If you had a choice between starting your own business and buying into a franchise, which would you take? Joel Libava, The Franchise King®, recently made a very compelling argument to buy a franchise rather than start a business from scratch. Let’s look at the pros and cons of buying a franchise.
Walk into McDonald’s. Grab a coffee and sit in some corner. Now, look at all the ways this business model has been refined, developed, tested, analyzed and improved.
Make notes while you sip your coffee.
- Scripts – Note how the staff use a specific script when greeting the customers. These scripts have been refined and honed for local, national and international markets.
- Colors– Study the color of the walls. There’s a reason why they are green and yellow. After a period of time, you feel a tiny bit uncomfortable and then move on. That stops people hanging out all day in McDonalds.
- Specifications– Have you really examined the size of the fries. Compare them with BurgerKing. See the difference?
- Mood – Listen to the background music. Who choose that music? And it changes from country to country. It’s not muzak.
- Efficiency – Time how long it takes for your burger to arrive. Think you could do it faster?
- Training – Notice how the change is given to you by the server. With a smile?
- Layout – Count how many chairs are placed around a table. 4 or 6. Do you know why? Is it different in Pizza Hut?
- Identify – How about the logo? Hard to forget right? Or Ronald McDonald? How about BurgerKing? Can you see its logo in your mind’s eye?
If you spend 30 minutes in McDonalds and really study how the business is designed, you’ll notice that NOTHING is left to chance. Everything down to the background music is intentional.
Ask yourself what business McDonald’s is in? (According to Joel, it’s not the food business. It’s “the get folks what they want really fast business.”) Joel has written several rather unique posts about McDonald’s on his Franchise King Blog®
Now, imagine if YOU were to create a fast food outlet.
How long would it take you to identify all of these tasks and then refine them?
Or… you can buy into the franchise model and hit the ground running
Listen to the Franchise King®
Joel makes the case that buying into a franchise may be a smarter move than starting your own business from scratch. And he has a point.
Rather than learn how to write a business plan, developing an integrated marketing plan, you can fast track your investment by adopting a well-known franchise.
Here are some tips from Joel.
Do a skill assessment; what are you really good at? What are you not so good at?
Decide on a budget. How much of your own money are you comfortable putting up for your franchise?
Try to “visualize” yourself doing the day-to-day duties as a franchise owner of the ones you’re considering.
Write an amazing business plan. Use business plan software or get a CPA to assist you.
Only use an attorney that’s familiar with franchise law.
Risks With Franchise Model
This brings us to the risks with the Franchise Model.
- Scale – while you can buy more franchises, such as McDonalds’ outlets, you can’t scale the business in the same way you could, for example, if you owned a software company. There may also be local issues stopping you from expanding, for example, the number of outlets within a region.
- Ownership – Another issue is that you’re building up some else’s business. While there are exceptions, it’s hard to increase your stake in a franchise unless you’re willing and able to become a partner.
- Returns – The effort you put in (while profitable) may be better spent in your own 100% owned business. If you outperform all sales expectations, the owners may use this as a benchmark for future years, which may not be realistic in a recession.
- Innovation – maybe you have an idea on how to improve the sales but the owner says No, then you’re stuck and have to continue with the model at hand. For creative types, this can be very distressing.
- Copyright – if you introduce a new idea into the Franchise, there is a risk it may violate the T&Cs and possibly create legal issues. Likewise, there may be issues over IPR if you leave the franchise and launch a rival product that competes with your previous franchise owner.
Their Franchise v Your Business
Another problem with running your own business is that it’s a bit like raising children.
You overlook their flaws… cos their yours.
You forgive them for their mistakes… cos their yours.
You turn a blind eye to poor performance… cos their yours…
But that’s no way to run a business, right?
For me, as a small business owner, getting emotionally attached to my products (which I created lovingly by hand) is that it is hard to step back and look at the business objectively.
Whereas with the franchise model, it’s easier.
I’m not tied at the hip to the business.
I see where it needs to improve and discuss it with the franchise owner.
I look at the business purely in financial terms and take the necessary steps.
And, if the model is well defined, I can leave the running of the business to a trusted manager and then focus on other business ventures.
Whereas with my own business, my brain never switches off.
Having some distance from your business is a godsend when things take off as this is when the decision-making needs to speed up and the margin of error is much smaller.
And remember, your franchise owner wants you to succeed. If you don’t, she will take it back off of you. They have to protect their brand too.
What You Gain From Running a Franchise
There is one more reason you should consider with Franchises. The company behind this business have worked to refine each aspect of the business model, possibly for years.
- When you enter into their business, you gain by seeing at first hand how a successful business in run. Compare this with all the mistakes you are likely to make when starting your own b
- When you learn how the franchise model works, you can use this to develop all types of products, courses, education products based on what you’ve learnt there.
- You can then go one further and setup your own franchise and use all the knowledge you’ve gathered. Again, compare this to starting a business with no previous experience.
Before you choose either of these models, ask yourself what you could gain or lose by going either way. Put the financial rewards aside for a moment. If your goal is purely financial, my bet is that the financial model may return a better investment if you are new to business and have a model budget to start with.
Starting your own business, with your own savings, can be very expensive if things don’t work out. With the franchise model, the blueprint is already in place.
Why wouldn’t you do it?