Is Franchising Still Viable?
I always figure if I can come away from a meeting with a few good contacts and a couple of good ideas, then it's been worth the price of admission. Trade shows, however, can be a difficult place to sift through all the free food, glossy brochures, and flashy booths to get the key takeaways necessary to evaluate whether franchising is still a good opportunity in today’s economic environment. So having a game plan before getting to the show is a great approach. (See my last article: “”)
The Franchise Show broadcasted live from the West Coast Franchise Expo in Los Angeles the week of October 2-4, 2009, and featured 24 live interviews with franchisors and suppliers attending the expo. Here are a few general themes that I came away with:
- Going into business for yourself is still a desire many people have, and corporate job losses have made running your own ship a viable alternative to sending out another thousand resumes.
- Franchising is still the safest way to take the plunge, as it provides instant branded identity, a proven business model, and infrastructure that is difficult for a startup to create from scratch. This is why franchise concepts have a much greater percentage of success, better access to financing, and faster sales ramp-up.
- The right franchise is more important than ever—this should be in ALL CAPS. Used to be (two years ago?) when people thought that any franchise would be successful. No matter that there were already 15 similar concepts in a neighborhood, there was always room for one more.
And here are several more topics that also should be on your agenda:
- Is It Right for Today? Franchise concepts that provide services are among the most successful ones in today’s economy. These include everything from tax preparation to plumbing and tutoring. They're often described as “recession resistant” since they provide services that people are not willing to give up since they either have to have them (taxes), or are very high on their budgeting priorities (tutoring), or offer new budget alternatives (let’s paint the house instead of moving).
- Financing. This is one of the big three: "The right franchise", "The right location", and "The right financing". Only thing now is that financing is the prerequisite to even being able to get to numbers one and two, and traditional sources of financing—home equity loans (I know—what’s home equity?), conventional bank loans, and even the SBA, have all dried up. But here’s great news: Many new franchise service concepts come with a very friendly cost structure, including franchise fees as little as $7,500, and at least one with a “money back guarantee"! This makes paying cash an option for many more buyers.
- There Are New Resources:
- Academia. Fancy word for colleges. We interviewed Peggy Doreer from Loyola Marymount University in Los Angeles, as well as Sergio Gascon and John Gutierrez of the Los Angeles Minority Business Enterprise Center that's operated by USC's Business Expansion Network.They both have great programs in place that we’ll go over in more detail.
- Local Government. We interviewed Linda Smith, Executive Director of the Los Angeles Minority Business Opportunity Center. While geared primarily to existing businesses, Linda said that franchising is the one startup enterprise that they are interested in working with. There are MBOCs in many large cities. Listen to the interview for more.
As my friend Greg Tanner at Aaron’s Sales & Leasing says, “Buying a franchise is about wealth building.” That's still a viable concept today. But it’s gotten harder so doing your homework has never been more critical. However, we have some new tools coming up to help, so “stay tuned.”
When it comes to choosing the right franchise and putting it in the right place, let’s get it right — right from the beginning.
Jeff comes from 25 years of hands-on experience in the franchise industry with such high-growth companies as McDonald's, Blockbuster (where he was also a franchisee), and Quiznos. He also holds business degrees from two major Southern California universities. Hear Jeff live on The Franchise Show every Friday at 2:00 p.m. PDT, and .
