Franchising - What Should I Buy? Lloyd Shears Many of the people who phone my office and come to meet with me, often start out by telling me they are thinking of a food franchise. When I question them as to why, the conversation tends to become a bit vague. They are not sure. This is when we start to build the model of what the client wants. I often think of the outplaced corporate executive and his wife who came to see me some time ago. Like many people they told me they were thinking of a small food franchise. I asked them to help me understand what they wanted to achieve, and create the model of what they wanted this business to do for them. The elements the ideally wanted in a business. They began to tell me ideally, they were interested in a clean business. Something Monday to Friday, nine to five, and perhaps not a lot of staff. They had limited capital, and would really like a home based business, to accommodate the needs of their growing family. We agreed that this did not sound like any of the food businesses they had looked at, and any of the ones I was familiar with. It was only then, they were aware of how far off base they were from buying what they wanted. It is not that most of us are in love with the food industry. What we like, what it represents to us. Most of us like to go out and eat. We enjoy the experience, and the industry appears safe. After all, we all eat everyday. What we do not see are the long hours of hard work that go into the business. The formidable competition, the huge up front expenses. It's not that many food businesses are not safe. After all, look around your town, McDonald's, Burger King, Wendy's … the list seems endless. It's just that you need to go into business with a clear understanding of what you are getting into, and what will be required of you. I think back to my own experience in 1980. In that year I was going to buy my own business … a franchise. Like so many people, I too thought a franchise meant a counter, cash register, and deep fryer. I also knew, that I really did not want to be in the food industry. When I cam across a company called Second Cup, I was excited. It lacked many of the elements of the food industry, and added a retail twist. Second Cup was a young company at that time. They had 14 corporate stores, and I became their third franchise. Failure to me was not an option. I was determined to do whatever it took to be successful. I did not know it then, but I was taking a huge risk buying into such a young franchise system. Franchisers are often learning as they grow, and I got to live through a lot of the growing pains. Today I would be looking for a much more mature system to invest in. However, Second Cup did go on to be successful. It was not without its struggles, and I did work long and hard. I also realize a benefit I had not anticipated. The coffee industry was in its infancy, and many of the early franchisees, were able to sell our business and realize tidy profits. Of course, stores are so much more expensive now, that it's no longer easy to create the same capital gain in the industry. While the experience had been extremely positive for me, and I had owned eight stores, I am not convinced that the same kind of growth is possible today. Competition is everywhere. The arrival of Starbucks (not a franchise) on the scene, as well as several other chains, means the competition for locations, and customers is at an all time high. I was a classic example of someone who bought a business, and had no idea of what they were getting into. I was not particularly happy in this type of business, but leaving what I knew felt like a big risk, much like people feel when leaving a job to go into business. Had I known my options back in 1980, I would have bought a franchise that operated from an office, and Monday to Friday, nine to five. I realized early on that business was not my cup of tea … or should I say coffee, but continued on. In 1992, I sold my last store determined to be in business to my comfort and natural skills and better hours. It is important to plan your entry in business. Begin by deciding on the amount of money you invest will not necessarily determine the amount you are going to make. You are not necessarily getting a better business, or one that will make more money, because you invested a lot in it. All franchisers are not the same. There are good franchisers, and bad franchisers. Smart franchisers, and stupid franchisers. Create a model of the business you want and where you want this business to take you … a five year plan. To most of us, safety will be high on the list. Many of us feel we want to work alone, but also take into consideration, that staff may be necessary, if we are to grow and expand. A home based business may be attractive, but unless you meet clients at their place of business it may not be practical. Keep an open mind! I'm sure in 1955, the founder of McDonald's, Ray Kroc had people doubting that an empire could be built from a product as humble as the hamburger. Skillful entrepreneurs have convinced many of us to buy water in plastic bottles, when it's free from the tap. In 1980, I had no idea there would be a coffee store on every corner. And, look at the businesses that did not make it long term, muffins, cinnamon buns, frozen yogurt, to name a few. A good start may be to look at businesses that have lasted long term, and are unlikely to be replaced by technology. Dry Cleaning may not be terribly glamorous, but it is a service we all use. We can't do it at home, and we don't budget for it. It has great profit margins, and it's easy to train staff. It is an industry dominated by independent shops, so is prime to be taken over by a few large franchise systems (look at the video industry - 10 years ago all the stores were independent. Today, all franchises). My point is simple. You may not have jumped out of bed today wanting a dry cleaner, but if you see yourself as a business that is safe, secure, easy to finance, profitable, growable, simple to run, and closed nights and Sundays - it may fit. And, look at changes in demographics. With fewer households having a spouse at home, providing services to this market - home services - has most of its growth ahead of it. Nobody wants to clean after a hard days work. I met with the Director of Franchising last week of a maid service, who told me their business has been growing by 30% per year. The investment was modest, and they had a million dollar club for franchisers who have built the business above this volume. The business was Monday to Friday, nine to five, and run with a computer. The owners are not involved in cleaning. And technology will not replace the service. Buy the best quality franchise in the industry you are looking at. Know your goals, and buy a franchise that can get you there. Speak to happy and unhappy, successful and unsuccessful franchisees. Only after you know both sides of the system, can you decide if it's a good deal for you. If you identify with and will run your business like the successful people - great. If the unsuccessful franchisees are the ones you identify with - don't buy. Use a lawyer who is familiar with franchise documentation, and an accountant who is familiar with small business, and any other expertise you need. Published: Canadian Business Franchise L'Entreprise Volume 2, No. 6