Do you have what it takes to be a Franchisee?
Business opportunities can present themselves in some very unique ways. My first taste of a much larger business world came in the form of a franchise opportunity through a national martial arts organization. How does one become a franchise owner in a business of this type? Sometimes it is simply by design.
Like most kids that grew up in the 80’s, I was exposed to men like Bruce Lee, Chuck Norris and Jackie Chan through their various movies. Saturday afternoon was “Black Belt Theater” for my group of friends. Someone would go down to the local video store and rent a martial arts film, then we would all gather at their house and watch it. By the time we reached high school, martial art studios had started opening in our local area. Some of my friends had even started taking lessons, but my schedule was to full for additional activities at that time. Once I graduated and started attending college, I had an opportunity to do some research and investigate the various forms of martial arts available in my area and eventually joined a studio to begin training.
At first my interest in martial arts was purely for fun and recreation. As I obtained some of the beginning belt ranks, I watch as some of the more experienced students were encouraged to become involved as assistants in teaching class. I saw this as very prestigious and naturally wanted to be asked as well. I inquired about how to become more involved in the studio and eventually was invited to be an assistant. Once I obtained the rank of Black Belt, I was encouraged to pursue certification as an instructor, not realizing that this would eventually lead to my next business opportunity.
I was introduced to the concept of internship and how people elect to work for free in order to obtain experience in your desired field. It was during this time that I learned about how the studio worked as a franchise business. The studio owner took me under his wing and taught me the ins and outs of everyday operations, which included sales, marketing and managing cash flow. The work hours were long, sometimes 14 to 16 hours a day, but the education and experience was unlike anything I had obtained in formal college classes up to that point.
Eventually I was given the opportunity to buy into the franchise model and open my own studio. I mentioned before that sometimes things happen by design. The martial arts organization that I choose to join had put out a mandate to the various franchise owners for them to seek out people willing to open new studio locations. The internship program helped studio owners weed out possible candidates to become new franchise owners. Not all candidates were considered a good fit, but those that proved a willingness to conform to the business model, had the proper desire to work and displayed a business aptitude were offered the opportunity to join the ranks.
The goal of this blog entry is give you some insight on some of the advantages and disadvantages of franchise ownership. People buy into franchises every day, and are very successful and happy with their ownership. However, it is not always cake and ice cream and some people, like me, sell their franchise and move on to other business opportunities.
As I mentioned previously, in a franchise business, the franchisor provides a developed way of doing business, which is known in business circles as an established business plan. They offer ongoing guidance and assistance when you encounter stumbling blocks. However the most important thing they offer is a recognizable brand and through that brand, solid marketing potential. All of these things are provided to you in return for a periodic payment of fees.
Let’s look at some of the most obvious advantages.
- The independence of small business ownership supported by the benefits of a big business network.
- Franchisors usually provide the training you need to operate their business model so previous business experience is not needed.
- Franchises have a higher rate of success than start-up businesses due to their recognizable brand.
- You may find it easier to secure financing for a franchise, due to its established business plan.
- Franchises often have an established reputation and image, proven management and work practices, plus access to national advertising and ongoing support.
Based on just these known advantages, it is easy to see why someone might want to own a franchise business. Now let’s look at the other side of the coin and visit the most obvious disadvantages.
- Buying a franchise means entering into a formal agreement with your franchisor. You may be in charge of your local establishment, but you still have a boss. Expect the franchisor to monitor your success and failure, much like having someone constantly looking over your shoulder.
- Franchise agreements dictate how you run the business, leaving an owner little room for creativity or variance. When operational policies are changed by the franchisor, those changes filler down to the franchisee, no matter if the changes are good or bad for business.
- There are usually restrictions on where you operate, the products you sell and the suppliers you use. Most franchises have a requirement of where you place your business and what suppliers you are restricted to use. As a franchisee you will be required to adhere to these restrictions.
- Bad performances by other franchisees may affect your franchise’s reputation. National branding is great as long as the brand maintains a good reputation. When that reputation falls, it affects the entire brand as a whole.
- Buying a franchise means ongoing sharing of profit with the franchisor and monthly fees for the use of their brand, business model and support.
- Franchisors do not have to renew an agreement at the end of the franchise term. Yes, you read that correctly. Franchisors have the option to cease your use of their brand, business model and support if you fall to meet their expectations.
What does it mean to lose franchise branding and support? It would be like losing your house in a natural disaster. You are left with nothing more than the shirt on your back and the money you have managed to save in your bank account. More importantly, you are now going to have to make a choice of whether to start a new business from scratch or simply cut your losses and find other employment.
In my experience owning a franchise was exciting at first. We were successful and I in turned helped open two additional locations, which were also successful. The turning point for me came when the franchisor made a few key changes to business operations, while also increased our royalty fees. These small changes eventually cut into my bottom line and I found that it was no longer profitable for be to be in business. Luckily I was able to sell my franchise to a new owner and got out while things were still on a high note. The business lasted for a number of years after I left, but the owner eventually decided to leave the franchise brand and continue on as an independent operator.
Franchising is seen by many as a simple way to go into business for the first time. But a franchise does not guarantee success and the same principles of good management – such as informed decision-making, hard work, time management, having enough money and serving your customers well – still apply.
Be cautious when buying into a franchise if you have to develop the market and the brand in your designated area. Make sure your investment generates a healthy return and if you decide to sell, make sure you sell for a gain and not a loss.
Did you ever own a franchise and was it successful or unsuccessful? Join the conversation below…