Decide if You're Cut Out to Be a Franchisee
Franchising has its advantages, but it's not for everyone. Here's how to find out if it's for you.
Question: I'm thinking about leaving my job and starting my own business. I've read about all the advantages of buying a franchise, but I don't know if franchising is right for me. Is everyone cut out to be a franchisee? How can I know if buying a franchise will be the right decision for me?
Answer: There are so many advantages to starting a business by joining an established franchise system that many people assume it's always the best way to go. And, in fact, for many, franchising is the perfect choice. Established franchisors provide you with a strong brand name, which often translates into an immediate customer base. The franchisor's training programs teach you how to run the business, and its support programs provide assistance and advice once you have the business up and running. All the answers regarding what type of site to look for, how to develop the location, what types of equipment you need, where to get the equipment and countless other start-up questions are provided by the well-established franchisor. Most important, the franchisor can help you project how much capital you need to get the business started and keep it going. Not being able to estimate the amount of money you need is one of the main pitfalls of starting a new business.
Becoming a franchisee in a well-established franchise system has many advantages over starting a new business independently, but keep in mind, becoming a franchisee is not for everyone.
The first thing you have to understand is franchisees aren't entrepreneurs in the classic sense. Entrepreneurs want to make their own decisions. They like to experiment with the menu, services, décor, advertising, staff uniforms and suppliers-they have the need to develop and operate the business based on their own vision of how things should operate. But if a true entrepreneur were allowed to operate a franchise, there would be little consistency between one location and the next. Consumers stopping off to get their favorite hamburger might find that their local McDonald's, Burger King or Wendy's was now serving Chinese food, because that's what the owner decided he wanted to offer in that restaurant. It would be pretty confusing.
Good franchisees aren't so much entrepreneurs as they are "entrepreneurs lite." They're provided with a system of doing business and, within great franchises, standards for using that system. The secret of success for most franchise chains is that consumers can't tell whether any location is company-owned or franchised based on the product or service offered or its quality standards. Unless they happen to notice the sign behind the counter telling them the business is independently owned and operated, they would probably assume all the restaurants under that brand were owned and operated by a single company. It's the promise of consistency that drives customers to a franchisee's door.
An "entrepreneur lite" takes the basic system and makes it better-not by changing the menu, but by providing, say, cleaner bathrooms or by training a staff to provide great customer service. A great franchisee improves the performance of the system simply through better execution.
Take An Internal Inventory
Consistency from location to location requires that franchisees follow the rules provided by the franchisor. In making a decision about whether you are franchisee material, ask yourself these simple questions:
Do you have the need to experiment with your products and services? If you happen to like well-done hamburgers, will you be satisfied if the franchisor's recipe requires them to be medium rare? Do you have a burning desire to buy a truck and make deliveries to customer's homes, even if the franchisor's concept is restricted to customers coming to your location?
Do you think of yourself as an advertising genius? If the franchisor provides you with advertising material, will you be tempted to change it? Do you think your market is different from everyone else's, and will you expect the franchisor to modify their brand message just to suit your wishes?
Do you play well on a team? Other franchisees are relying on you to offer consumers a consistent level of service, product quality and brand message. You have to work with others in the system in making decisions. All these decisions will have some impact on your business, and you'll often be required to follow the majority's determinations, even when you personally don't agree with them. Can you do this?
Are you willing to share confidential information about your business? Franchisors want you to provide information about your business, including reports and maybe even copies of your tax returns. You may consider some of the information they request personal. Field staff will make periodic visits to your location, asking you questions and wanting to look at some of your records. Even knowing the reason they need the information is to help you operate your business better, are you prepared to provide them the information and listen to their advice?
If you can't honestly answer yes to each question, you should reconsider becoming a franchisee.
Of course, some franchise systems have fewer standards and less control systems in place and let their franchisees operate like true entrepreneurs, basically doing whatever they like. If you couldn't answer yes to the questions above, franchises like these may seem like the perfect solution. The catch-22, however, is those aren't classic franchise systems-they're more like businesses sharing a common name. In the not-too-distant future, the price you'll pay for lack of consistency from location to location is extremely expensive, as the power of the brand will vanish in consumer confusion.
Should you become a franchisee? We can't answer that question for you. Your answer will come from an honest assessment of yourself. The advantages of franchising are numerous, but the type of entrepreneur you are has a lot to do with whether owning a franchise will make you happy in the long run.
Michael H. Seid, founder and managing director of franchise advisory firm Michael H. Seid & Associates, has more than 20 years' experience as a senior operations and financial executive and a consultant for franchise, retail, restaurant and service companies. He is co-author of the bookFranchising for Dummiesand a former member of the International Franchise Association's Board of Directors and Executive Committee.
Kay Marie Ainsley, managing director of Michael H. Seid & Associates, consults with companies on the appropriateness of franchising; assists franchisors with systems, manuals and training programs; and is a frequent speaker and author of numerous articles on franchising.