Buying A Franchise? Avoid These 10 Deadly Sins! Howard Bassuk “What do you have in the fast food business?” Many prospective franchise investors come to me with that common questions. While it may be an appropriate question to ask, it may also lead an investor down the road to failure, and even perhaps to economic ruin. It’s not that the fast food segment doesn’t include many good franchise opportunities. It does! But like all businesses, the franchise itself doesn’t only need to be good at what it does; it also needs to fit the skills and personality of the prospective franchisee. When people come to my office and I ask them what kind of business they’re considering to buy, the often tell me they thought of the food business. However, when I ask them to describe the attributes of what they consider the ideal business, their response is often very much unlike most, if not all, food businesses. Many times, clients know what they want in a business. They’ll say the ideal business has few employees, it keeps business hours, i.e. 9 to 5, it has limited competition, it’s a low investment, it has low potential for theft, and it offers significant growth. That certainly doesn’t sound like many of the food businesses I have explored, and as soon as I ask them, my clients say it doesn’t sound like any of the food businesses they know, either. It’s only then that they begin to see how far off the mark they were when they said they were thinking of buying a food franchise opportunity. Why do so many people ask for a food business? Typically it’s not because they are madly in love with the concept of running a restaurant, but it is because of what restaurants represent to them. Restaurants are everywhere, and we all eat every day. Most people enjoy eating at restaurants, and there are numerous successful chains and franchises in every city. So restaurants appear to be fun, they feel safe, they look stable and successful, and of course, they can be all of that, and many are. You only have to look around in your community to see examples of franchised food businesses that are great successes. McDonald’s, Burger King, Wendy’s, Pizza Hut, Tony Roma’s Taco Bell – to name a few – have become giant franchise opportunities. For many investors, a food franchise might be a terrific opportunity, but for most, probably not. However, I always ask clients if they’re only interested in a food business or if they’re interested in any business that is stable, strong, experienced and offers a good return on investment? In almost all cases, the answer is “Yes.” And that’s when the client’s focus broadens and model of the type of business opportunity they actually want begins to emerge. My point is simple: Prospective franchisees often let their perceptions guide them, rather than their logic, and in so doing, they set themselves up for the likelihood of failure. Many of these investors commit one or more the ten deadly sins that are common among franchise investors. What are these 10 Deadly Sins? Here’s the list: I. Failure to create a model of who the investor is as a person, and failure to create a list of their personal business strengths and skills. II. Failure to identify the types of businesses that will match up with the lifestyle they need. III. Failure to de-identify the name of the business from the performance of that business, and how the business will help them achieve their goals and strategies. IV. Failure to investigate and compare several businesses to see which one best matches their needs and interests. V. Failure to develop a three-tiered strategy for investing, including the entry strategy, a long-term strategy, and an exit strategy. VI. Failure to realize that franchisors are all different. Some franchisors are smart, some stupid, some young, some old, some with rigid systems, and others flexible. It’s important to find one that offers what the investor needs. VII. Failure to realize that they do not have to spend a lot of money to get a good business, and they need to spend only as much as it takes to find a business that works for them. There’s virtually no automatic correlation between how much a business costs to start and how well it will do once started. VIII. Failure to do sufficient research to not only find out whether a business and an industry is solid, but also whether it is good for their strategies and skills IX. Failure to find both the successful and unsuccessful franchisees within the system and compare themselves to these franchisees. Are they like the people doing well, or do they have the same skill sets and attitudes as the people doing poorly. X. Failure to use experts, like franchise attorneys, accountant, advisors, etc. Granted there are many variables involved in creating lists. You do everything right and still fail. But by not allowing yourself to commit these ten deadly sins, you can greatly enhance your chances for success. To avoid the ten deadly sins that are common among franchise investors, I suggest you ask yourself the following questions. Do I really want to own a business? Do I like the idea of being part of a franchise system? If I want to join a franchise system, how much can I afford to invest? Do I want to invest during the early stages of a franchisor’s development when the opportunity to grow is wide open? Or do I want to get involved only after most of the growth is finished so the risk is greatly diminished? Or where would I fit in between? (Remember that there’s no single right answer, other than the one that works best for you.) Is the franchise I’m looking for a leader in its industry? Is the industry stable and growing? Is the franchisor’s management team of top quality? Do they have vision not just for today, but for the future? Can I afford the business? IF I buy it, can I afford an extra cushion if things take longer than I expect to develop? Can I afford this business emotionally? Can I handle the stress of starting a new enterprise? Will I have support from my family? (It’s a good idea to involve family members in your research.) Is the market open for growth, and is the competition I’m going to be up against weak, fragmented and vulnerable, or strong? How does it compare to the franchise system I would be joining? Does the business fit my personal strategy for growth and success? Do I fit with the skills, abilities, corporate personality, etc. of this business, and with the successful franchisees who are now part of the system? Simply put, many people do not take the time to really understand what they’re trying to achieve when they invest in a business, and consequently, they never find what they’re after. I’ve seen many people by businesses that might be wonderful for someone else, but not for them, and in so doing; they almost always assure themselves of less success, or even failure. Don’t let it happen to you. Franchising offers many outstanding opportunities. You can probably find one that’s right for you if you avoid the ten deadly sins!