Is Franchising the way to go?

[hustlershope23]

I've alway felt that franchising while not 100% safe, still gives you a better chance at success than starting a business from scratch. Now obviously you have newer franchise who don't have the national recoginition of the big boys i.e YUM, McDonalds etc. The idea that they have a formula for success, and usually a nationwide marketing. I like food service personally, as I'm working for a catering department and it's the best job I've had. My only questions is this, if companies are so receptive to their best employees becoming franchisees why wouldn't every store manager or district manager try to own a franchise? I mean is there something hindering them i.e the cost of start up, or lack of desire etc? For instance Dominoes has a program on their site where internal store managers only have to pay a $5,000 franchise fee, etc. It seems like if you want a fast food franchise working for one might be your best bet.

[franchisebrief.com]

I see 2 possible reasons:

1/ The amount of money to invest. When you buy a franchise, there is more to pay than the simple franchise fee. In the case of a food franchise, you will have to find a location (lease), equipment, make sure you have enough working capital for 6 months, etc... For a food franchise, the starting cost is an average of $150,000. Not everyone has or can get that type of money.

2/ Some people are simply not made for being entrepreneurs, which is totally respectable. Just because they can own a franchise doesn't mean they want to get one.

[BOG]

For instance Dominoes has a program on their site where internal store managers only have to pay a $5,000 franchise fee, etc. It seems like if you want a fast food franchise working for one might be your best bet.

Not sure where youre getting your info, but Dominos franchise fee is only $3,300. The still have to pay buildout costs and all the other stuff than can runn $100K+. A store manager is not going to get a free store. They will have to pay just like everyone else.

[BusinessAdviser]

Risk is another factor. As a store manager, if you run the business into the ground, how much are you out? A job. But if you run your own franchise into the ground? A job. And tens or hundreds of thousands of dollars. And a wife maybe.haha. Also, the pressure of such risk each day may not be worth it to many.

[BOG]

Also, you're not going to get rich owning a single franchise. You're just buying a job. You get rich by being the franchisor.

You're going to put in the same amout of work being the franchisee as you will the franchisor. Except being the franchisor has the potential to pay a hell of a lot more with the same amount of work. If you just want a job, being a franchisee is fine. If you want to build massive wealth, you need to be the franchisor.

[BusinessAdviser]

I would have to respectfully disagree with your analysis of the difference between the fanchisee and franchisor. Please explain your basis.

[hustlershope23]

I agree wholeheartily that a store manager isn't going to get a store for free, but he does get a reduced franchise fee, whereas a outside investor has to pay $25,000. Also you need to have higher liquid capital so there is advantages. Also Domino's has a program for minorities where successful store managers(minorities) who run a store successfully for a year, have decent credit, can get a loan gaurantee for up to 250k.

Likewise, I feel as though if you can run a store as a manager you would have a better than average chance at running a successful franchise. Likewise, while owning a single Domino's will probably not make you excessively rich, owning 5 will probably suffice for someone like myself. Thats what most franchisee's do.

I stand by my assertion that franchises can be a good oppurtunity and mitagate the risk.

[BusinessAdviser]

Relevant article from Entrepreneur.com:

Making Your Franchise Stand Out
Figure out what makes your franchise different--and sell that to franchise buyers.

By Mark Siebert | December 11, 2007

Making Your Franchise Stand Out
Figure out what makes your franchise different--and sell that to franchise buyers.

If you're interested in starting a franchise, you have a lot of company. FranData reported that a record 500-plus new companies began offering franchises in 2006 alone--bringing the total, at least by some counts, to over 4,500 active franchisors in the U.S.

With that many franchisors for franchisees to choose from, how do you stand out from the crowd? How do you create a Unique Selling Proposition (USP) that will allow you to compete against your more established brethren?

Finding Your Small Pond
When facing the task of creating this USP, you should start by understanding that every buyer's universe is different. No franchise buyer would ever attempt to analyze all 4,500 franchisors in the marketplace.

Some will start by choosing a specific industry segment in which they are interested. Perhaps they have always wanted to own a restaurant. Maybe they want to buy a franchise that capitalizes on their particular set of skills or experience. They may narrow the list based on how they examine the marketplace--whether through the use of brokers, trade shows or franchise directories. Or perhaps they'll use the more encompassing--and more readily searchable--internet to help them to narrow their search.

Some will be interested only in established franchisors, while others will be looking to get in on the "ground floor" of a franchise poised for explosive growth. Many will eliminate franchisors quickly based on size of investment and their available capital. In short, every buyer's process--and his or her franchise universe--will be both different and smaller than the universe of all available franchise concepts.

For you, as a new franchisor, this is good news. Although most franchise buyers are not fishing in your pond, the buyers that are will be fishing in a much smaller body of water. That means an understanding of your specific pond, and what fish are in it, should be the first order of business.

Armed with this knowledge, you must then narrow your buyer profile as much as possible.

A part of this process can be intuitive--a chiropractic practice will certainly want to focus on chiropractors--but even that knowledge will not get to buyer motivation. More often, the only way to really obtain this understanding is research--talking to either your own franchisees or the franchisees of your closest competitors. (And if direct competitors are not readily identifiable, even a good understanding of "comparable" franchises will be better than no research at all.) This data will provide insight as to buyer motivation, media, "hot buttons" and the specific message that will sell to your audience.

The Many Sales of Franchising
The savvy franchisor also instinctively understands that there is not simply one sale to make, but rather four separate sales that each franchise salesperson must undertake. Prospects are likely asking themselves four basic questions:

Should I go into business for myself?
Should I go into the widget business?
Should I go it alone or buy a franchise?
Should I buy your widget franchise?
The answer to the first question, of course, is a mainstay of any franchise sales presentation. But this answer will be similar for most franchisors--allowing little room for a truly unique selling proposition.

Again, the answer to the second question will certainly need to be woven into the fabric of your sales and marketing strategies. To answer this question, you need to understand and develop the selling proposition for the widget industry, but chances are that selling proposition is not "unique"--it will be a shared message promulgated by all your closest direct competitors. Only when you're in the enviable position of being the only player in a market segment can this question yield a true USP.

One cautionary note here: Being first to market is rarely enough. For the vast majority of franchisors, there are certain to be imitators. So if a market-based USP is to be the foundation of your value proposition, you must quickly establish yourself as the dominant player in the marketplace--as first in does not necessarily mean you'll capture the dominant brand position in the long-term.

The third question offers little room for uniqueness. Do you offer any support services not offered by others in franchising? Do you provide any guarantees? For most franchise concepts, while the question is integral to franchise sales, the answer will be similar across thousands of franchises.

So the core of the USP lies not in differentiating a concept from the vast herd of franchisors, but in differentiating it from your closest direct competitors. This is where you should focus your creative efforts.

Putting the "U" in USP
U means unique.

While certainly a behemoth now, the McDonald's juggernaut started with a single location. Before they captured the American consumer's "mind share" for fast-food burgers, they had dozens of competitors.

Some of us still remember companies like Burger Chef, Dee's Drive In, Sandy's, Red Barn and Druther's (which, to give you a feel for its originality, began its life as Burger Queen). Geri's, which was in part owned by a former vice president of McDonald's, had numerous similarities to McDonald's, including the use of a cartoon icon that was very similar to McDonald's. Another concept, Wetson's was basically designed to duplicate the McDonald's concept, but instead of "Look for the Golden Arches," Wetson's used the slogan "Look for the Orange Circles."

So why was Burger King successful while so many others failed? While there were numerous contributing factors, the main factor can be boiled down to a single sentence: "Have it your way." Burger King positioned itself to be different from McDonald's, not just a "me-too" operation. More important, they positioned themselves in a way in which McDonald's could not respond competitively--because in order to do so, McDonald's would have had to revisit their entire kitchen operations.

Years later, no one thought any burger operation could crack the market, yet Wendy's did. Their secret: "We Don't Cut Corners by Making Square Burgers." While McDonald's and Burger King were slugging it out, trying to capture the hearts and stomachs of the nation's children with Happy Meals and cartoon characters, Wendy's was hiring an octogenarian spokesperson and touting their freshly ground "old-fashioned hamburgers" and asking "Where's the beef?"--targeting a different customer from the Big Two.

More than One Way to Skin a Cat
As the above examples illustrate, there are a number of ways in which a company can differentiate itself. Of course, it starts at the consumer level. For those fortunate enough to be the first into a new industry or industry niche, the most dominant position to seek is that of market leader within the segment. To achieve that status, a company must generally grow rapidly enough to achieve brand recognition.

For the rest of us, we need to become the best at something. To paraphrase from retail consulting firm McMillan|Doolittle's groundbreaking study on successful strategy, one must be the "best" at something--either the biggest (most assortment), cheapest, fastest, easiest (best service) or hottest (fashion). McMillan|Doolittle goes on to point out that a company can perhaps try to be two of these things at once, but companies that try to be "all things to all people" find quickly they will only succeed at being mediocre at everything--a guarantee of long-term failure.

Aside from the concept itself (always the best place to start), you can also differentiate yourself based on size of the initial investment, target market (either at the franchisee or consumer level), target geography, quality of services provided to franchisees and even franchise structure. Another cautionary note: For those with an undifferentiated concept, being the "cheapest" is often a road pitted with disaster. Those taking this route should focus on minimizing the franchisee's investment, and generally not on minimizing the royalty structure.

Regardless of where this differentiation occurs, it is imperative that you "stake out" the areas where you want to excel, develop a USP around those areas and acknowledge the areas in which you'll allow your competitors to play unabated. If you follow these steps, you'll have developed the first key to successful franchise marketing. If you don't, remember the Orange Circles.

[franchisebrief.com]

Also Domino's has a program for minorities where successful store managers(minorities) who run a store successfully for a year, have decent credit, can get a loan gaurantee for up to 250k.

The International Franchise Association created these programs. There are also programs to help veterans get into franchising.

Likewise, while owning a single Domino's will probably not make you excessively rich, owning 5 will probably suffice for someone like myself. Thats what most franchisee's do.

I believe 50% of franchise owners own more than 1 franchise.

I stand by my assertion that franchises can be a good oppurtunity and mitagate the risk.

Yes, it is proven that success rates in franchising are higher than a typical business.

[BOG]

I would have to respectfully disagree with your analysis of the difference between the fanchisee and franchisor. Please explain your basis.

It's not complicated. Do you want to make millions, or make sandwiches?

My friend Mark started one called Maui Tacos. He makes an ABSOLUTE FORTUNE. It's sickening. If you saw his house, you would vomit on your shoes. 18,00 S.F. with ocean views and has a second house next door to famed painter Christian Reese Lassen. He does very little work now that the wheels are in motion. He just works a couple hours a day, and spends the rest enjoying life.

I know another person that owned two Subways. They worked 6 days a week busting their butt making sandwiches and trying to manage pain in the butt high school kids who have no work ethic to run the shops. It was a total nighmare, and they barely made any money, maybe $50K net per year tops. They have no voice in pricing, decor, menu, marketing. It's all canned. If it does not work, you can't change it. You just have to sink like a leaking ship.

Just ask anyone who owns a Quiznos. That company is in serious trouble, and there's nothing the franchisees can do. They have to just go down with the ship. Google around about Quiznos troubles. Tell me you would want to own a Quiznos after that. Owners are in so much trouble, that some owners have just locked the door and litterally walked out, abandoning the stores, losing their whole investment and ruining their credit.

Trust me. You don't want to be the franchisee, you want to be the franchisor. Payoffs are much bigger, work is the same, and you have complete control. Being franchisee, you work 7 days a week, payoffs are low, no control over any aspects of the business.

[aliendropper]

Thats right control

[BusinessAdviser]

It's not complicated. Do you want to make millions, or make sandwiches?

My friend Mark started one called Maui Tacos. He makes an ABSOLUTE FORTUNE. It's sickening. If you saw his house, you would vomit on your shoes. 18,00 S.F. with ocean views and has a second house next door to famed painter Christian Reese Lassen. He does very little work now that the wheels are in motion. He just works a couple hours a day, and spends the rest enjoying life.

I know another person that owned two Subways. They worked 6 days a week busting their butt making sandwiches and trying to manage pain in the butt high school kids who have no work ethic to run the shops. It was a total nighmare, and they barely made any money, maybe $50K net per year tops. They have no voice in pricing, decor, menu, marketing. It's all canned. If it does not work, you can't change it. You just have to sink like a leaking ship.

Just ask anyone who owns a Quiznos. That company is in serious trouble, and there's nothing the franchisees can do. They have to just go down with the ship. Google around about Quiznos troubles. Tell me you would want to own a Quiznos after that. Owners are in so much trouble, that some owners have just locked the door and litterally walked out, abandoning the stores, losing their whole investment and ruining their credit.

Trust me. You don't want to be the franchisee, you want to be the franchisor. Payoffs are much bigger, work is the same, and you have complete control. Being franchisee, you work 7 days a week, payoffs are low, no control over any aspects of the business.

Three issues that I think you are failing to address:

1. You are simply using a few hand-picked examples. These have no persuasive power, as I could just as easily find a successful franchisee or an unsuccessful franchisor.

2. To that effect, it is VERY possible to make great money as a franchisee. As was discussed in previous posts, at least half of franchisees own more than one franchise. Also, if you look at those multi-store franchisees, you'll find that many of them live EXTREMELY comfortably. However, because they often each started with just one store, it would be fair to say that it is not fruitless to be a single-store franchisee, for starters.

3. You are very correct that it is better to be a franchisor than a franchisee. However, it is not as easy as writing a different name on your name tag. You seem to suggest that someone can just as easily be a franchisor as a franchisee, that it's just a choice. Not every store has franchising potential, and even of those that do, not every owner is franchisor material. However, provided sufficient capital, anyone can be a franchisee.

[franchisebrief.com]

Three issues that I think you are failing to address:

1. You are simply using a few hand-picked examples. These have no persuasive power, as I could just as easily find a successful franchisee or an unsuccessful franchisor.

Very true. Being in the franchise industry, I can tell you about many very successful franchisees I know. I can also tell you about a few franchisors that are totally failing. Why the franchisor fail is a totally different problem.

2. To that effect, it is VERY possible to make great money as a franchisee. As was discussed in previous posts, at least half of franchisees own more than one franchise. Also, if you look at those multi-store franchisees, you'll find that many of them live EXTREMELY comfortably. However, because they often each started with just one store, it would be fair to say that it is not fruitless to be a single-store franchisee, for starters.

Correct! Like everything in life, you can't start big and just expect to be successful. Success takes time and hard work. Franchisee or normal business, you will have to bust you butt to make it happen.

3. You are very correct that it is better to be a franchisor than a franchisee. However, it is not as easy as writing a different name on your name tag. You seem to suggest that someone can just as easily be a franchisor as a franchisee, that it's just a choice. Not every store has franchising potential, and even of those that do, not every owner is franchisor material. However, provided sufficient capital, anyone can be a franchisee.

Again, I share your views on this. It's MUCH easier to become a franchisee than being a franchisor. Being a franchisee just requires some startup capital, a real estate location (for store based franchises) and that's it! To be a franchisor, you have to have a business in place, several locations, a proven track record of success, an original concept, AND a few hundred thousand dollars (if you want to do it right) to invest in developping the franchise aspect of the business.

[Gr-Andy]

Yes majority of francize owners own more then one restrunt. The owner of mCD on my city owns 20 in ca

And the subway guy owns 6 just in my town alone.

[adonis.chan08]

Any Franchise that you open is a risk no matter what. One is specialy the LOCATION!!!... that also plays the key factor of your franchise. My family own Quiznos in CO and we had to advertise and be known that we were open in that area. Luckily the High school was behind the the shop and the word got pass to them that we were their. But still that took us about a year or so until we started to actually been notice. Lacation and Advertisements.