At last, Isabel (previous Isabel blogs are listed at the end of this article) is getting down to the nitty gritty about franchising, and the question she asked today was so important that I’m rushing to my blog to tell you about it.

Critical components of franchising

“I’m so glad you asked that question,” I told Isabel, “because it shows me that you are paying attention to what franchising is really all about, or at least you are noticing some critical components.”

So let’s get right to it: Franchisors are “specific” and “stringent” because they need to be, they should be, and they must be if they want to succeed as franchisors, which also means they want their franchisees to succeed.

Critics of franchising won’t like this

Now some critics would jump on that statement and eloquently and heatedly tell you that I’m wrong, that I’m just defending franchisors and franchising in general, and that franchisors are “specific” and “stringent” because they want to take your money and keep it after you fail without having to do battle in a courtroom.

God bless the critics: they keep us on our toes! Mostly they keep us thinking. Happily, on this point, they are wrong.

Willy nilly franchises do not succeed

In my 30-year career, working with more than 100 franchise companies, I’ve never seen a willy nilly franchise concept succeed. Furthermore, the franchisors with the greatest problems, and the weakest balance sheets, are most lenient with their franchisees.

Somehow, some way, some critics got the idea that franchising is a democracy, and that just because this is the United States of America, where freedom rings, you should be able to buy a franchise and do what you want with it.

Franchising, even in America, is not a democracy

Wrong!

Franchising is not a democracy and perhaps that’s the most important principle to understand about it. You cannot do things your way!

Period.

End of story.

It has nothing to do with freedom. Or rights. It’s business. It’s do-it-my-way or don’t-do-it-at-all business. And it’s protected by the United States of America, where freedom rings!

The franchisor sets the parameters

Fact is, if I create a franchise, so long as I don’t violate any laws of the land, I have the right to do it my way, and do it when I want, where I want, and with whom I want.

You don’t like that?

Not a problem for me. And not a problem for you, so long as you don’t buy my franchise! So long as I don’t allow you to buy my franchise.

Franchisors test the business and create a success system

However, if you’re going to join me as a franchisee, then I know how the business works best. I’ve tested it. I’ve improved it through the years. I’ve created a marketing plan, an operations plan, a sales plan, etc. I know what needs to be done, how much of it needs to be done, by whom and when, to make it all work.

I also know that if you deviate from any of my plans, it won’t work, or it won’t work as well. It won’t work for you and it won’t work for me.

Reasons why franchisors want franchising to succeed

As the franchisor, I want it to work. Why? Lots of reasons:

• I love money! And franchising is a great way for a franchisor to get fabulously wealthy.
• I love helping people. And in business, there’s no better means of doing so than to teach people how to succeed with a franchise.
• I’ve got a huge ego and I want the world to know me and my business. Fastest way to do that is via franchising.
• I want to change the world. There really are franchisors who are do-gooders.
• It’s a combination of all of the above!

At a minimum, I want it to work because if it stops working I’ve got to go do something else!

The goal is a satisfying and profitable business

And since all of this is important to me as a franchisor, I’m going to make sure that my franchisees do things my way, the way I know that’s necessary to build a satisfying and profitable business.

“Is that unreasonable?” I asked Isabel.

“No, but that doesn’t make me feel better about the franchise agreements that I’m reviewing,” she said.

“I understand,” I told her. “Let’s continue.” I really couldn’t do much about her feelings.

“You’ll wear this funny hat and this is what you’ll say to customers . . . “

As a franchisor, I’m going to be “specific” with franchisees:

• here’s when you must open the business
• here’s when you must close the business
• here’s where the business can be located
• here’s the list of items you can sell in the franchise
• here are the marketing materials you can use
• this is what you will say when you greet a customer
• here’s how you will dress every day in the business 
• . . . and so on

I’m specific not because I suffer from OCD (though I might, and what if I do?) but because I know this is how the business works! It’s how it works for me and how it will work for each of my franchisees.

Rigorously binding, exacting and constraining, that’s franchising

I’m going to be “stringent” as a franchisor for the same reasons that I’m going to be specific. Stringent as in “rigorously binding or exacting, compelling and constraining.”

“Can I interrupt?” asked Isabel.

“Of course you can. You’re the client!”

It’s so offensive, said Isabel

“What you just said, that binding, exacting, compelling crap, is what’s so offensive about franchising.”

“I understand,” I said. “And I agree. I don’t know that the word is ‘offensive’ but I understand. It’s controlling for sure, and most people, especially those who are entrepreneurial, don’t want to be controlled. But all I can tell you is that ‘stringent’ is absolutely necessary in franchising. In fact, if you find a franchisor that’s not stringent, run! That business is not going to work. Eventually it’s going to become a mish mash and not a franchise.”

Franchising thrives on uniformity

Remember, too, that a franchise stands for uniformity. If you go to McDonald’s, you know the drill, right down to how your food product of choice is going to taste! I haven’t eaten French Fries at McDonald’s for a year or more — I’m a McDonald’s patron only when my grandkids insist — but I remember how I love those French Fries. Haven’t had a chocolate milkshake at Burger King for several years (too fattening for me, I’m afraid) but I still crave one! I had a vanilla cone at Dairy Queen as recently as 72 hours ago, and if I get a chance, I’ll buy one again today, because I love that product (see My Secret Love Affair).

“What would happen, Isabel, if these products changed, or worse, what would happen if you visited your favorite franchise, but in this unit they did things their way?”

Different isn’t always satisfying

“You’d be disappointed if you didn’t get what you expected,” she said. ”I get the point, John.”  

“I’m glad, Izz. Because that’s why franchisors are specific and stringent. You can’t do things your way in a franchise. You’ve got to work the business the way the franchisor means it to be worked. That’s how you succeed in franchising.”

“But don’t some franchises fail?” Isabel asked.

Not all do it the franchisor’s way

“Absolutely,” I said. “And in the failures that I’ve seen, almost always they occurred because the franchisee didn’t follow the system and/or because the franchisor wasn’t specific and stringent. In other words, the franchisor let people do things their way. And that does not work.”

Isabel asked, “Should I expect every franchisor to be specific and stringent?”

“Yes,” I said. “But the keyword is ‘expect’. If you had asked, ‘Is every franchisor specific and stringent?’ I would have answered: Only the good franchisors!”

Only the good franchisors do it their way

You’ll find franchisors who are lenient, who do not invoke controls, who do not watch their franchisees, who do not train and follow up and support their franchisees — in fact, there are a lot of them! And some of them manage to succeed. Until there’s a crisis. Or until a group of franchisees decides to do battle with the franchisor — that franchisor is likely to lose because the franchisor permitted the franchisees to do things their way. They set the precedent for failure.

Is there a formula for success?

“Isabel, the best franchisors will tell you upfront that they have a formula for success and once they share it with you they will expect you to follow it to the T. If you have a problem with that — and many people do — do not buy a franchise.”

Isabel was uncharacteristically silent for a moment. Then she said, “You’ve given me a lot to think about, John. Thank you.”

“No, thank you, Isabel. You asked the perfect question, one that every franchise prospect needs to consider.”

Previous Isabel Blogs:

1. Is Franchising Indentured Servitude?
2. Figuring Out What You’ll Earn As A Franchisee Even When The Franchisor Doesn’t Tell You
3. Figuring OUt What You’ll Earn As A Franchisee Even When The Franchisor Doesn’t Tell You — Part II
4. The Franchisor Spelled It All Out And Isabel Was Furious! She Screamed: “Do They Think Franchisees Are Robots?”

Photo image by: fotographix.ca

Normally, Isabel isn’t crazy, but this morning — whew! 

She wants to buy a franchise. Has a pretty good idea which type of franchise she wants to buy, and she has the money — at least most of the money that she’ll need for a start up in this particular industry.

She’s done some homework, with a little help from me, and she’s collected information from targeted franchise companies. 

Plans derailed?

But today, she’s crazy (I mean that in a nice way, of course) because she read something that will derail her plans to buy a franchise. “If this is true,” she shouted, “I’d rather take my chances and start a business on my own.” 

She was screaming at me today!

She read on some Web site that franchising is little more than “indentured servitude.” While talking to me — screaming at me, really — she said I should have told her that she’d be nothing more than a “slave” as a franchisee.

“Why didn’t you tell me that?” she demanded to know. 

Uh . . . because I don’t believe it’s true.

Good enough?

I didn’t think so.

Here’s my take on the issue

Here’s what I told Isabel and what I will tell you if you ask the same question:

Don’t insult the slaves. They had no choice. In addition, don’t confuse slavery with indentured servitude. They mean different things. And you, my dear Isabel, you have a choice that neither slaves nor servants were afforded. No one is forcing you to buy a franchise. And if you do buy a franchise, no one is forcing you to buy this one or that one. You — and only you — get to choose. 

Want to hang up?

So if you’re going to continue talking crazy, it’s time we end our relationship!

She didn’t hang up, so I continued:

Furthermore, if you have even an inkling that it’s indentured servitude, then why would you bother buying a franchise? Forget it. Keep your job. I’m sure you have lots more freedom working for your employer! (Yes, that was sarcastic).

Franchising has limitations

And let me add this. I’ve owned several franchises. I enjoyed each experience, though some were more profitable than others (and some of the franchisors were better than others). Never once did I think of myself as a servant, but rather, I was in control of my destiny and in control of my operations to the extent the franchise agreement permitted me to be.

And since I knew, and agreed to, the boundaries of the franchise agreement, I had no issues with the franchisor’s controls. If you think those controls will be a problem for you, Isabel, then move along, stay away from franchising, it’s not for you. Don’t try to make it something that it’s not! (Watch this video now.)

Be careful of who you talk to!

Finally, Isabel, pay attention to who you’re talking to — or in this case, what you’re reading and who wrote it. Of all the successful franchisees I know — multi-millionaires included — I don’t know of one that would compare their franchise to indentured servitude. On the other hand, I understand why a failed franchisee would make that comparison. They gotta blame their failure on someone or something, and it’s surely not going to be the person they see when they look in a mirror.

Beware of some franchisors: the bad ones

Okay, I apologize for that last statement, because, in fact, there are bad franchisors who take advantage of their franchisees. They lie to them. They mislead them. They control them. They even try turning them into indentured servants.

But Isabel, all you’ve got to do is your homework and you’ll uncover the bad franchises before you ever make your commitment.

. . . When we finished talking she had settled down and had returned to the lovely, sensible Isabel that I’ve known now for several months. She’s off this week looking for earnings claims. I’ll let you know when she checks in with me again! 

Register now for free tele-seminar

. . . Register immediately for my free franchise tele-seminar: How To Buy A “Hot” Franchise And Not Get Burned!  I’m giving subscribers to my blog the first opportunity to sign up for the tele-seminar and get an unbelievable package of information about franchising — all free. Later this week I’ll begin promoting the tele-seminar to thousands of prospective franchisees and once the available slots are filled the tele-seminar will be closed. So this is your early notice — sign up now and take advantage of this opportunity. 

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Expect to hear that advice

I invented the above scenario, but it’s real nonetheless. Franchise prospects almost always hear something similar to it. If it’s not about pizza it’s about cookies or chicken or services of all kinds. These passionate commentaries are often shared by accountants, lawyers, family members, or friends — people who mean well, but don’t always understand the real story.

If you’re thinking about buying a franchise, chances are you have met, or you will meet, one of these “advisors.” And when you do, make sure they understand the real story behind why you are buying a franchise. Even better, make sure you understand why you’re really buying a franchise. It doesn’t matter much what the “advisors” think, although I can understand why you’d like them to be on your side — you may need their help, financially and otherwise.

Understanding why people buy franchises

So what is the real story? Why do people buy franchises?

Because, look, there’s some truth to that fictionalized scenario I posed earlier. Some people can indeed make or provide better products and services than some franchises serve up. So who needs a franchise? If you can bake, fry, grill, make something — anything — better than what the marketplace offers today — if you can provide a better service — why do you need to buy a franchise?

Several good reasons, and here’s the first

In a word, I’ll tell you why: marketing.

One of my favorite cousins in Ohio made the greatest pizza ever. You got a whiff of her pizza baking and you thought you were in Italy. One bite and it was over. Never again would you buy pizza from anyone else.

So why did her business fail?

Miss this and your business fails

Because she didn’t know how to market her pizza. It was the world’s greatest pizza, no doubt about it, but she didn’t know how to sell it. She didn’t have a brand. No presence. No home delivery. No knowledge of how many slices of pepperoni to put on a large pie and make a profit upon selling it. Didn’t know where to advertise. Or how. . . . There were countless other issues all related to the operations of the business. Ingredients, recipes, how to mix it, fix it, bake it, serve it — no problems there. She just couldn’t market it!

How much better off she would have been had she just bought a franchise!

Know what you know

So when your “advisor” tells you that you make the greatest whatever, or you provide a better service, you can accept the compliment for what it’s worth. And even though it’s true, if you know that you don’t know how to market your product or service, then that’s why you’re buying a franchise. It’s what you know that matters.

Your accountant, your lawyer, your family members, your best friend — they do not know! You do. Tell your accountant to give you financial advice, not business advice. Tell your lawyer to give you legal advice, not business advice. And tell your family and friends — nicely, of course — to keep their advice (unless they are successful business owners).    

It’s a good reason, but not all franchises provide it

Marketing know-how is a very good reason to buy a franchise. . . . providing, of course, that you buy into a franchise that knows how to market and how to teach its franchisees to market! (Sadly, many do not).

Marketing isn’t the only reason for buying a franchise. More reasons are coming in future blogs!

Register now for free tele-seminar

. . . Register immediately for my free franchise tele-seminar. I’m giving subscribers to my blog the first opportunity to sign up for the tele-seminar and get an unbelievable package of information about franchising–all free. Next week I’ll begin promoting the tele-seminar to thousands of prospective franchisees and once the available slots are filled the tele-seminar will be closed. So this is your early notice — sign up now and take advantage of this opportunity. 

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Leonard I. Fischer, Esq.

If you’ve got a retirement fund, and even if you’ve been told you can’t use the money to invest in a business, you’re just four steps away from funding your own franchise acquisition.

Across the USA, entrepreneurs are turning their 401(k)s and other tax-deferred accounts into capital to invest in a franchise business. They’re being helped by a cottage industry pioneered nearly 20 years ago by Leonard I. Fischer, an attorney who founded BeneTrends, Inc., and serves today as its CEO.

“I get the credit, or the blame, for popularizing this concept in the franchise community,” Len told me recently when we chatted during the International Franchise Expo in Washington, DC, where BeneTrends was an exhibitor. “About 85 percent of our business is helping people use their retirement funds to buy franchises.”

BeneTrends calls it the Rainmaker Plan and Len estimates that his firm has helped up to 7,500 investors in the last 17 years; the majority of them in the last five years.

Concept growing by leaps and bounds

“Business is very good,” Len continued. “We’re already 50 percent ahead of last year’s numbers. We’re growing by leaps and bounds.”

What is this Rainmaker Plan anyway, and how does it work?

Oddly enough, an unpublicized tax law allows individuals to invest their retirement funds in a business without penalties, but there are four steps to the process, which must be closely followed to avoid objection by the IRS.

The steps, which BeneTrends handles for its clients, are:

1. Set up a corporation.
2.  The corporation establishes a retirement fund.
3.  You roll over your prior retirement plan or IRA into the new retirement plan.
4.  The corporation directs that the funds be invested in your own company (franchise) stock.

The key here is that you are investing your retirement money and not withdrawing it. The latter would trigger penalties.

BeneTrends, based just outside of Philadelphia, Pa., also takes care of establishing your corporate bylaws, paying filing fees, and issuing appropriate stock certificates.

What’s this service cost?

What does Benetrends get out of the transaction? A $4,995 one-time fee. “It’s tax deductible,” Len pointed out. The client is also eligible for a $1,500 tax credit spread over three years.

Of course, not everyone thinks this is a good idea!

A Dec. 22, 2008 BusinessWeek article quoted Alice Bredin, a small-business consultant with American Express, who said it “is a really bad idea” to utilize retirement funds.

As you’d expect, Len said, “I disagree! Obviously American Express wants you to keep your money in the stock market, but it’s my opinion that you’re better off setting up a corporation and investing in your own business. That’s more sensible.” Providing, of course, that you do your homework before investing in a franchise.

Plan not a favorite of the IRS

The IRS, according to Len, also isn’t thrilled about this service. “The IRS doesn’t like our plan, but we’re basically doing what the Obama administration wants us to do. We’re rebuilding our economy, creating jobs, investing in businesses, creating retirement plans and helping to grow the economy. Do it right, follow the rules, and the IRS has to approve these plans.”

If you’ve been shopping for a franchise, your plans may have been delayed for lack of funding. Small-business loans from traditional lenders had fallen 30 percent by the time of the BusinessWeek article, and probably more by now. “If your only capital is in your retirement fund, and you want to start your own business and build the American Dream, the Rainmaker Plan may be your ticket,” said Len.

But don’t get carried away! Investigate before you invest. Franchising is not for everyone . . . do your homework, choose carefully, and then take advantage of the Rainmaker Plan, or similar plans available today.

I don’t remember (and it doesn’t matter) which major news publication this week ran an article about the popularity of franchises in a recession, but there was one sentence in the article that gave me a chuckle. Often times, when the media print articles that put a positive spin on franchising, they include a zinger to caution people. And that’s okay, because franchising isn’t for everyone, and it’s not a guaranteed path to success. But sometimes these zingers are obvious.

Like this one: “Often (franchise) agreements are written so you can’t even sell the franchise operation without the approval from the franchise company.”

Well, duh!

That’s a good thing, isn’t it?

Who Do You Want To Sell To?

You’re a franchisee, you operate your business for a dozen years, you make some money and decide–for whatever reason–that you’re going to sell the business. Does it make sense for you to sell the business to just anyone?

It would be in the best interest of everyone, including the other franchisees, the new franchisee who is buying your business, and. of course, the franchisor, to sell the business to someone who qualifies!

The franchisor and the other franchisees want to be sure that the new operator will be a quality individual who not only can afford the business but understands what it will take to succeed. The buying franchisee also wants to know that he or she has the confidence of the franchisor and the other franchisees in the network.

And hey, if you’re selling the business and expecting a payout over time, you want to be sure you’re getting a qualified candidate and not someone who will run the business into the ground in a few months and never pay you! The franchisor will help you determine if your candidate is qualified.

This just makes sense, doesn’t it?

Why Call Attention To This?

So why run this flag up the pole to call attention to what is perceived to be the downside of franchising? It’s not!

And I don’t think there’s any “often” about it. I don’t know of any franchise agreement that says a franchisee can sell the business to anyone without the franchisor’s approval. In fact, I’d be afraid to buy into a network like that. Wouldn’t you?

They think my response is sarcastic or rude, when in fact it’s just honest. Even though franchising is the safest way for people to start their own business–it’s successful, it’s exciting and it has led tens of thousands of people to the American Dream–most people should not buy a franchise. Franchising is not for everyone. It’s definitely not for most people.

That said, I think there are many good reasons why people should buy a franchise, especially now. Building a business is difficult in the best of times. In a recession, you’ll likely need the expertise of people who have succeeded before you. Therefore, you can rely on a successful franchisor to help you build a thriving business. However, only you can decide if it makes sense for you to buy a franchise. Here are 9 good reasons that may help you decide:

9 Reasons For Buying A Franchise

1. A recognized name and logo. In a recession, it helps if your prospective customers already know who you are and what you sell! That’s not always the case, of course. It’s one thing to buy a McDonald’s or Midas franchise – highly recognized name brands and logos. It’s quite another thing to buy a new franchise that has only a few outlets. That’s not to say that there’s anything wrong with buying into a new franchise. Even McDonald’s and Midas started with one franchise!
2. A proven operating system. Someone has figured out how to run the business successfully, that is, profitably and in a fashion that the owner/operator finds satisfying. There’s tremendous value in not having to re-invent the wheel, especially when you don’t have extra capital to spend. The lack of a system, in fact, is the major reason new businesses fail. What you’re really buying with a franchise is a proven system. You just need to be sure that it’s in fact proven!
3. Marketing and sales systems. Every business sells something, whether it’s a product or service. Often times, people are good at making the product or delivering the service, but they’re not good at marketing and sales. Good franchises solve that problem for the franchisees. Once again, you just need to be sure the systems have been tested and are proven to work successfully.
4. Capital investment that may be less than starting a similar business independently. By the time you come up with an idea, test it, develop operating-marketing-sales systems, hire people, find a location, source equipment, etc. you can save yourself a lot of time and trouble by investing in a franchise. It’s not always true. Sometimes you can start the business independently for less money, but what do you have? The brand you didn’t buy is now your competition. How well can you compete?
5. Financial assistance. Again, this isn’t always true. And with today’s credit crunch, it may be less of a factor. However, some franchisors do loan money to franchisees. Plus, lending and leasing institutions are often more inclined to loan money to a franchisee than to someone who’s starting a similar business independently. Why? Because franchising has proven to be a safer way to start a business. Lenders like proven concepts!
6. Training and Support. The franchise fee that you pay enables the franchisor to provide initial training and some initial support. Ask yourself this question: “How valuable is it to have someone teach me how to operate this business successfully? And to have them hold my hand, answer my questions, and guide me through the start up?” If the franchisor’s training is effective, it alone is probably worth far more than the franchise fee.
7. Ongoing Training and Support. The franchisor will continue to provide training and support to you for as long as you are a franchisee. As a business grows there are often new challenges that arise. The franchisor’s training and support saves you, as a franchisee, from having to go out and learn how to respond successfully to those challenges.
8. Research & Development. You don’t have to be as concerned about the development of new products and services as does an independent business owner. Part of your franchisor’s responsibility is to look down the road to the future development of the business and to create or acquire appropriate new products and services, and teach the franchisees how to market and sell those new products and services. There’s tremendous value in this advantage alone.
9. You are one of many. There are benefits to belonging to a network of like-minded individuals and business owners. In general, people like to belong. There’s comfort in knowing that others are engaged in building the same business and they are friendly towards you. They’ll help you if you ask them. Perhaps the greatest benefit today is cost-savings. If you’re one of ten franchisees in a market, your advertising costs may be 1/10th of what your non-franchise competitors have to pay. Plus, you will be able to buy products and services from suppliers for less money because there are more of you buying those products and services. Vendors like selling to franchisees, even at a discount.

If franchising makes sense for you, it may be your ticket to the American Dream. But only you can make the decision. Start by doing your homework. Then select a franchisor that provides at least these 9 good reasons and more to join them!

John P. Hayes, Ph.D., author and speaker, has written the Franchise Pre-Investment Checklist to help you thoroughly research franchise opportunities. A 30-year franchise veteran who has owned franchises and was the CEO of a major franchise company, John is perfectly suited to help you with your franchise decisions. He offers a variety of free reports, teleconferences and seminars to help you decide if you should buy a franchise and if so, which franchise to buy. Subscribe to his free newsletter at http://www.howtobuyafranchise.com