As a coach to corporate execs who want to turn entrepreneur, I’ve noticed a theme emerge: many like the idea of owning a franchise as a source of passive income, or one where they can be an “absentee owner.” This sounds like a wonderful idea. Invest a few hundred thousand dollars and manage by remote control, earning a return on investment with the tax advantage of business write-offs. Where do I sign up?
I knew two franchise owners a few years ago, two sisters who opened a frozen yogurt franchise store in midtown Manhattan. Each sister had a full-time job: one ran the family’s network of walk-in medical clinics, the other was a teacher. I met them before they opened their location and recall asking them which one would be the manager of the store. They said neither one would be–they’d be hiring a manager to do that. Only it turned out they didn’t want to spend $35,000 on a manager’s salary, so they hired a few $7 an hour employees through a Craigslist ad.
I went into the store after it was open for a few weeks. An employee was there, not wearing his franchise uniform hat, but a sideways-turned Yankees cap instead. He didn’t greet me, and did a poor job in executing my order. I came in another time and there were two employees (but no customers), who were sitting down behind the counter. From outside it looked as if there was no one working in the store.
I caught up with the owners a few weeks later and asked how things were going. I learned their cost of goods was an astounding 50% (it was supposed to be 25%), a clear indication of theft. On another visit a few months later, they told me the reason for their troubles was the poor support of the franchisor, who provided products at too high a cost and didn’t do enough advertising to pull people into the store. Meanwhile, the sisters had done no outreach into the community or any marketing on their own. They blamed everyone but themselves for what was going on. They lost $500,000 in all before they closed the store.
Turns out there really is no such thing as an absentee franchise owner, at least not at the start of a business; and I am doubtful whether any retail franchise can survive without the regular presence of the owner. Yes, you have to be able to delegate and trust employees. But if you’re the owner, you have to set the example and the expectation. Otherwise, you’ll find that it’s certainly possible to make a small fortune in franchising–provided you start with a big fortune.
Mitchell York is a Professional Certified Coach, small business entrepreneur, and author of Franchise: Freedom or Fantasy? How to Know If a Franchise Is Right for You After Your Corporate Career. He can be reached at firstname.lastname@example.org and information about his book is available at www.franchisefreedomorfantasy.com. Mitch also blogs at www.e2ecoaching.com.