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He Said, She Said

Our experts weigh in on the ups and downs of buying a franchise fresh out of college.
January 1, 2008
URL: http://www.entrepreneur.com/article/187674

Few and Far Between
Save for the occasional diamond in the rough, recent grads have a lot to learn before buying a franchise.
By Jeff Elgin

Virtually all the franchisors I've discussed this with agree--and my experiences and observations validate--that the short answer to this question is "very rarely."

Many franchises have experimented with this development strategy at one time or another. The most common approach is one in which the new graduate operates the franchise while the parents put up the necessary funds. Though there have certainly been some success stories with this approach, they are few, and the problems that arise for franchisors are plentiful.

The challenge is twofold: First, most recent college graduates don't have the financial resources to fund a franchise startup, so someone else has to put up the money for the new business. Second, many lack the life experience and motivation necessary to run a business effectively and stick with it when times get tough.

Any startup will occasionally run into problems that involve long hours and/or missed paychecks for the owner, in addition to the stress that comes with being the boss. Franchisors and parents have learned the hard way that when the going gets tough, someone with no skin in the game is more likely to bail on the business and do something easier, like find a job with a dependable source of income. This course of action can leave the silent partners with their entire investment at high risk and the franchisor with an abandoned unit.

There is also the challenge of managing employees. Most franchise systems are set up with the expectation that franchisees will have a fair amount of practical management and life experience that they can draw from when running the business. But most recent college graduates have very little, if any, practical experience recruiting, retaining and managing employees.

This disconnect can cause a number of problems, because selecting the right employees and managing them properly are often the most important elements of running a franchise successfully. Many of us can recall dozens of mistakes we made when first gaining experience in this important area of management. But we had the advantage of being part of an organization stable enough to withstand any issues created by our mistakes. It doesn't take a stretch of the imagination to assume that most recent college graduates are going to make just as many mistakes. The difference is that these mistakes will be made in an environment that is much less forgiving for themselves, their parents and the franchisors. Starting a franchise is difficult enough without the added risk of inexperience.

There are certainly exceptions to the generalizations made here. If a recent college graduate has been demonstrating certain businesslike habits for years, he or she might be a great candidate for owning a franchise. One such habit is saving money and investing it wisely--even if the amounts are not impressive, this shows a fiscal conservatism that's rare in young people today. Another good indicator is an early passion for or participation in entrepreneurial activities, such as starting a landscaping business while in high school or college. Prospects should also have lots of leadership experience--situations where they accomplished tasks through the efforts of others, whose activities they directed.

The best advice for recent college graduates interested in starting their own franchises is to find a job, gain practical experience in the work force and save money. In a few years, they'll be in a much better position to take advantage of the benefits that can come from pursuing the American dream through owning a franchise.

Jeff Elgin has almost 20 years of experience in 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 matches their needs.

What She Said

The Force is With Them
Equipped with passion and drive, young people have what it takes to tackle the franchising world.
By Jennifer Kushell

Over the next 15 years, the largest generation in history--the Millennials--will continue graduating from college and looking for new and interesting opportunities to launch their careers. Eager to make their marks on the world, pursue their entrepreneurial interests, establish their independence and enjoy a comfortable lifestyle, franchising might just be the ideal opportunity for graduates. Here's why:

1. The basic premise of the franchise model is optimal for young people. As the International Franchise Association likes to say, "Owning a franchise allows you to go into business for yourself but not by yourself." For young people who crave independence but require extra TLC when learning the ropes, franchising offers a great mix of both. Millennials adapt well to proven systems, structure and oversight--which were norms for them in their academic lives. Younger owners eager to embrace new opportunities often devour franchisee manuals, contracts and training materials, which many franchisors complain aren't always given adequate attention. Younger franchisees are also far more malleable than the typical franchisee candidate, who may have decades of experience but needs to be retrained in a whole new style of doing business.

2. They've grown up with franchising. Young people today have grown up using and relying on products and services provided by franchises. Almost all have been franchise consumers, and many have worked for a franchise company. In the book McDonald's: Behind the Golden Arches, author John F. Love writes, "One out of every 15 American workers got his or her first job from McDonald's." In this way, many young franchisees can build on experience they gained as franchise employees. And as any franchisor will tell you, those with previous experience and a passion to take on the responsibility of ownership often make some of the best owners.

3. Entrepreneurship is in their blood. It's not uncommon for twentysomethings to have three, four or five small businesses already under their belts, and that means they're earning experience, credit, cash and other valuable resources that can prime them to be more successful franchisees. Many others, who have yet to launch their own ventures, are thinking about it and aggressively preparing themselves to do so. Not only are business and entrepreneurship classes popular, but experts estimate that there are currently more than 200 franchise-specific courses being taught on campuses across the U.S.

4. "Helicopter parents" mean more family support. It's not uncommon for boomers' lives to revolve around their children, so much so that many have been labeled helicopter parents for their tendency to hover over every decision their kids make--even when their kids are in their 20s and 30s. Having taken such an active role, many are open to financing or assisting their son or daughter as they get into their own business--or at least co-signing the necessary loans. This isn't to say recipients of such assistance don't have any skin in the game, though. Anyone who has ever borrowed money or had others invest in them knows that the pressure that comes along with it, whether direct or implied, can be just as intense as if their own money was at stake.

5. They think big. Once upon a time, young people were content with finding a great job, settling down and starting a family. Today, everything is supersize, including their dreams and aspirations. Millennials are inventors, leaders and even broadcasters at a young age. They create videos that can be seen by millions, they start nonprofits that affect the lives of thousands in foreign countries, they launch companies from their dorm rooms that sell for hundreds of millions. This level of ambition has caused many franchisors to start looking at young people not only as the next great wave of franchisees, but also as the best new prospects for multiunit ownership. The head of ExxonMobil franchising once told me he likes younger prospects because they often have bigger goals. His average middle-aged candidate typically has aspirations of owning one, maybe two, units, whereas those in their 20s are more interested in building 10 or 20 stations and are hungry to learn how to become multiunit owners from the beginning.

Young people today clearly have many reasons to consider franchising as a career path, and they bring a lot to the table as franchisees. Not every recent grad will make a good candidate, though, just as not every older candidate will. It is, however, about time that the franchise community and young people start to recognize how good they are for one another. After having worked with thousands of young people, I think it's crazy that people are still questioning whether young people are ready for franchising. The better question is, Is the franchise industry ready for them?

Jennifer Kushell is the co-founder ofYSN.com(Your Success Network), an online universe that connects ambitious movers and shakers from around the world with opportunities to realize their full potential. She is also author of The New York Times' bestseller Secrets of the Young & Successful.