given franchise doesn’t provide an ongoing, long-term return on your investment, consider starting your business as an independent and building your own brand,” says Kelly.
“Who knows? If it’s successful you might start offering franchises of your own some day.”
Reference: www.forbes.com
