Despite the plethora of successful franchises, there are those that fail. According to author and franchise expert Bob Phibbs, many fail simply because the franchisee doesn’t understand what’s involved and whether or not they’re a good fit for a pre-packaged business model. “You don’t play in a franchise just like you don’t play in a business,” says the author of The Retail Doctor’s Guide to Growing Your Business. “I mean, it’s a lot of money.Â It’s a lot of time and you want to succeed.”
As COO and later CMO of It’s A Grind Coffee, Phibbs helped grow the business from start-up to a franchise with more than 125 locations nationwide. Before pursuing franchise opportunities, he recommends asking yourself the following five questions:
- Do I really know what a franchise is? It’s essentially permission to sell a company’s products or services within a certain territory in the manner that the company outlines in its Franchise Disclosure Documents (FDDs). “All a franchise does is it cuts the learning curve,” says Phibbs. “You can join a franchise, and you look like a business that has been open for five or ten years. They tell you, this is the [point-of-sale] system we use, this is the marketing, all of the diagrams for signage–all of the stuff the independent has to spend hours and weeks and days on is done for them.”
- Is franchising right for me? Being entrepreneurial can be a double-edged sword when it comes to franchising. Generally, there’s little to no flexibility with the business plan. Operations must be conducted according to a predetermined plan and a franchisee typically must use the parent company’s suppliers. A self-assessment will determine whether you’re really comfortable giving up some control to a franchise door. “Because a lot of independent guys, a lot of guys or gals will buy a franchise and then think that they should be able to do whatever they want when quite clearly, the franchise ties you down and says, ‘no, this is it,’” points out Phibbs.
- What’s my motivation? “You don’t do this to fill a hole in your own life,” Phibbs advises. If the potential franchisee is looking for a distraction from real-life issues, this is probably not for them. If you’re not passionate about the business, you’re less likely to be hands-on, and many such ventures fail due to lack of oversight by the franchisee. “It’s always shocking to me, people will buy a franchise, spend the money, and then give it over to their daughter to run, or worse, think they can hire a manager and most franchises aren’t set up that way,” he says. “You’re paying a six percent royalty and it’s going to take it a while to get off the ground.”
- Do I have enough money? This may be a no-brainer to ask, but many startups fail because the founders didn’t properly calculate how much capital would be needed. The same goes for franchises. “There are always cost overruns. There are always permits.Â There are always delays, etc.,” says Phibbs. He recommends having access to double the initial franchise fee to avoid a cash flow crunch if there are delays in opening or business starts off sluggish.
- Do I know enough about the product or service? Phibbs cites the popular coffee franchises as an example of an often misunderstood franchise model. “People were so enamored with the coffee business, like it would be like Cheers with coffee,” he says. “Yeah, well, it’s not quite like that because 90% of Americans drink their coffee before 11 a.m. So, what are you going to do with the other 10 hours you’re open?” A potential franchisee has to be 100% committed to the venture–and not simply look to sit on the sidelines looking to collect money.
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