Matching Your Skills, Experience, And Investment
I. Skills and experience
How do you know which franchise is right for you? With nearly 3,000 franchise brands available in 75 different industries, the choices can be mind-boggling.
First-time franchisees typically invest a significant portion of their net worth into their new business. They draw from their savings, retirement funds, home equity, and borrow from friends, relatives, and banks for their chance at the American Dream of working for themselves and taking control of their future. It's a huge commitment. For most, failure is not an option.
One way to determine which franchise brand to choose is to answer a few fundamental questions: 1) What do you love? 2) What are you willing to risk, and possibly lose? 3) What are you willing to sacrifice to make your new venture succeed?
When presented with a new idea, Dave Thomas, founder of the Wendy's hamburger chain, responded by asking what was the downside, the worst thing that could happen from acting on that "good idea." If he could live with that, he moved ahead.
Once you choose a franchise, be prepared to make an all-out commitment to its success, including long hours and sleepless nights. That's where passion comes in. Granted, starting your own franchise business is about making money, but given a choice (and you have 3,000), where would you rather spend your time: doing something you love, or slogging it out day after day at just-another-job?
Your skills and experience are a key factor in determining the best brand for you. Are you a hands-on person, a doer? Or are you a manager who prefers to delegate? Do you like to work alone or with others as part of a team? Are you prepared to be a leader, telling others what to do and making all the major decisions every day? Can you handle the responsibility of meeting a payroll, of having others depend on you each week so they can pay their bills? And if you borrow money to get started, can you live with monthly loan payments hanging over your head?
If you like people, think retail or service. If you want weekends and evenings for your family or yourself, consider a business-to-business brand, so you can work closer to 40 hours a week instead of 60 or 70. Would you prefer to work in an office making things happen, or get out in the field face-to-face with your customers?
There is no right answer to these questions. There are only your answers. Think about them in terms of trade-offs. For some, the burning desire to be independent, to be their own boss, drives them and carries them through doubt and fear. For others, it will be a wiser choice to work for someone else, letting them take the risks and make all the big decisions. But for many Americans in 2009, laid off or fired from jobs they believed were reasonably secure, buying a franchise--despite the risks and responsibilities--is becoming an easier choice.
Finally, a question many new franchisees neglect to factor into their decision: Can you get along with your franchisor? Signing a franchise agreement is often compared to a marriage. Do their goals and values align with your own? Signing a 10-year contract means working closely franchise management and staff, and following their operating system and rules. Can you live with theirs? Different brands have different cultures. Be sure you like the people you'll be spending the next decade with.
II. Level of investment
The number-one question franchise candidates ask is: How much money can I make? Part of the answer depends on how much you invest.
Generally (but not always), the more expensive the franchise, the higher the return on investment. As the saying goes, it costs money to make money.
So how much are you able--and willing--to spend (and risk) to own the franchise of your American Dream? As noted earlier, the cost of entry can range from as little as $10,000 for a home-based business to more than $5 million for a hotel; average start-up costs range from $50,000 to $75,000 to about $200,000. Some franchisors also require a minimum level of net worth and liquidity to ensure the new franchise unit survives its first years.
For most first-time franchisees, the price tag of a McDonald's or a full-service restaurant is out of reach. That's why so many begin with a more affordable brand such as Subway or a hair salon, build that up, and then buy a second unit, and a third.
Franchisees pay for the right to use the franchisor's brand name and operating system, based on their analysis and belief that a) the name will attract customers and b) the operating system will ensure profitability. You can pay less and buy a newer or lesser-known brand, but that increases your risk factor since customers tend to stick with what they know. A large, experienced, stable franchisor is in a better position to provide training and support than a newer, smaller brand.
"Franchisees want a brand that can drive sales," says Farnaz Wallace, executive vice president and chief marketing officer at Church's Chicken. "At the end of the day, they buy a logo. The royalty they pay is about the sales it can bring them."
Still, if you're willing to take the risk and believe in a smaller or newer concept, if that brand succeeds and grows, you're in on the ground floor and can grow with the brand.