When an entrepreneur considers launching his business empire, he immediately confronts a fork in the road: franchise or go it alone. I was reminded of this choice recently when I spoke to reporter Jaclyne Badal of the Wall Street Joural. She was working on an article for the Journal’s syndicated Sunday business section that runs in about eighty papers arond the country. Her article appears here. Her article provides a good, brief summary of some of the factors to consider when thinking about buying a franchise. Her research had pointed out some of the risks associated with shady franchise scam operations. I suggested that there were other less sinister but no less significant things to think about. Here are two big ones:
Is franchising right for you?
Many people who start businesses want to get away from having a boss. In some ways, buying a franchise is like buying another boss. With a franchise, you are signing up for a (theoretically) successful formula. But the franchisor expects you to stick to the script. They’ll probably establish standards of operation, product offerings, marketing and pricing programs and more. Your ability to express your creativity and individuality will be legally limited. A lot of successful small business owners would chafe under the constraints of even a great franchise. They want to do it their way.
Are your interests aligned with the franchisor?
In the late 80s, I was in the ad agency business and working on the account of a large franchised weight loss chain. That chain’s franchisees thought that advertising should be spread equitably across all of the franchises. Sound strategic thinking though said differently. We were about to increase our return on the ad investment by 33% through concentrating the spending in markets where media was less expensive, there were a lot of potential dieters, and the franchise coverage was good. This was a legitimate conflict of intererests among the franchisees and the franchisor. As you consider a francise, as whether your strategic interests and the company’s are really in synch.
As Jaclyn Badal suggests in her article, buying a franchise is a decision that you must consider really carefully. It’s like a very expensive, legally binding marriage. Some folks have said that you haven’t really been in a franchise relationship until you’ve been part of a class action lawsuit on one side or the other. There’s unfortunately more than a bit of truth in that statement.
For more good advice on how to make a smart decision about franchises (including some really cool video case studies), check out the franchising section of our site