Archive for the 'Franchising' Category

Four things you must know before buying a franchise

Over the years, I’ve met many people who want desperately to own a business, but 1) just don’t know what it should be; or 2) lack the entrepreneurial vision and/or desire to start a business from scratch.

Enter one of the great inventions America has given to the world: the franchise.

Purchasing and operating a franchise is entrepreneurial coloring inside of the lines.If you don’t have a problem playing in a sandbox someone else built, a franchise may be just the ticket for you.

The franchise universe is broad and diverse, with arguably thousands of options, which is both good and bad news - so many choices begets lots of intimidation. But fortunately, the fundamentals you apply to conduct franchise acquisition research, regardless of the one you choose, are basically the same.In his excellent book, Franchising and Licensing, my friend Andrew Sherman identifies a number of key components in any relationship between a franchisor (the developer of the franchise), and a franchisee (the purchaser of the franchise). From Andrew’s list I’ve chosen what I think should be the first four to help you narrow your search, followed by my thoughts.

1. A Proven Prototype
When you lay money down for a franchise, the model must be proven to work, because you’ll have to replicate the product over and over. Indeed, the prime expectation of any customer seeking out a franchise product is that it’s a known quantity. McDonald’s may not have the best hamburger in the world, but whether you’re in Moscow or Moline, it’s supposed to taste just like the one you had in Meridian.

2. A Strong Management Team
When you buy a franchise, not only will you need to seek periodic advice and instructions from the franchisor’s staff, but you want to have confidence in that support. There should be virtually nothing you can ask that they haven’t experienced and anticipated. Here’s a tip: If you aren’t getting overwhelmed with support and answers when considering a particular franchise, don’t expect much more once they have your money. I’d move on.

3. Comprehensive Training Program
In order to make that “hamburger” look and taste just like the last one you delivered, you must be able to learn how to do it yourself and teach your people how. That training MUST come from the franchisor. They will demand that you follow their rules, so you have a right to demand the best training.

4. Sufficient Capitalization
Franchisors are just like all other businesses in that they must have the capital to: a) Grow - you want your franchisor to expand their footprint; b) Innovate - to continue to offer relevant products and services every year; and c) weather the inevitable marketplace storms. When they ask about your financial condition, tell them “I’ll show you mine, if you’ll show me yours.”

Before you buy a franchise, you must talk with two people: 1) Someone who’s operating a franchise like the one you’re considering - ask what it’s like doing business with your franchisor prospect; 2) Someone who’s failed with a franchise - ask what happened and what they wish they knew before they started.

Remember that while owning a franchise is operating a business based on someone else’s idea, it’s still running a business. Other than being a single parent, there is no harder job. If you don’t love working, if you don’t value sweat equity, if you don’t appreciate deferred gratification, if you don’t have a lot of energy, if you like to sleep late, or if you’re a whiner, don’t buy a franchise - or start any business. And if you aren’t good at coloring inside the lines, like me, don’t buy a franchise.

Finally, in addition to Andrew Sherman’s book mentioned earlier, I also recommend one by another friend, Joel Libava, Become a Franchise Owner.

Write this on a rock … Franchising isn’t for everyone, but it might be for you.

Why the NLRB is assaulting the franchise industry

In the U.S. there are two primary ways to capitalize rapid business expansion beyond internal financial resources: 1) outside investors, including going public; 2) franchising. This article is about the latter being in jeopardy.

Here are the basic steps of the franchise model:

1.  An entrepreneur-turned-franchisor turns the best practices proven at the mothership operation into licensed intellectual property (IP).

2.  Independent franchisees purchase this IP and agree to follow rules prescribed in the franchise agreement about how the “product” is presented to the marketplace, like signage, branding and ingredients.

Everything else, including employee hiring, management and firing, is the sole discretion of the franchisee, who succeeds or fails based on ability and local circumstances.

As the headwaters of modern franchising, the U.S. is the global leader in this business expansion model, with more than 3,000 franchise options in over 75 industries. And almost a million franchise establishments - all small businesses - employ almost 10 million people and generate roughly 5% of the U.S. economy. Indeed, franchising has been a big part of the American Dream for thousands of entrepreneurs on both sides of the franchise agreement for over 150 years.

Alas, recent actions by the National Labor Relations Board (NLRB) could put this part of the American Dream in jeopardy. In labor violation complaints against McDonalds, the NLRB says it intends to treat the franchisor corporation as joint employer with its thousands of franchisees. It gets worse: According to Kent Hoover, Washington Bureau Chief for American City Business Journals, “The NLRB as a whole may adopt this standard for all businesses.

Connecting franchisee employees to the franchisor corporation is not only technically flawed, but it serves no benefit for either entity, employee or customer. So what is motivating such an unprecedented deviation in the treatment of the franchise industry by the NLRB? Two words: unions and Obamacare.

As another straw man for the Obama administration, the NLRB pursuing this assault on franchises gives something to unions in return for the president opposing the XL Pipeline, which the unions want. With this single ruling changing the definition of a franchise employee, it would be much more feasible for unions to organize down to workplaces at America’s last mile, like the local burger and pizza franchise.

Moreover, since franchisees typically don’t have enough employees to fall under Obamacare’s employer mandate, the same ruling would serve to eliminate that distinction.

The NLRB must not be allowed to disrupt the proven and productive relationship between franchisor and franchisee. The franchise model produces entrepreneurship, which produces economic growth, which produces the American Dream.

Write this on a rock … Tell your Congressional delegation to stop the NLRB’s assault on franchises.

A small business strategic plan for leading change

Most of us allow our minds to swing back and forth between dealing with the reality we see in front of us and nostalgia for the way things were. In the marketplace, spending too much time with the latter half of this pendulum swing is an indulgence at best, and dangerously delusional at worst. With change happening more rapidly than ever before, this increased velocity is challenging even when we like the new stuff, but it can be paralyzing when we don’t.

It’s a fool’s errand to just take the direct hits from the rapid-fire changes the world aims at our small businesses. Sustained success in our light-speed world requires developing a plan that identifies and establishes practices that help us anticipate change, manage it and actually lead with it.

Recently on my radio program, The Small Business Advocate Show, I talked with change expert, Rich Horwath, about developing a strategic plan that will set your business up to function effectively regardless what the world and the marketplace throws at you. Rich is a new member of my Brain Trust, founder and president of the Strategic Thinking Institute and author of four books including his latest, Deep Dive.

Take a few minutes to listen to our conversation, and let us know about your plan for leading change. Listen Live! Download, Too!

Tough love on buying a franchise

At a time of high unemployment, it’s natural for there to be increased interest in starting a small business. And one of the classic options is to look into buying a franchise because many thinks they’re like a business-in-a-box. 

Another thing that is part-and-parcel with these start-up scenarios is desperation, which leads to poor decision-making and way too many business failures.  Recently on my radio program, The Small Business Advocate Show, Nick Bibby delivered some tough love that every prospective franchisee should experience before signing on a franchise dotted line. 

In addition to being a member of my Brain Trust, Nick is principal of the Bibby Group, an international consulting firm focused on the development of franchise systems, as well as due diligence services for prospective franchisees and independent entrepreneurs. Take a few minutes to listen to this interview and, as always, leave your thoughts and experiences on franchising. Listen Live! Download, Too!

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