franchise

I wrote a post for Small Business Branding, titled Why Brand Management is Paramount in Franchising. Thanks, Vera, for having me as a guest in your excellent business blog!

I basically highlight the importance (and the real challenge) of managing brand in franchising. I say ‘real challenge’ due the fact that the brand name is not only built by the franchisor, but also by the franchisee.

Please do check my guest post out and share me what you think :)

Ivan Widjaya
Guest posting

Franchising is hot. It is, in fact, hot for decades.

Why would people buy a franchise unit? What make a franchise appealing?

The number one reason people buy a franchise unit is to cut his/her way into entrepreneurship.

Yes - buying a franchise brings you a few steps ahead of other entrepreneurs. While other entrepreneurs work long hour to trial-and-error their business concepts, not mentioning the amount of resources to push their ‘baby’ to grow, franchisee unit buyers cut right to the chase into entrepreneurship ‘buying’ a proven system.

That’s why franchise units are relatively expensive to buy compared to the similar, non-franchise, counterparts - Franchisors, the brand and concept owners, take the hassle out from you in return for a sum of money, often called franchise fee.

Franchisors offer you tested and true, proven, system, including location surveys, employee training, marketing and promotional tools, etc. As long as you play by the rule and utilise the system the right way, you will likely to succeed than not.

That’s amazing! I want to buy a franchise unit right away!

Whoa! Slow down, cowboy… Perhaps you have the money to invest in a franchise unit, but buying a franchise, as well as other businesses, need some evaluations prior deciding whether to take the franchise unit or look elsewhere for better options.

What you have to know about franchising

Franchising is not easy - trust me - read my previous post about it. Please also read the Episode 1 :)

Franchising is like marriage. If you turned-off about the idea of marriage, perhaps franchising is not for you.

Believe me, many franchising ask you for a private interview before you are ‘allowed’ to own one of their unit. The current trend - they ask you about your family and/or marriage life. Some of them ask you to come with your spouse.

Why is it important?

The premise is, if you manage your family right, you can succeed managing the franchise unit.

Franchising needs teamwork and the willingness to follow franchisor rules and guidelines. Franchising needs trust and respect.

If the franchisors said that direct selling is not recommended for your unit marketing campaign or a certain location is not good for the unit, then you should listen to them - they know what they talked about. They’ve been there, you haven’t.

How to Choose the Right Franchise

Here’s some tips from my experience on how to choose the right franchise:

1. Don’t choose the franchise based on your hobby and interest
   Choose one that is unique and answer a problem in the community. Also, choose by its ability to sustain changes and its business life cycle length.
2. If your felt that you can’t work well together with the franchise’s CEO, bail out of the deal
   Chances are, if you can’t stand the franchise’s CEO style and habit, you can’t stand to work with him/her later on - not good for your franchise unit!
3. Study the financials - consider the franchise fee and royalty fee
   The first things to look into a franchise financials is: the franchise fee, the length of franchise agreement, the franchise renewal free, and the royalty fee. Thus, you can calculate your monthly ‘franchise unit ownership’ fee.
4. If you felt that the offer is too good to be true, perhaps it is too good to be true
   Franchise is not outrageously profitable - not a single franchise in my entire franchise units ownership career can achieve extraordinary results. Exceptional performance yes, but not extraordinary performance. Thus, run away from ones that offering it.
5. Study the company background - hire a detective!
   Just kidding :) My point is, you have to learn the basic company background - the established date, the ownership structure and changes, and the reputation.
6. Study the franchise’s growth plan
   A good franchise is one that have a written growth plan to share with potential franchisee. No growth plan written might mean no plan at all.
7. Does the franchise guarantee anything? Choose one that is NOT guaranteeing a certain BEP or ROI
   A franchisor might offer you a guaranteed 24/7 support, but not a guaranteed break even period (BEP) or return on investment (ROI). Nobody can guarantee you anything about it - unless you deal with fortune tellers :p
8. Have a chat with the other franchisees
   Franchisees are the most trusted source of franchise information - They won’t trick you to buy a franchise like theirs, will they?
9. Don’t choose a big name franchise
   Choose a smaller franchise with outstanding record and ‘ride the wave’ together with them. McDonalds is uber expensive, anyway.
10. Don’t choose a franchise that doesn’t even have one own unit
    The franchisor’s own unit is your benchmark and your measurement of success. If the franchise you interested in doesn’t have any, how can you benchmark or measure the potential of buying a franchise unit from them?
11. Choose a franchise that trains you, the franchisee, a lot
    Good franchisors take franchisees’ personal development seriously, because strong franchisees mean strong franchise units.
12. Pick a franchise that doesn’t allow you to improvise too much
    If your entrepreneurial spirit are freedom, no boundaries, creativity and improvisation, don’t choose franchising route - you can perform well starting up your own business. Franchising needs military-style people that can work well under a guidline.

Bottom line: You can achieve riches with franchising if you are willing to work in a family-like system that has a operating manual. If you can’t stand rules and dos-and-don’ts, don’t choose franchising.

Ivan Widjaya
The learning franchisee

If you read my previous post about franchise, you might already know that I have several franchise units.

Having a plunge into franchising without much knowledge about it teach me a lot about choosing the right franchise for me.

I have a few tips for those of you interested in owning a franchise unit:

1. Don’t buy a franchise unit because it involves your hobby - Your hobby is fun, and running a franchise is hard work, although it can also be a bit fun. You will soon realise that making money out of your hobby is not that fun anymore - you’ll end up stressed-up and demotivated.
2. Don’t buy a franchise because it’s cutting-edge - cutting-edge business is yet to prove itself in the marketplace. Although it might be hyped by the community, but we never know the business life-cycle. Is it rise fast and die fast? I suggest to find a franchise that not-so-cutting-edge, but stands firm at the test of time.
3. Choose a franchise which own an own-unit or two - Don’t touch franchise that has no own unit! Choosing a franchise having one or more own units lets you see the business in action and the potential it has before you decide to own one.
4. Choose a franchise which royalty fee depends on how much your unit make - Don’t choose franchise with a fixed percentage of royalty fee - It will bring your franchisee unit having a hard time early in its life.
5. Don’t choose a franchise that boast fast ROI - NONE of them has fast ROI on most of their units. It’s usually true only for a small number of high-performing units. Run away from franchises that offer you a guaranteed BEP and/or ROI period.
6. Franchises are also businesses - They can FAIL. A proven franchise can minimise the risk, not eliminating
7. Don’t buy franchise unit to be rich and free - Being rich is a possibility. Sipping a cocktail on the side of a pool is wonderful. Alas, it’s not the typical lifestyle for franchise unit owners. Franchising demands a lot of you - rules to follow, limitations to negotiate. Anyway, it’s THEIR brand name you RENT in return for a franchise fee. Franchisors have any right to push you to grow your franchise units.
8. Franchising may not the right venue for entrepreneurs - with limitations and regulations, budding entrepreneurs will get bored, and eventually fed up of all the creativity-limiting franchise system.

I’m not saying franchising is bad. I like it - I own several units!

But, entering franchising should be in the right attitude and understanding. Franchising is not easy, but it can give you hefty cash flow, if you can manage your units well.

Two last statements to be pondered - If you feel safe within rules and regulations, franchising is definitely for you - buy a franchise unit. But, if you love to against mainstreams and like to do things your own way, stay away from franchising - start your own business.

Ivan Widjaya
In a love-hate relationship with franchising

I owned several local franchise units. To tell you the truth, the first time I buy a franchise unit is my effort to cut my way into entrepreneurship. I thought it was easy. It’s not.

I learn franchising the hard way. Many people, just like me, buy a franchise unit with a wrong reason - mainly, they want to take a short cut into the world of entrepreneurship and to live an American Dream - fast cars, house with pools, lots of zeros in bank accounts, etc. This way, they - including me at that time - will be guaranteed failure even before the business itself run.

Franchising takes a lot of work - and money. You see, the premise behind franchising is that you ‘lease’ a proven system - developed through trial-and-error and involved a lot of resources - in exchange for a sum of money (typically a franchise fee and a royalty fee). Expensive? Yes. In return, you’ll receive support and expertise that will help you to run your business. Therefore, are franchise units are less likely to fail? Yes. But they DO fail, although on a significantly lower rates - mostly, it’s not the franchise system that fails. The franchisee is the main culprit.

I love franchising. I love the idea of running a business will less risk of failure. But somehow, I failed in one of the franchise units I owned. Why? Again, wrong reasons to buy the franchise unit.

Wrong reasons to buy a franchise unit

• Get rich quick - If a franchise offer you this, run away! Getting rich in franchising is a marathon, not a sprint
• Franchise units are easy to run - The system is there, but it’s not easy to run. Not only customers expect you to perform, but also your employees and your franchisor
• The system will run the business by itself - Not possible! You need manpower, and manpower need to be managed
• Customers will come by themselves because of the brand name - Yes, they will probably do so, but retaining a returning customers are paramount, and this is what most franchisee forget to do!
• To become an entrepreneur - Entrepreneurship can’t be bought! It’s action and hard work that make someone becoming an entrepreneur. Even in most franchising case, entrepreneurship is suppressed! Franchisors need people who can follow rules and guidelines, not people who try new things all the time.

If it’s not easy, why franchising is so appealing?

Franchising IS appealing. If you can follow rules and guidelines in a system, you are most likely to succeed. Creativity is usually encouraged, but it must be under franchisor’s approval. Following franchisor’s footsteps is highly encouraged - it’s the only blueprint to success.

Some words of advice on becoming a successful franchisee

Of course, it’s your job to choose the right franchise - bad franchise will always mean bad result for you, no matter how hard you try to improve your franchise unit.

So, do your homework - list franchises that you are having interest in, and contact them one by one. Don’t do this by phone! Meet face to face and have a conversation, because franchising is like having a family - You stick to your franchisor for a lifetime of your franchising agreement. No matter how promising a franchise is, if you are not comfortable with your franchisor, just move on.

Schmooze your franchisor! Spread good words of your franchisor to your colleagues. Give valuable advice. Help your franchisor solve business problems. You will reap what you sow in one way or another - good words on you, referrals, unexpected opportunities, etc.

Don’t team up with other franchisees to form a union against your franchisor! Network with other franchisees to develop and market the franchise, and most likely, your franchisor will help you with resources, including funds. Your franchisor’s fund for your franchise units benefit - sweet deal! :)

Patience is key. Franchise businesses do return your investment in longer period than other type of businesses. But the system will provide you longer business life cycle and longer period to reap for profit. If you don’t see results immediately, relax. In my experience, that is the typical franchise business - longer return on investment, even longer break even point.

The most important tip: Follow your franchise rules and guidelines. I can’t stop reminding you of this because it is very important. Most of the time, your ability to follow rules and guidelines will eventually determine your success. Trust me, I’ve been there.

If you have all the resources and mindsets needed, I highly recommend you to buy a franchise unit. Lower risk, longer business life cycle, longer period for profit - It’s heaven, IF you are the right person for franchising.

Related posts other people has read:

Buying a Franchise - A Good Way to Network and Get Some more Business

How to Choose the Right Franchise

Noobpreneur.com is On Top 50 Franchising Blog Post 2008

Purchase a Franchise or Starting Up Your Own Business?

How to Choose the Right Franchise - Episode 2