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Should You Buy a Franchise If You’re One of the First Franchisees to Join the Network?

A question franchise buyers frequently ask at my How to Buy a Franchise seminars goes like this: “If I buy a franchise where I’m one of the first franchisees in the system, is that the kind of franchise to buy? Should I be concerned about owning a franchise when there aren’t many other franchisees connected to the brand?”

It’s an important question relative to how to buy a franchise and I answer it with this true story.

True Story

One Monday afternoon a new franchisee in Kansas telephoned his franchisor in Dallas and said, “I need help. Either your franchise doesn’t work, or I’ve got a problem. I cannot close any deals and I am ready to quit.”

“What are you doing Thursday morning?” the franchisor asked. He was also the founder of the franchise company.

“I’ve got sales appointments set for that day, but I don’t know that I’ll be able to do any good with them. . . . Why?”

How many franchisors will do this?

“Can you pick me up at the airport at 9 in the morning? I’ll go on those sales appointments with you and we’ll figure out what’s going on.”

“Wait a minute,” said the franchisee. “Are you saying you are flying here to see me?”

“Why, you don’t want me to?” asked the franchisor.

“Sure. But I didn’t expect you to do that. I thought maybe you could tell me over the phone how to solve my problem. Or maybe I should just sell the franchise.”

The franchisor laughed. “If you’ve got a problem, it’s my problem, too. I’ll send you an email in about an hour to give you my itinerary. In the meantime, don’t sell the franchise and don’t worry. Oh, one other thing. See if you can set up several more appointments.”

Small Franchise Advantage

That story explains what may be the greatest advantage of buying a franchise from a franchisor who has sold only a small number (under 50) of franchises. That kind of franchisor, providing he or she is honest (they’re not all honest), remains accessible to franchisees and will help solve problems even if it means visiting the franchisee.

I can vouch for this story because the franchisor was my client (the late Ken D’Angelo, founder of HomeVestors, which was one of America’s most viable franchise ventures until the real estate bubble burst several years ago. I was CEO of the company at that time.) Ken invited me to join him on this journey to Kansas City and I watched as the master worked.

The master at work

Once we landed in Kansas we didn’t stop until early evening. The franchisee had set up six sales calls – his goal was to buy houses at a discount – and we accompanied him on each call. For the first two calls, we watched. Then we went to lunch and Ken evaluated the franchisee’s performance. He recalled each question that the sellers had asked the franchisee and reminded the franchisee of how he responded to each question. And then Ken reconstructed the calls and showed the franchisee what he would have done had they been his sales calls.

He bought two houses!

We went on the next two sales calls and Ken bought two houses. The franchisee was amazed (I was, too), but Ken didn’t seem surprised. (On our way home the next morning he told me he got lucky, but Ken was one of the most humble franchisors ever). The franchisee handled the next two calls on his own and didn’t buy a house, but he demonstrated greater confidence. As it turned out, one of the sellers called him three days later and he got the sale. I don’t remember what happened to the other opportunity and it didn’t matter. By this time, this franchisee was re-energized and he became a productive member of the HomeVestors’ network.

Of course, it wouldn’t have happened had Ken not picked up his phone that Monday. That’s one of the other good things about small-network franchisors. They have more time than money, and Ken couldn’t afford to hire someone to answer his phone for him! He also couldn’t afford to send a field trainer in his place. Ken was eager to go on these calls himself because he always wanted to know how he could improve his franchise system.

A franchise to buy

Yes, you should be concerned about buying a franchise that not many other franchisees have purchased . . . on the other hand, if you can find a franchise concept that you love, one that may even be “hot,” and a franchisor who you know will place your best interests before his own, you can be a little less concerned.


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16 thoughts on “

Should You Buy a Franchise If You’re One of the First Franchisees to Join the Network?

  1. sheldon

    surely well covered, i am looking for a business and you have covered some great points that will help me in my decisions to do business and research this

  2. Steve bullin

    A franchise enables you, the investor or franchisee, to operate a business. You pay a franchise fee and you get a format or system developed by the company (franchisor), the right to use the franchisor’s name for a limited time, and assistance.

    For example, the franchisor may provide you with help in finding a location for your outlet; initial training and an operating manual

    looking forward to joining this network

  3. Adam cackerel

    i am really thinking about this and looking good to join the network

    For those who aren’t familiar with the concept, here’s a quick recap: McDonald’s is a franchise, and so is Subway, Jiffy Lube, Supercuts—the list runs into the thousands.

    Almost any time you go into a store that you can find anywhere else in the country, you’re in a franchise (although there are exceptions, like Starbucks and Barnes & Noble, both of which only have company-operated outlets).

  4. Justin Laketin

    research is king and this has made it easy
    Thanks for this

    As a franchisee, you are required by law to comply with the Franchising Code of Conduct. The Code sets out your rights, obligations, what information franchisors must disclose to you, what your franchise agreement must contain, and what procedure you must follow for resolving disputes

    more info for ya

    cheers
    justin

  5. Bernard justice

    The franchise agreement is a legally binding document spelling out the rights and responsibilities of both the franchisor and franchisee. Before you sign an agreement you should obtain as much information about the franchise as possible.

    i really love the research done here and the network is looking good as well for me to join

  6. Jack

    I remember Ken D’Angelo and HomeVestors and thought it was a great opportunity at the time, especially because he was so helpful. Did not buy it then, but then the market changed and it’s not the same business now

  7. Gina Mohr

    I think it is very important to make sure you are not buying an old franchise that was made popular in a different economic time. Just wanted to add in my two cents! I am very interested in this article since I want to own a franchise someday!

  8. Shawn

    Great article on how to buy a franchise. One other point I’d like to add is that you should avoid “hot” franchises not because they are trendy, but there is an importance of getting to know the franchisor to be sure he/she is honest. 🙂

  9. Francis

    interesting story! I’d like to partner with someone who’s philosophy was “your problem is our problem” 🙂

  10. Haley Smith

    I was wondering how to buy a franchsise, so I googled it and came here! You’ve explained a lot and I’m super happy about that! Are there any franchises that you think would be best to buy (most successful) in a cold climate?

  11. Dane G. Marshlack

    Ken D’Angelo also flew to visit and see me in Florida. (I just thought it was an excuse to enjoy the sunshine state he loved so much!) Ken personally sold me on the Francise and his concept, even though I was already a seasoned investor! I bought in early and had tremendous successs with HomeVestors. John Hayes, you also flew to Florida and met with me personally when it was 5 years later and time to renew… John, I personally felt that you followed and implemented the same principles that came so natural and easy to Ken! Good luck, and I hope we talk again & sometime soon.

  12. johnhayes Post author

    Dane, Ken loved Florida almost as much as he loved helping franchisees succeed. As I recall, where Ken was successful in helping you in those early years and convincing you to join the franchise network (a great decision at the time, no doubt), I was not successful in renewing you and I always regretted it because you were one of the most savvy investors in the Fla market. Of course, your decision not to renew turned out to be a good one given what eventually happened with the economy and the company. I appreciate you saying that I followed and implemented Ken’s principles — that was important to him and to me. One of the “hidden” risks of franchising is that when the owner dies or sells the business, the business may lose credibility and integrity. And, of course, when a business (like Homevestors) is market-sensitive, you’re taking on a greater risk. But it was a tremendously good (and fun) “risk” for about 10 years and it helped many people make a lot of money as well as form friendships for a lifetime. Happy to have run into you a couple of summers ago on Treasure Island and hope to return again next summer for a visit with family and friends.

  13. johnhayes Post author

    Thanks for your question, Haley, and best wishes with your search to buy a franchise. I’ve never thought about which franchises work in cold or hot climates — might be a story in that! — but in buying a franchise and owning a franchise, I think it’s more important (as I explain in Buy “Hot” Franchises Without Getting Burned) to first determine which franchise really gets you excited. Of course you wouldn’t buy a franchise that you’re in love with knowing that it would not work in a cold climate, but if you approach buying a franchise from the perspective of what’s going to make you happy, I think you’re further ahead. I’ll give this more thought and maybe I’ll come up with a better answer!

  14. johnhayes Post author

    Francis, I think that’s why so many franchises have been and continue to be so successful. I was fortunate to know some of the most amazing franchise founders and every one of them had a few things in common including the philosophy of “you’re not in business by yourself” when you buy a franchise. There are many franchisors still who keep this philosophy in mind as they develop their franchises and if you determine the type of franchise you want to buy I may be able to help lead you to some of these folks. Best wishes and thanks for reading and commenting!

  15. johnhayes Post author

    I’m the guy who has said for nearly 30 years: “Buying a ‘hot’ franchise is the quickest way to . . . get BURNED!” I was going to title my book that way but through the years I’ve taken a different approach to “hot”. You know that old saying when you can’t beat ’em join ’em? People are never going to stop seeking the “hot” franchises, even though that may be a mistake (it usually is if they don’t do their homework). So I titled the book: Buy “Hot” Franchises Without Getting Burned. I hope you’ll have a chance to read it. It’s been a bestseller in the Franchise category on Amazon. If a franchise is “hot”, meaning it’s trendy or popular, that can be an extra advantage. Of course, “hot” franchises eventually cool off — and if they go cold then the fun and profit may come to an end. It’s better to buy a franchise that makes you passionate.

  16. johnhayes Post author

    Gina, sometimes that works and sometimes it doesn’t. We have seen some “old” concepts return through the years — but not many, and they don’t ever seem to reach the potential of the first run through! Best wishes.

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