A record number of small business startups are emerging from the pandemic crisis. Entrepreneurs are seeking opportunities to be their own boss and develop a successful business they can call their own. Buying a franchise may be an attractive option for some entrepreneurs, capitalizing on a recognizable company name, successful business model and operation already in motion.
A franchise is a method of distributing products or services of a well-established brand by a franchisor, who establishes the trade name, trademark and a proven business system. A franchisee pays a royalty and often an upfront investment for the right to do business under the franchisor’s brand and system. Franchises can be regional, national or international.
There are over 825,000 franchise businesses in the US in 300 different industries. They account for 18 million jobs and generated over $2.1 trillion to the US economy in the past year, according to the International Franchise Association (IFA), 2020.
With all this choice, it is important to find a franchise business model that matches your investment level, lifestyle and revenue goals. Once you have set some boundaries, you can prepare yourself to investigate concepts that fit your criteria.
There are many advantages to franchise ownership vs. starting an independent business from the ‘ground up’ with an unproven concept:
- Reduced risk of failure
- Proven business systems, operations and products
- Professional training and support from Day 1
- Marketing and advertising support
- Collective purchasing power
- Association and synergy with other franchisees
- Easier access to financing
- Easier exit strategy for the franchisee when the time comes
Richard Lee, SCORE Mentor and former Mr. Handyman® franchisee, highlights the importance of your personality when considering this path to business ownership.
“It is important that you are a person who is willing to follow the business model. The biggest reason franchisees fail is the resistance to follow the franchise guidance and process. This happens when a new owner thinks he or she knows more than the franchisor.”
Franchises come with carefully developed operations and processes that ensure consistency of the brand’s promise and a customer list.
There is a price to pay to be part of a franchise. The franchisee is investing in a system of doing business, and will be trained to be proficient. The royalties and fees buy a well-known company name and standards to ensure the brand’s customers will experience the same high-quality experience with every purchase or service from that franchise.
Getting to know and trust the franchisor is critical. It will not make good business sense to invest in a system that the franchisee will not use.
There are some defined categories of franchises that appeal to certain types of personalities.
Inbound retail franchises tend to be more site dependent and require a higher investment level but are also high-visibility businesses and require a lower selling effort to succeed. Because of these factors, they appeal more often to the introverted or more reserved business personality.
Bridge opportunities include service-oriented concepts. These can also appeal to the introverted owner as sales do not require a great deal of networking or relationship development, and often come with a lower buy-in investment.
On the other hand, extroverts or those who find it easy to make connections in the marketplace and have no problem with promoting the sales pitch are more suited to outbound retail and outbound sales/service franchises.
Prospective franchisees are encouraged to take a hard look at themselves, think through their personal business goals and business models that best fit with their skills, interests and personality. Franchise consultants are commonly commissioned in the buying and selling process to provide access to the large network of available franchises along with step-by-step guidance through the research, analysis, consideration and commitment stages.
Franchise ownership is not for everyone. As part of the research, prospective buyers are encouraged to focus on a target list of franchise opportunities, visit a few of the most successful franchisees on that list and ask key questions to learn from them.
What is the franchisor’s experience with franchising, other businesses?
Are there any lawsuits pending or threatened against the franchise?
What are the sales growth and success rates of existing franchises?
What are the franchisor’s plans for revenue growth?
Is there a franchise owners’ association or advisory council?
What is the median number of years of the franchisees’ tenure?
It is also recommended that they interview four or more owners who are no longer a franchisee to find out why they left and whether they enjoyed the business or industry.
The responses to these questions can be very informative and help the franchisee prospects to assess whether it matches up with their strengths. Are they more like the successful or the struggling franchisee?
SCORE franchise help
SCORE offers an E-Guide that will help you on your path to buy a franchiseL
Success in a franchise
Jania Bailey, CEO of FranNet, offers some wise advice regarding success in a franchise:
- “Do your homework before you buy
- Fall in love with what a franchise can do for you, not the product or service you sell
- Develop your own personal business model and be sure that the franchise you buy can help you achieve your personal goals.
- Follow the franchise system.
- Work hard and be committed to your success.”
Several industries have proven quite resilient through the pandemic crisis. Hair care, senior care, restoration and many service businesses are doing well. New franchises often require startup capital. Prospects should be prepared with a strong credit rating, have a detailed business plan and be working with franchises that are on the list approved by the Small Business Administration (SBA).
Request a SCORE mentor to help you with your franchising journey
Learn more about franchising with SCORE resources