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Is it Risky to Buy Into a Small Franchise?

I am currently investigating a franchise that only has one franchised unit open. What special considerations should I take when researching it? I want to make sure the franchise is going to be just as successful as any other with hundreds of units.
Jeff Elgin answered April 28, 2011
URL: http://www.entrepreneur.com/answer/222299
There is risk associated with any business startup so the obvious answer to your question is yes.

You're looking at a franchise system that has only one operating unit and wondering if that is more risky than buying into a system that has hundreds of operating units. While there are many things you can do to mitigate or reduce the amount of risk you take when buying a franchise, it is far riskier to buy into an unproven franchise. You need to be much more careful evaluating such a purchase.

When any business starts franchising, the owner has usually proven that he or she can successfully run one or more units of the underlying business, and has "operator" skills in this business. What they have not proven is whether or not they can take a new person (you in this example) and quickly teach him or her how to successfully operate a unit. That is completely different skill set I'll call "franchisor" skills.

Most franchisors will readily admit that the first 10 to 20 franchisees in their systems were the "guinea pigs" that they used to learn how to effectively bring someone new into their business and have them become successful. These pioneers helped the franchisor learn, often through trial and error, how to become good at their job of employing franchisor skills.

The challenge is that lots of pioneers end up buried beside the trail because they didn't survive the journey. If you want to make sure you don't end up with that fate, you'll need to either find a different franchise or else wait until 10 or 20 others have become franchisees in the system you like. That way they can blaze the trail for you.

Bottom line -- it's not smart to be someone else's guinea pig when your life savings are on the line.

Related: How Risky is That Franchise?
Related: How to Find Hot Franchises in a Cold Market

Jeff Elgin has almost 20 years of experience franchising, both as a franchisee and a senior franchise company executive. He's currently the CEO of FranChoice Inc., a company that provides free consulting to consumers looking for a franchise that best meets their needs.