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Thursday , March 27, 2014

A calculated risk: buying a franchise

Do risk takers buy franchises?

I thought so, until I interviewed franchisees for Franchising: The Inside Story, the first book written about how to buy a franchise. When I asked franchisees how they felt about taking risks, I got an education. I thought franchisees were entrepreneurs, and entrepreneurs are risk takers, but it turned out I was wrong.

Is it do or die for you?

Franchisees may think of themselves as entrepreneurs (even though many franchisors prefer not to sell to entrepreneurs), but they do not see themselves as risk takers – the people who put everything on the line with little or no assurance of a safety net. When risk takers buy or develop a business, they invest their life savings and more (money borrowed from banks, family and friends). For the risk taker, it’s do or die.

For the franchisee, it also may be a do or die scenario, but it doesn’t have to be. If you select a franchise opportunity with a good track record, one in which most of the franchisees have succeeded historically, your safety net is the franchisor. Franchisors are responsible for providing franchisees with a plan for operating the business, plus training and ongoing support. When you face a challenge as a franchisee, you contact the franchisor for help.

You can’t call a friend

An entrepreneur, on the other hand, may have to face challenges alone. Risk takers can’t easily call a “friend” in the same business because they are competitors. Instead, risk takers try to figure it out on their own, and that often leads to failure.

This is not to say that franchising comes without risks. Not at all. As one prominent franchisee told me, “I am a calculated risk taker.” In other words, he did his homework before buying multiple franchises.  Savvy franchise candidates “kick the tires” (two or three times) before they buy a franchise. They ask all the necessary questions, they visit the franchisor as well as existing franchisees, and they make certain their personality is compatible with their franchise of choice. For those reasons, franchisees are not risk takers. They take calculated risks.

 

 

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