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Franchises can be very good or very bad. I would get into a business because it's not only something you can make money at, but also something you can enjoy and be passionate about. Don't just buy yourself a job (which frankly is what a lot of franchises are, because you can't make any real money unless you're working the business yourself).
Location: East of Seattle since 1992, 615' Elevation, Zone 8b - originally from SF Bay Area
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Quote:
Originally Posted by sjdemak
No its just an investment, an entrepreneur would start a business that other people can franchise.
True, and the franchise is a hard way to start because most are happy to take your money but are not selective about your qualifications to run that kind of business.
The franchise you mentioned is too new to appear here, but it will give you an idea of how people are doing with franchises. Keep in mind this does not include those that were funded by other sources than the SBA, such as second mortgages or life savings.
When I had my independent business (which was successful for 16 years) I saw 4 franchises come into the same city (2 within 3 blocks) during that time and all but one went under in less than 6 months. The other made it 10 months. When they say "anyone can run it, and just hire people off the street for minimum wage" people actually fall for it.
I hate the idea of franchises because though you do get a lot of the legwork, best practices, and trial and error out fo the way taking someone elses system your also forced to order through there suppliers which isn't always the cheapest, your forced to accept their coupons, offer their specials, etc. Your not running your own busines your managing someone elses is what it really boils down to.
Also with a franchise your paying for that brand recognition and with so many franchises out there they don't even have a strong brand. THis orderup thing your talking about, in my area we have something similar called takeout taxi. Not sure if its a regional thing but I've never heard of order up. IT's a small margin business which requires a lot of time and effort on your part and I dont see much that they could offer you that you couldn't do by yourself buying a few vinyl stickers for your car and talking to local restaurants trying to network wth them and deliver their food or just offering food delivery. What is this franchise going to give you thats worth probably a big upfront investment and a percentage of your earnings?
I do a fair amount of franchise work. It really depends on the franchise and the person. If the franchise gives you training and a solid operations manual, you can learn a lot about how to run a business from someone who has made mistakes. The problem is that the franchise will lock you in. You can't use their information for your own business (there are solid non-competes) and many franchises have exclusivity (they frown on you owning or running other businesses without permission.) The other issue is that the franchise itself doesn't do much more than buy you a job. It's not until you have a number of franchises (or area developer contract) that you start to really make money using the franchise concept.
When you're buying a franchise, you have to keep asking yourself the following question over and over:
Can I start a business on my own and run it for less money than the franchise fee and start up costs?
(they have a conservative estimate of the start up costs in franchise disclosure documents)
If you think you can, then do it yourself.
The key on most franchise operations is that they have done this before, so they have hopefully ironed out all the "rookie" mistakes. Also, they may have the backing of collective bargaining (i.e. they can buy materials from a common source who gives them better pricing) and the backing of collective ad campaigns (for example, a national franchise may already have ads in your area that benefit you.) Some franchises do the opposite, and force you to buy from the franchisor (who may have inflated prices).
The major keys (IMO) are (1) franchises will only accept you if you can adequately capitalize your business and (2) the franchise will force you to aggressively market your business in the beginning months, when many (new) entrepreneurs are trying to conserve cash.
Many businesses fail because they never had enough start up funds to begin with. You can't drive very far if there is no gas in the car. Also, if you're afraid to spend money on marketing in the beginning (or you're out of cash), you can hamper growth, get discouraged, and further cut marketing costs. You get caught in a vicious cycle and it will kill your business. Many franchisors know this, and demand that you have a lot of cash to begin with and that you actually spend a ton of cash getting the business off the ground.
I do a fair amount of franchise work. It really depends on the franchise and the person. If the franchise gives you training and a solid operations manual, you can learn a lot about how to run a business from someone who has made mistakes. The problem is that the franchise will lock you in. You can't use their information for your own business (there are solid non-competes) and many franchises have exclusivity (they frown on you owning or running other businesses without permission.) The other issue is that the franchise itself doesn't do much more than buy you a job. It's not until you have a number of franchises (or area developer contract) that you start to really make money using the franchise concept.
When you're buying a franchise, you have to keep asking yourself the following question over and over:
Can I start a business on my own and run it for less money than the franchise fee and start up costs?
(they have a conservative estimate of the start up costs in franchise disclosure documents)
If you think you can, then do it yourself.
The key on most franchise operations is that they have done this before, so they have hopefully ironed out all the "rookie" mistakes. Also, they may have the backing of collective bargaining (i.e. they can buy materials from a common source who gives them better pricing) and the backing of collective ad campaigns (for example, a national franchise may already have ads in your area that benefit you.) Some franchises do the opposite, and force you to buy from the franchisor (who may have inflated prices).
The major keys (IMO) are (1) franchises will only accept you if you can adequately capitalize your business and (2) the franchise will force you to aggressively market your business in the beginning months, when many (new) entrepreneurs are trying to conserve cash.
Many businesses fail because they never had enough start up funds to begin with. You can't drive very far if there is no gas in the car. Also, if you're afraid to spend money on marketing in the beginning (or you're out of cash), you can hamper growth, get discouraged, and further cut marketing costs. You get caught in a vicious cycle and it will kill your business. Many franchisors know this, and demand that you have a lot of cash to begin with and that you actually spend a ton of cash getting the business off the ground.
You bring up some great points. I think another one in addition to could I do this cheaper on my own is what value does the franchise bring me? If you get some name/brand recognition it could be worthwihle but if not your essentially just paying for best practices which you could either figure out yourself via trial and error or hire on an experienced GM who can implement best practices from a previous restaurant they worked at.
Lastly I remember watching some television show about bad franchises. I know coldstone was called out as basically leaching off their franchise owners making them buy from their overpriced suppliers
Lastly I remember watching some television show about bad franchises. I know coldstone was called out as basically leaching off their franchise owners making them buy from their overpriced suppliers
A lot of them are like that. Quiznos was notorious for quite a while for making their franchisees pay ridiculous costs for their supplies, including nearly a dollar per drink cup. They have new ownership now, that I think has ended some of those more nefarious practices.
A lot of them are like that. Quiznos was notorious for quite a while for making their franchisees pay ridiculous costs for their supplies, including nearly a dollar per drink cup. They have new ownership now, that I think has ended some of those more nefarious practices.
Yeah I think CNBC did a show on ripoff franchises where the company was trying to make money off the franchisees obligation to buy supplies and inventory from them as well as commenting on how much money people dump in for a turnkey business and what a high percentage of them fail in large part because they can't keep up with the costs the franchise brings.
I had a buddy who was GM of a franchise restaurant for over 15 years. He used to be really gungho on franchises and investigated everyone from Jersey Mikes to Firehouse Subs to Dunkin Donuts and many ohters. One common thing is you can't buy a restaurant you have to buy a whole terrirotry which could be 3-8 restaurants. They aslo typically want you involved as an owner operator at least for your first few stores so its not really a passive income where you can hire a GM and be hands off.
My buddy was supposed to buy his restaurnat and things wound up falling through after he went to their owners school/college and all this other stuff. We wound up getting into an ecommerce business together and he said he would never look at franchises again. Our business now makes much more money with much less effort than a restaurant. Not that you can't make money with franchises I think his previous owners wer pulling in like 300k a year at their peak, now its probably more like 150k these days but its a business which you have to be very involved in.
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