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Franchise Buying Guide

How to Succeed as the First Franchisee

Three steps to navigate your way through a new franchise system--and thrive.
Presented by Guidant Financial
Guidant Financial specializes in helping entrepreneurs purchase new franchises using their retirement funds.

Every franchise system has a first franchisee. Whatever you want to call this person--the groundbreaker, the pioneer, the scout or the guinea pig--it's still someone who's putting his or her treasury at risk to build a successful business.

And as important as success is to the first franchisee, it's even more important to the franchise company. Their future growth will depend to a great extent on the validation and results of the first franchisee.

As a first franchisee, you have to be a very special type of person. You must be much more accepting of risk than a normal investor. Bold and brave, you should also be the type of person who's willing to deal with a more fluid situation, where changing and adapting to unforeseen circumstances is a welcome part of business development. The first franchisee is usually a true entrepreneur and, much more so than later franchisees, is a partner with the franchise company in the development of the franchise system.

In many ways, being the first franchisee is comparable to being a first child. The neat thing about being first is all the extra attention that normally comes with the position. The challenging thing is that the first child has to break the ice on every little thing. This makes it much easier for the children that come later, but it's sometimes a real pain for the first child. They have to effectively train the parents to be reasonable and have realistic expectations, and this is often the same dynamic at play between the franchise company and the first franchisee.

There are some key secrets to making sure you're successful. The big three are:

1. Be the right person. It's essential for both you and the franchise company to understand the unique role the first franchisee plays. The first franchisee is a person who's comfortable with the uncertainty involved in being the icebreaker for a system. The good news is that you're undoubtedly going to receive a great deal of extra support from very senior staff of the franchise company. The bad news is that you're going to represent a learning environment for the franchise, and you need to be accepting of that role.

2. Have realistic expectations. No matter how well the franchise prototype operations have performed, it's going to be different running the first franchise unit. You aren't going to intuitively understand everything about the business, and both you and the franchisor are going to learn by making some mistakes. There must be a fair amount of open and frank communication about what areas of the business are set in stone, and what areas will involve testing and learning as you build your business.

3. Get the right deal. The reality is that the franchisor is going to be using you as a learning tool. So both sides need to be reasonable about who should pay what in terms of "tuition" for this schooling. Though the support level given to the first franchisee is typically much more significant than for later franchisees, other value factors, such as the system documentation, are probably not going to be nearly as well defined or developed as they'll be later. When negotiating the franchise agreement and other financial considerations, you should address these factors. Both you and the franchisor must feel the deal is fair and proper.

You can receive a lot of glory and recognition for your part in advancing the franchise system, but there are certainly trade offs. You won't have other franchisees to consult with that have already traveled the path before you. You'll have lots of support and assistance, but the support won't be tested and proven on others, so mistakes are going to be made. Finally, you'll have to make your decision to get involved with the franchise without the benefit or assurance provided by an existing system with a number of successful franchisees, and that increases the risk of getting involved.

So, if you're contemplating becoming a first franchisee, you should carefully consider all the special traits and responsibilities of this role, and make sure you see yourself.

Editor's Note: Check out Entrepreneur's annual Top New Franchise listing , our guide to the top franchises in each of the 109 categories from our more comprehensive 2006 Franchise 500® ranking. Whether you're interested in a juice bar or hair care franchise, you'll want to take a look at what we've determined to be the best franchises for 2006 in your category of choice.

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.

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