“You don’t think I should buy a franchise?”
December 10, 2013 12:17 pm
12 Comments
“No, I don’t think you should buy a franchise . . . here’s why . . .”
That’s how I summed up a recent meeting with a husband and wife who met with me to explore the option of buying a franchise. In this case, the wife already operates a successful business in a “personal care” industry.
She bought the business about four years ago, keeps it open 7 days a week, 10 hours a day, and is essentially maxed out. “Some days,” she said, “customers are standing in line even when I close the salon.” Recently, she was contacted by a franchisor in Dubai who suggested that she convert her business to his franchise network.
My question: Why?
Chances are, she knows as much as the franchisor knows. Why would she “convert” her independent shop to a franchise and start paying a royalty on her gross sales?
- For brand identity? Well, yea, that’s a good reason to buy a franchise, but she doesn’t need brand identity. Her business is maxed out!
- For the franchisor’s system? Well, yea, that’s a good reason to buy a franchise, but her system already works. As she told me, “It took me about eighteen months to figure out how to succeed at the business, but now it’s going great.” Why does she need a new system?
- For buying power? Well, yea, maybe, because a franchise network should be able to buy products and equipment for less money than can an independent, but even so, is it worth converting her independent salon to a franchise that will require her to pay a royalty, and perhaps incur other costs? First she’d have to figure out how much money she’d save with the franchisor’s buying power. My guess: Not enough to offset the royalty.
My suggestion: Franchise!
“I want to expand my business, and that’s why I thought it would be a good idea to buy the franchise for Kuwait,” the lady explained.
I replied, “But you may already have a better system than the franchisor’s. Why not franchise your system? Or why not simply open more salons using your system? You would own the salons 100 percent and not pay royalties, or any other fees.”
She was surprised because, after all, I promote franchising. But actually, I promote the development of satisfying and profitable businesses, franchised or not. I promote people buying franchises when it makes sense to do so.
I think this lady could make a good franchisee, but given her background and experience, and given her desires, I think she also could make a good franchisor. “If you had a few days, could you write an operations manual for your salon? In other words, could you write down everything that needs to be done daily or weekly, monthly or quarterly to operate your business successfully? And could you also identify how to advertise to bring in customers, and how to treat customers?”
“Yes,” she said.
“Okay, that’s still not enough. A franchisor has numerous other challenges to overcome, but you’re off to a good start. It’s also important that you have the right personality to be a franchisor. Is it more important to you to operate your salon, or more important to replicate your business and train and support others to operate your franchises?”
Well, she hadn’t thought about all of that and we parted with me giving her a laundry list of things to consider. Sometimes, it just doesn’t make sense to buy a franchise, and I think this is one such case.
Tags: be an entrepreneur, franchise my businessCategorised in: business ideas, Buy a Franchise, Case Study
This post was written by Dr. John Hayes
12 Comments
It’s nice to see someone who gives an objective view of the fanchise industry. Most franchisors are very pushy.
The woman with the salon what’s the worse that could happen if she franchised. It’seem to me weigh options is better than just say don’t do it. Weighing pros and cons. You say chances are she know as much as the franchisor. I mean isn’t that just an assumption?
I was curious what determines if a business is able to be franchised? And what are the benefits of franchising.
In your opinion when does it make sense to buy a franchise? I been considering but I don’t know.
Interesting question, Olivia, and not easy to answer. Assuming you have the desire to buy a franchise, and assuming you have the right personality strengths to become a successful franchisee in a specific type of franchise, and assuming you have the investment capital . . . then it makes sense to buy a franchise. Unfortunately, too often, it doesn’t make sense for many people and they buy anyway.
Renee, these are very broad questions, and important questions. But I can’t answer them in a short reply. You will find many articles in my blog that address these issues, especially the benefits of franchising. As for the first question, one of the requirements to franchise a business is that the business must be replicable. If it’s unique or one of a kind, then it’s not likely that it can be franchised. If the business revolves around the personality or skills of the owner, i.e. a heart surgeon, a criminal attorney, etc., then it’s probably not franchisable. Of course, there’s at least one franchise consultant who will tell you that any business can be franchised. But that’s a lie.
Hello Harry. Since I know the woman who owns the salon, it’s more than just an assumption that she knows more than the franchisor.
How would she go about franchising her own business? What are the steps involved. If it takes too much and she’s already maxed out, it might push her over the top!
Franchising a business is a complicated process, but obviously (based on thousands of successful franchise start ups) a do-able process. The short answer to your question (which requires a book, or at least a series of articles) is that she must systematize her business in a way that is replicable. If she wants thousands of others to buy, establish, and operate franchises of her brand, then the replicable system is the only way to go. There’s much more involved — and from time to time I write about this topic in the blog. . . . As to the point about her being pushed over the top — yea, that’s always a possibility. But these are decisions that good business people, in franchising or not, need to make themselves before they take steps to expand.
The idea of entering a franchise network has to be analyzed on a case by case basis and so I’m glad you were able to give her insightful advise on what could work best for her business and for her, as the business owner. In my own personal opinion, I think in her situation, it would be better to just own another store, where she doesn’t have to pay any royalties, instead of becoming a franchisee.
If her system already works for her, why change it to a business format whose result is unsure? In my homecountry, Portugal, where soccer is huge, we have a saying: if a team is winning, don’t change it.
I work as an employee at a major franchise (Macdonald’s), but if, some day I would have the means and the will to be a franchisee, I would prefer to join major franchise network.
Although is true, as you wrote, that smaller franchises are more willing to invest in a person that is just starting, major Companies support their franchisees in a way smaller ones can’t, and not only money-wise, but experience, support in the various aspects of the business, and many more. + being part, as a franchisee, of a brand that is well recognizible around the world, brings more costumers and more revenue which it’s better for all people involved in that franchise location, from crew members to managers and owner of the franchise location.
Although I previosly worked in a smaller franchise network (and I was a “real” staff, not a family member from the owner of that location!), I see at Macdonald’s where I work now, a more complex structure and support from the Company that I didn’t see in that small franchise chain I previously worked.
This story makes a very good point. You’ve got to look at your options from all angles or you may miss what’s right in front of you. How much does it cost (maybe a vague percentage) to start up a franchise? And, yes, I would definitely agree she would be going from an enjoyment of her customers to having to manage staff instead. It’s a whole different feeling getting up in the morning and, I would imagine, much added stress. You’d have to feel fairly certain it would be successful to take the risk financially – let alone potentially lessening your enjoyment of how you spend your days!