It's happened to all of us. We go on vacation or take a work-related trip, and while we're on the road we discover a wonderful business. It might be a great restaurant, a wonderful new type of fast-food sandwich, a unique retail shop or even a service business offering a different twist on something we feel many people will want. Even better, we learn the business we've discovered is a franchise with opportunities available for new franchisees.
Invariably, we wonder how well that business would do in our hometown--raising a number of questions for us to ponder. Can the product or service be transplanted to where we live and still be successful? Will the brand draw sufficient customers? Will other people see the appeal that seems so obvious to us? Is there anything necessary for success in this business that's missing from our area?
These questions form the basis for the rapid expansion of the American Dream we've seen in the past 15 to 20 years. The discovery of a "better mousetrap" is often the spark that lights the entrepreneurial fire in people. Though this is a wonderful way to spot potential opportunity, there are some important questions that a careful investor needs to answer before moving forward.
One of the surest ways to begin developing an answer to the question of whether the franchise will work in your area is to compare the demographics of the population supporting the existing successful business to the population in your area. It's fairly easy today to find demographic data for any targeted trade area, so you should start your comparison there. Some of the key factors in this demographic comparison include:
- Total Population in Trade Area. Many businesses need a certain absolute number of people in the trade area in order to ensure enough potential customers to support the business at a successful level. If you look at the demographics of the existing trade area and realize they have a few hundred thousand people supporting the business, you might have a problem putting one of these businesses into a small town in Wyoming with only a few thousand in total population.
- Population Density. This is a corollary [??] to total population. Ask the franchisor about the effective draw area (in other words, how far will a potential customer drive to get to a business like this?). Then compare the population density within that radius in both the existing unit and your area. This way, you can make sure you not only have enough people, but also that the people you have are close enough to shop with you.
- Population Racial or Ethnic Characteristics. This can be an especially important factor if you're considering a franchise business idea that appears to provide initial consumer appeal based on one of these factors. An example of this might be something like considering a franchise that's based on a great Cuban restaurant in Miami. If the restaurant is drawing its customers from across the demographic spectrum, no problem. If you observe most of the existing customers are from the Cuban community, you'll need to determine if the product being offered will have general appeal to other ethnic groups before you proceed in locating such a business anywhere other than in an area with a large Cuban population.
- Income Levels. It's also very important to compare the average household income levels of the existing business area to your area. There are a number of businesses that succeed in a fairly tight income demographic, and you need to determine if the business you're considering is one of these. You then need to determine whether or not your area fits within the right income level. This is especially important if the business either has expensive products (like a high-priced restaurant) or a service that most people would consider a luxury rather than a necessity (like a home-cleaning franchise).
Another consideration relates to any international business opportunity you may come across and consider putting into your area. Let's assume, for example, that you were on a trip to Australia and saw a franchise business you thought would be wonderful in America. Though most people think of international franchising as starting in America and then being exported to other countries, the reverse is often true as well.
This can be a wonderful potential opportunity, but you need to keep an old saying in mind: "When in doubt, send a scout." There are so many uncertainties in international franchising that you want to make sure any concept can be successfully transplanted (by seeing someone else do it) before you invest. It may require more patience to do it this way, but history shows you don't want to be the pioneer on this type of journey.
The franchise industry has long been criticized for its role in the purported "homogenization" of America--chains of units, all the same, operating in every corner of our vast country. But it's important to understand that this dynamic is the absolute intent of a successful franchise concept--to be able to conduct business successfully, using proven systems and brands, in virtually any area of the country.
This is a key point in relation to the topic of this article. You want a franchise business that's going to work in your area, and the less doubt you have about that fact, the less risk is associated with the franchise investment.
Often, the unique and exciting idea you see somewhere and then wonder about putting into your area is a concept that's untested in terms of its general acceptance in the marketplace. That puts you, if you decide to invest, into the position of a true entrepreneur in terms of introducing a new concept to your market.
However, that also puts you in a much riskier position than you would normally expect when you get a franchise for a business startup. Make sure to research very carefully to find out whether the concept will work in your area. If it can, then you can go forward and make your American Dream come true.
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.