You can also join me for the free workshop: How To Buy A “Hot” Franchise And Not Get Burned!

Looking forward to meeting with you in Washington, DC. The IFE is the most important annual meeting for prospective franchisees around the world.

After he lost his job, where he made a neat six figures, he posted his resume on a number of online career boards and one day he got a call from a franchise broker from New York. Brokers scan those listings, looking for out-of-work people who might be interested in buying a franchise. (For me, that’s a tough way to make a living, but to each his own, especially in a recession. I prefer listening to my subscribers’ stories and responding with stories of my own.)

Why not to buy a franchise

My subscriber explained to me, “The broker told me that jobs are impossible to find in my industry, and he suggested that I buy a franchise.”

I could spend the next several weeks writing the lessons that emanate just from that one stupid statement! (I’ll also refrain from telling you the name of the broker, for fear that more reputable brokers might rip out his voice box).

Surely no one is dumb enough to believe that if you can’t find a job your solution is to buy a franchise! (Reminds me of Philosophy 101. Because the Marlboro Man was cool we should all start smoking?).

“I like having a job!”

I couldn’t wait to ask my subscriber, “Do you want to buy a franchise?”

He said, “I like having a job.” In fact, he recently got a job, though it pays considerably less than his six-figures with IBM. “I’m more of a guy who likes to hang out on the beach with my family,” he told me. “We bought some land in Mexico some years ago thinking that we’ll eventually move there and live the good life on the cheap.”

To which I replied, “You don’t sound to me like a guy who should buy a franchise.”

And he said, “But the broker thinks that’s my answer!”

Uh-huh. For $15,000 I’ll tell you that’s your answer, too! (On second thought, I only jest).

Where are 6,000 franchise concepts?

“The broker (he actually used his name) told me his company (he mentioned a major brokerage name) has reviewed 6,000 franchise opportunities and boiled them down to 600 that are worth buying. They’re worth buying, he said, because these companies include franchisees that own multiple units and they succeed at least 85 percent of the time.”

At this point I wanted to rip out the broker’s voice box myself! Another half-dozen lessons emanate from that nearly criminal statement! (I really dislike people who give franchising a bad name and who create win-lose situations whereby they win a commission and the franchisee loses money).

Six thousand franchise opportunities? I’d call the International Franchise Association and ask them where all those opportunities are, but it would be a waste of time. They don’t exist. Six hundred that are worth buying? Well, maybe, but not for the reason the broker offered. It’s nonsense.

Here are 3 you should buy!

So my subscriber continued, “The bottom line from the broker was that I should look at three companies.” He told me the names, two of which I recognized, though he wasn’t familiar with any of the three. He added, “I reluctantly agreed to be introduced to those companies.”

Reluctantly because he wasn’t really interested! But folks in Frisco, Texas (with some exceptions) are kind, gentle, and cooperative.

“And what happened?” I asked, in my not-so-gentle voice.

“The first one called me and when I told him I want to work in this market, he said this market was already sold. He got angry that my broker was wasting his time. He asked me which other concepts the broker suggested to me and when I told him he told me that the second concept was a horrible business and that he didn’t know the third concept.”

Franchisors trashing franchisors

“What did you think about the salesman trashing the other franchise company?”

“I didn’t think he needed to do that,” said my kind and gentle subscriber. “I thought it was odd. But he told me that since he couldn’t sell me a franchise he would help me stay away from a franchise that has a horrible reputation.”

“Well,” I offered, “he wasn’t totally lying. That business has a rocky reputation, though some franchisees have been happy with it. . . . Did the other two companies call you?”

“No!” said the subscriber, somewhat shocked.

“Not a surprise,” I said. “I used to generate leads for franchise companies and not even half of the companies ever followed up on the leads. It’s just one of those odd things about franchise sales people.”

One concept the broker didn’t know

Eventually my subscriber told the broker that he wasn’t really interested in any of the three concepts, and he elaborated that if he’s going to buy a franchise it needs to be something that he can work from home. He then told the broker about a home-based franchise that interested him.

“But he told me that he never heard of that business and that start ups are too risky. He wouldn’t recommend that I buy it,” my subscriber explained.

“Of course not,” I said. “He’s not going to recommend that you buy anything that he doesn’t represent. He wants his commission. After all, he spent hours on that career board culling through all those resumes to find you!”

Who’s the broker really helping?

“Exactly,” said my subscriber, no longer as kind and gentle. “Which leads me to wonder why anyone would work with a broker? If they’re only going to tell you to buy businesses that will pay them a commission, how does that best serve me?”

I laughed. “Yea, with 600 companies supposedly out there that are worthy of your investment, it would be difficult for a broker to represent all of them!”

My subscriber had already demonstrated one way to shorten that list. He said he wanted to buy a home-based business. That eliminated at least 80 to 90 percent of the opportunities, leaving him with no more than 120 (assuming there were 600 to begin with!)

Why local brokers may be to your advantage

Major brokers typically represent a hundred-plus concepts, but they may not represent competitive concepts, and they may not represent the concept you really want to buy. For example, if it’s a regional concept, available only in your area, the broker may not even know about the concept, let alone qualify for a commission. And if you’re working with a broker that’s many states away from where you live and want to work, you’re at an even greater disadvantage (which is why I prefer my subscribers work with local brokers).

However, keep in mind that some good franchise concepts refuse to work with brokers, so you’ll have to contact those companies directly.

But in the case of my subscriber, the real story is that he doesn’t want to buy a franchise. He wants a job! A better job than the one he has now. He may have expected me to encourage him to buy a franchise, but in good conscience I couldn’t do so. As I’ve said to my franchise audiences for 30 years, “Franchising is not for everyone.” It’s definitely not an answer for someone who’d rather have a job, even if he can’t find a job.

IBM will hire again!

As we left our meeting, I said to my prospect, “Keep looking for that better job. IBM will hire again! And don’t listen to the broker when he tells you that it’s impossible to find a job in your industry. He’s already proven that he doesn’t know much about franchising, or he’s just not willing to share the truth about franchising. No reason to believe he’d tell you the truth about your industry, if he even knows anything about it.”

We shook hands and went home. He satisfied not to be buying a franchise. Me satisfied that I had saved a subscriber from making a mistake and franchising from another catastrophe. Come to think of it, I may also have lost a subscriber — who would read my stuff unless they were interested in buying a franchise?

Photo image by: K-1000

“I am between careers. I was laid off in January from a 27 year engineering career. I’m trying to juggle two possibilities at one time . . .” (1) interviewing for jobs “when they do come up” and (2) looking at franchise opportunities.

Franchising as the backup plan

“I am continuing to research franchises as, frankly, a backup plan. . . I’d definitely like to get your opinion . . . .” He went on to say that he’d like my opinion once he “identifies that franchising is the right path” for him and when he’s ready to look at specific opportunities.

He concluded, “I’m currently working with a local office of (a franchise brokerage).”

My take on this

The saving grace is that the subscriber acknowledged that he has to determine that franchising is the right path for him. I trust he’ll do that before he invests in a franchise.

But if he doesn’t find a job in another 90 days, or more, it may be easy for him to make the decision to go with his “backup plan.” Suddenly, he’ll decide (perhaps with some outside pressure, i.e. a spouse, a broker, hungry children, friends, etc.) that franchising is for him. Forget that it was once a “backup plan” — it’s now the plan because, seemingly, there’s no other option.

It’s probably a mistake

And I think that will be a mistake.

If your “backup plan” is franchising, that’s probably not going to work. If it’s not your passion to own a business, it’s not going to work. It’s too difficult to own a business. There are so many decisions, challenges, transitions, pitfalls — if it’s not your passion to tackle these issues head on, don’t do it.

Bottom line: Franchising never makes a good “backup plan.”

Franchise misfits

Unfortunately, we’re likely to see a lot of misfits in franchising as a result of the current economic crisis. People have their backs to the wall financially. When their unemployment runs out and they’ve used up their savings — what are they to do?

Lots of folks who have a vested interest will tell them to “Buy a franchise!”

That spells disaster for them and for franchising. It won’t help franchising when these reluctant buyers, who never really wanted to own a franchise, fail and return to corporate America in a couple of years when jobs are again plentiful. The aftermath of failures and disappointments will further damage franchising’s reputation.

I could be wrong. Hope I’m wrong. But history tends to repeat itself!

Photo image by: cesarastudillo

But I got an education!

Franchisees may be (and they may think of themselves as) entrepreneurs, but they do not see themselves as risk takers. 

That’s why they buy franchises!

The risk taker is the man or woman who puts everything on the line with little or no assurance of a safety net. It’s do or die!

“Isn’t that true for franchisees, too?” you may be asking.

To a degree, yes. But it doesn’t have to be, and for most it’s not the case. Most franchisees do not put it all on the line with little or no assurance of a safety net.

“I am a calculated risk taker,” one prominent franchisee told me. “You can’t be in business without taking some risk, it’s just the nature of business ownership. However, you don’t have to be stupid about it, either. Or throw caution to the wind. You’ve got to realize that there’s a downside to any business opportunity. So you invest cautiously. You do your homework, and franchising gives you that opportunity. You look around the corner, you think through the pros and cons, and you spend time talking to others who already own a franchise. You can’t always do that when you’re starting a business that isn’t franchised. . . . So, no, I’m not a risk taker. But I do take calculated risks as a franchisee.”

Makes sense to me and perhaps it does to you, too. Let me know what you think.

Meanwhile, here’s a different take on risk taking. The real risk takers today are the people with jobs! They never know when the boss will show up and say, “This is your last day as an employee” and show them the door. Happens every day, doesn’t it? And those folks, who are already out on a limb because they rely on that paycheck, feel the fall when it occurs.

In times like this, we’re thankful to be entrepreneurial and most grateful for franchising! 

. . . Here’s something I just discovered. It may be out of print, but Franchising: The Inside Story is being sold among the used books on Amazon.com. You can get a copy for less than $2! However, you should be aware that while much of the info is as good today as it was in the early 80s when I wrote it, much of it is also out-of-date!