Franchise Myths - Part 2
By Mike Martuza
Part 2 of this article will address three additional franchising myths. The focus will be on how franchises penetrate an industry and the background sought by companies in their franchise owners.
In Part 1 the following three myths were discussed:
1. Franchises are all about fast food and retail
2. Franchises are very expensive
3. The larger the investment, the larger the potential return.
If you have not yet read Part 1 of this article you may access it here.
Myth 4: Successful franchises occur in markets with limited competition
Many people will dismiss a particular franchise opportunity because they think that there is too much competition or the market is saturated. When you buy a franchise there will always be competition. Franchises are about creating proven systems and support structures that give it an advantage in meeting or exceeding customer's expectations. By utilizing such systems franchise companies can, in general, provide a higher level of service and consistency than independent businesses. This allows the franchises to enter established markets and, over time, gain larger market shares.
Let's use fast food as our first example. When that industry first started franchising in the 1950's there were independent burger places on what seemed like every corner of every town; franchises had very little market share. Jump ahead 50 years and you'll find that franchises control almost all of the fast food market in the US. This market consolidation occurs throughout franchising, not just in fast food. The residential cleaning (maid) industry is another excellent example. There was very little franchise presence in this market 25 years ago, but today maid service franchises are everywhere and control a large and growing share of the market. In another 20 years this industry may begin to resemble the fast food marketplace.
Franchising achieves an increasing share in the majority of markets that it enters so don't be put off by seeing a lot of independent businesses already in existence.
Myth 5: The quality of the product determines the success of the franchise
Let me ask you one question. Can you make a hamburger that tastes better than the one you can buy at a fast food restaurant? Most people can, yet none of them sell millions of hamburgers each year. So why then are the fast food restaurants so successful?
It's the systems! All great franchise companies have perfected their systems - including Sales, Marketing, Operations, Customer Relations, Franchise Owner Training and Support and others. These systems increase the chance that the customer's expectations are met or exceeded and that the business experience is positive. Customers, be they consumers or businesses, treated in this manner will often become repeat business and a great source for referrals. This is how franchises become established in a market and grow.
The success of the franchise company is not based solely on quality, although the product or service must be comparable to that of its competitors, but in the proven systems that are executed by the franchise owners.
Myth 6: I need to have experience in the industry before a buy a franchise
Only a small percentage of franchise owners have any experience in the industry prior to buying. There are two primary reasons why this occurs:
First, franchise companies have developed very comprehensive systems to guide the franchise owner in how to run the business. As part of joining the team, the franchise companies provide every franchise owner with a great deal of initial training and ongoing support. The franchise owners are taught the systems that will give them a head start on the business ownership learning curve. For the franchise companies it is much easier to teach the systems to someone with no background in the industry than it is to someone who has spent a number of years in the industry. Those coming out of the industry are more likely to deviate from the proven franchise systems and utilize their own systems, thus increasing the potential for business failure.
Second, most franchise companies want their franchise owners to "work on the business, not in the business." You will be focused on the tasks required to run and grow the business (managing the employees and the jobs, implementing the marketing systems to generate new clients, insuring customer satisfaction, etc.) - you are working "on the business." A person who comes from the industry is more likely to get involved in the function that the business performs and forego the managerial tasks - this person is working "in the business" and is operating it like more like an independent contractor than a franchise owner. For example let's say that you were considering buying a residential and commercial painting franchise. If, like a majority of the franchise owners, you have never painted professionally it is very unlikely that you will pick up a brush and go out on a job - you will focus your time on customer acquisition and satisfaction. But, if you had previously been a painter the chances of you getting involved in the painting jobs would be greater causing the other areas to suffer.
Franchising is one of those areas where everyone knows what it is, and yet very few know what it's all about. If you are considering buying a franchise I strongly advise contacting a franchise consultant. A good consultant will cost you nothing and will help match you with franchises that meet your personality, attributes, goals and budget. They will also guide you through the due diligence process including: the contents of the Franchise Disclosure Document (FDD), hiring a franchise attorney, areas of discussion with the franchise company, speaking with current/former franchise owners, etc. Working with a franchise consultant and the due diligence process will be covered in more depth in future articles.
Don't allow the myths of the franchise industry dissuade you from looking at franchising as an alternative to returning to the corporate workforce. Owning a business is not for everyone but the decision of whether it is or isn't for you should be made on the facts, not long standing myths.