The moment has never been better to enter the franchise world. But not every franchise is right for every person. It’s like buying a car: You have young upstarts (think Tesla) and the old guard (Ford). You can buy a used car (existing franchise location) or a new one fresh off the lot. To find the right fit for you, you’ll need to do your homework and evaluate the risks involved with a given franchise. In this post, I’ll tell you how.
The first step to evaluating a franchise’s risk is to research how healthy it is at the corporate level and whether there are unhappy franchisees who could harm your chances of success. Despite running your own business, as a franchisee, you’ll rely on the good name and corporate health of the franchise to help propel business. If there are unhappy franchisees, they could take legal or social media actions that might hurt the franchise or damage the brand, and by extension damage YOUR business. Even if you run a high-performing unit, unhappiness across the franchise system can hurt your prospects.
Next, consider the rules of the particular franchise you are considering. Are you prepared to play by them? These rules could change at any time, so are you prepared to adapt accordingly? Conversely, a bigger franchise may not be nimble enough to pivot quickly when faced with challenges. Are you patient enough to allow the process to move at its own pace? Like any big business, high-level strategy will come from the top down, so you should prepare yourself mentally to operate in that ecosystem.
Despite these inherent risks, the rewards are clear. First, you have a straightforward path to success. Franchising takes much of the guesswork out of starting a business because you have the advantage not only of corporate support, but also of the institutional knowledge and experience of entrepreneurs who have gone before you. This means that potential for accelerated growth after you demonstrate success is huge (think multi-unit expansions). Another key reward is simple: revenue. Franchises typically outperform other startups, meaning you start making money sooner.
So, the question becomes, “How do I mitigate the risks of franchise ownership and maximize my rewards?” Here are a handful of strategies that will help you succeed in the franchise world (I’ll skip over basic business best practices and focus on those strategies unique to franchisees):
We at Masterplans review hundreds of franchise business plans and FDDs, so we’ve witnessed firsthand the joys of successful franchisees. The franchisees we see expanding year after year are always the ones who really evaluate what it means to be a franchisee and have mapped out a strategy for how they’re going to minimize the risks while maximizing their potential for rewards.
Next up I’ll be exploring some of the rules and internal structure within which you, as a franchisee, will be expected to operate.
Paul Hightower is Masterplans' VP of Business Development.