When is Franchising a good idea?

Many people interested in opening their own business quickly come to a crossroads, to do it by themselves and start something new or to join a Franchise. But how do you know Franchising is more advantageous than opening your own business? 

There are a number of factors that play into assessing whether Franchising might be a good idea, but these factors can generally be separated into a few categories. In the article below, we identify what these different categories are and explain how they can help you decide if Franchising is more or less advantageous for what you're looking to do.

Think about yourself first

Many people get so consumed in trying to figure out which plan will make them more or less money that they forget the most important part of the equation, themselves. Franchises significantly reduce the risk of business failure, as their models, offering, brand, etc. have already been time-tested and proven to work in markets. However, if you are a personality type that is not compatible with Franchising, then you can be sure that it won't be advantageous to you and won't ultimately be a good idea. Franchising involves a special balance, and many people aren't comfortable enough with that balance to really make the model work. We've written other articles on how to identify if Franchising is compatible with you, but here are some things you should be thinking about when deciding if the franchise model is right for you:

1. Do you like working with people and in teams? 
2. Are you comfortable with the risk and responsibility that comes from owning your own business?
3. Are you willing to go the extra mile, always? This means making sacrifices for your customers and your team members
4. Are you self-disciplined?
5. Can you accept the authority and direction of the Franchisor when you disagree?
6. Do you like doing things that might be uncomfortable to you? Do you live outside of your comfort zone?
7. You are resilient and able to quickly adapt to unforeseen changes

If your answer to the above questions was yes, then you will likely be compatible in the Franchise model. But these aren't the only things you need to think about. You need also make sure that your answers aren't likely to change 6 months or 4 years into your business, and that you are truly comfortable with somebody else ultimately calling the shots around the product/service that you are selling.

Do you know enough about the Franchise you want to buy?

Many people explore Franchising by using a bottom-up approach. This means that they start with the things in their life that they interact with and like, and they reach out from there. While this is a great starting point, there are certain problems with this approach:

How many people like you are there in the market?

People often let their own biases cloud what should be an objective decision. You might think that Nike is a good brand to invest in because you wear their shoes all of the time and they hold up, they have celebrities that you identify with in their commercials, and they have huge stores and a good online presence that you find easy to use when you want to buy a new product. These are all great things to think about, but they're only important because in the case of Nike, you are thinking the same way as everybody else. This means that the customer base for their products is large.

Take a different example: you absolutely love Hawaiian sea shells and you order online to your home in Ohio from a woman who lives in Hawaii and makes custom sea shell accessories for you. Everything is made at time of order specially for the person. Again, you love the product, you identify with the lifestyle that the 'brand' is selling, and you find the ordering easy enough. But, is this still a good business for you to open in Ohio? Well, how many other people in your hometown have the same passion for seashells and are willing to purchase them? Also, if you open your own Ohio-based seashell business, how are you going to get the Hawaiian shells and maintain a decent cost? 

The example of Hawaiian seashells might sound ridiculous, but just like the budding business owner in Ohio people make biased decisions every day. It's critical to remember that while you liking a product/service is a great place to start, you need to ask how many other people like you in the market will similarly like it enough to pay for it. There's a Franchise for everything these days, and pairing it to what you like is an important part of success, as long as you're not too special when it comes to your taste.

Are you able to Franchise the companies you want?

Let's use the Nike example from above again. Most people would jump on the chance to open their own Nike store for all the reasons above. The problem is that Nike doesn't franchise. 

Similarly, if your favorite restaurants require a net worth of at least $3 million and an upfront investment of around $2 million, chances are they are inaccessible to you. The good news, though, is that there are likely other brands with strong performance, potential, and regional or market-based brand strength that you can invest in. You should always be cognizant of the fact that just because a Franchise is 'big' doesn't mean it's right for you. The 'right' Franchise should be one that has:

• A service/good that you like
• A history and clear track record of success in their market
• Solid support systems in place
• A plan for future growth and success, ideally through continued new-market expansion as opposed to territory splits
• A process that actually allows you to get involved (most people would not be eligible for franchising with any of the 3 brands mentioned above)
• Strong unit-level economics

You might order from Domino's Pizza or Pizza Hut in your hometown right now, but since you haven't worked there as a manager and/or don't have over $1 million to invest you're probably not eligible to open your own. But, if pizza's what you love, and you think you've got the right mindset for Franchising why not find another brand that gives you the same opportunity as Domino's and introduce it to your town? Yes, opportunities like this really exist! Our company, Pizza Hotline, has been in operation for 35 years, with number 1 market share for over a decade and average-unit-volumes of approximately $1.4 million. The safety, proof of concept, strong systems, experience, and high income potential are all there. But in this case you also have the opportunity to actually own a Pizza Hotline Franchise. And not only that, but you can own multiple as the company continues to grow!

In our opinion, the opportunity for growth in the Franchise should be a requirement for anyone looking to get into a Franchise model. Not only does it indicate health of a brand, but it gives you a built-in mechanism to continue to grow after you open your first store that otherwise will likely not be available. In these cases a good idea can become a truly great one.

The take-away

If you're trying to decide if Franchising is a good idea, or when it is more advantageous to Franchise than to open your own concept there are a few key take-aways to remember:

1. Franchising serves to empower you with a toolbelt of tried and true policies, procedures, goods/services, etc. that have already shown success. Thus, the risk of a strong Franchise should be lower than starting your own concept, however if you're not the type of person that can do well in a Franchise model then you should stay away
2. You need to do your homework to find a Franchise model that pairs well with your personality type as well as your goals and current situation. Franchises range in their fees, training, supports, etc. and you need to make sure that the one you're signing up for is accessible to you and compliments what you're looking for. Franchising is a calling, not a job, so you should make sure that the calling is one you actually want. 

While figuring out if Franchising is a good idea or not might seem daunting to people looking to get into a business of their own, by following the two above take-aways you should be able to boil down the decision to definitive yes or no on if Franchising is advantageous to you.