Franchising 101 -- 4 Key Questions Before You Step into the Arena Franchising is a $2.3 trillion industry with ups and downs, just as any industry has. Are you ready to weigh them?
By Jeffrey Hayzlett •
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To franchise or not to franchise? That is the question. Okay, that's not exactly how Shakespeare envisioned Hamlet's famous soliloquy, but in fact that is exactly the question people must ask themselves when they're contemplating starting a franchise.
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The franchise industry is a $2.3 trillion industry, with one out of every six jobs related to franchising. While not every franchise will succeed, statistics show that franchise-owned businesses have a better chance of thriving over an extended period of time than do independent small businesses. In fact, according to the U.S. Small Business Administration, seven out of ten new employer companies survive only two years, half at least five years. A third last about 10 years, and a quarter stay in business a healthy 15 years or more.
If you're considering becoming a franchisee, here are the questions you need to ask yourself:
1. Is this the right opportunity for me?
This is the first question you must ask yourself, because franchising isn't for everyone. Some see it as a way to venture out and become their own boss, but at the same time have the safety net a franchisor provides. While as a franchisee, you will be the boss, you'll still have the franchisor to deal with -- so, you won't be totally independent from oversight.
Also, many people veiw franchising as a way earn additional income, especially when they present seasonal opportunities, like tax season. Seasonal franchising does give franchisees the opportunity to set a more flexible work schedule, by working intensively during high-peak times; this makes the business more manageable the rest of the year.
But, remember: You don't buy a franchise because you want to change the system. You buy into it because you believe in the system, as a tried-and-tested business model.
2. How hard do I want to work?
The answer to this question had better be, "I'm willing to work as hard as it takes." It's called "hard work" for a reason -- because it's hard! No entrepreneur goes into business to coast through everything. If that's your mentality, you're going to fail, and fail fast. However, if you're willing to put in the long hours and the necessary legwork, and dedicate enough time to your business, you'll have the right tools for success.
I'll be the first one to admit that I enjoy working hard. I function on very little sleep and I look forward to every day of hard work. However, I'm also a proponent of working smarter, not harder.
As a new franchisee, one of the first things you'll learn is that your franchisor already has a system in place, a blueprint of sorts, designed to help you succeed. You'd be smart to use every tool available at your disposal when you're starting out. That is how you work smarter.
If you're buying into a lesser-known franchise, your motivation, gumption and physical investment will need to be double that of what you would normally invest in any other business venture. Brand recognition will come with time, but you need to build a solid foundation able to withstand the stress tests that will eventually come your way.
There's no "secret sauce" for success, but the hard work you put up front will pay dividends later on.
Related: Will There Be Potholes on the Road to Franchise Freedom? Yes. There Will Be 7, to Be Exact.
How risky is it?
Starting a business involves a healthy dose of fear and risk. While franchising is a less risky venture than starting any other business, there's still a risk involved. Your franchisor's playbook is a starting point, but it'll take serious business savvy to launch the business.
What's the biggest risk of all? Money.
Starting a franchise can be expensive, and that initial franchise fee can be an eye-opener. Not all franchises are astronomically priced, but you can expect a sizable up-front investment. The reason is that you're paying for the rights to use the franchisor's signage and logo, not to mention the fact that that same franchisor will negotiate lower prices for the products and services you'll need to run your business.
Ongoing royalty fees can also be a shock to the system. Every year, franchisees must pay the franchise a fee equivalent to 12.5 percent of sales. But this is not true across the board. For example, Burger King charges its franchises 4.5 percent of sales, in addition to a $50,000 franchise fee, whereas Dunkin Donuts charges 5.9 percent of franchisees sales, with fees ranging from $40,000 to $80,000.
Will I need to train my employees?
The short answer is yes! But before you drive yourself crazy, remember that a good franchisor will already have a solid training plan in place. Use that plan as a springboard. The franchisor will be just as invested in your success as you are, so trust that the plan will work. Make adjustments along the way, but for the most part, stick to the plan.
Once you have one, use it to train your employees in customer service. After all, they will be the face of your operation once your doors open, so make sure they get it right from the very beginning.
Here's a tip: Resist the urge to think, "We need employees yesterday." Why? Because you must balance that urgency for simply putting bodies into open positions with your need to find high-quality employees. So, invest substantial time screening and interviewing candidates. This may seem like a tedious task, but it's absolutely necessary because it has a direct correlation to your franchise's success.
Another tip? You can always teach any employees the skills to succeed, but you can't train attitude. You'd be wise to follow this adage: Hire for attitude, train for skills.
Related: Franchise or New Venture? That Depends on You.
The bottom line is this: Hard work will open many doors for you, but doing your homework, coming up with a sound business strategy, conducting research and carrying out training will be your winning combination for a successful business, should you choose to join the millions of franchisees nationwide.
