Would you like franchise with that?
February 22, 2017 6:51 PM Subscribe
Please tell me everything there is to know about franchise ownership.
There are a lot of aspects of franchise ownership I think I would enjoy a lot and also be really good at, and it's something I'm considering doing with my life on about a ten year time horizon. I know that's a long way off and all sorts of things could change by then, like the US might be a smoldering crater for instance, but I'm a planner and an eternal optimist, so.
(I don't know what kind (food? retail?) and I don't know that I even care all that much so long as it's a good investment. One thing that is really important to me is that if I get to hire people, I want to be able to hire the people I want to hire, like nonviolent offenders for example, so if corporate has lousy policies in that regard I'd move along. Etc.)
Anyway, obviously this is new territory for me. I'm pretty certain I don't personally know anyone who owns a franchise, so I'm looking for outside sources. Please link me to any articles and recommend any books (or anything else) where I can find more information! I'd be very interested in anything from an owner's perspective, overviews, inside baseball industry info, hard number crunching, scandalous exposés, you name it.
I'm also interested in hearing from any mefites who have ownership or manager experience in franchises and get those perspectives, too.
What are questions I don't even know yet I should be asking?
Thanks!
There are a lot of aspects of franchise ownership I think I would enjoy a lot and also be really good at, and it's something I'm considering doing with my life on about a ten year time horizon. I know that's a long way off and all sorts of things could change by then, like the US might be a smoldering crater for instance, but I'm a planner and an eternal optimist, so.
(I don't know what kind (food? retail?) and I don't know that I even care all that much so long as it's a good investment. One thing that is really important to me is that if I get to hire people, I want to be able to hire the people I want to hire, like nonviolent offenders for example, so if corporate has lousy policies in that regard I'd move along. Etc.)
Anyway, obviously this is new territory for me. I'm pretty certain I don't personally know anyone who owns a franchise, so I'm looking for outside sources. Please link me to any articles and recommend any books (or anything else) where I can find more information! I'd be very interested in anything from an owner's perspective, overviews, inside baseball industry info, hard number crunching, scandalous exposés, you name it.
I'm also interested in hearing from any mefites who have ownership or manager experience in franchises and get those perspectives, too.
What are questions I don't even know yet I should be asking?
Thanks!
Best answer: So I worked at the corporate office for a retail franchise. This is my sock puppet and I don’t betray any sort of secrets.
At the company I worked for, owners had quite a bit of control. All of their requirements were lined out in their franchise agreement. So ask to see the franchise agreement and just literally openly ask about things you have concerns about.
Ask them to give you yes/no answers and have a lawyer look over requirements. Tour corporate and talk to the people you’d be working with.
Then you need to see how much support corporate has and how much freedom you have. Do they offer additional services? Are there co-op groups for areas with lots of stores that will pool marketing efforts? Visit the other locations and talk to owners. Try to visit the top preforming store to see what they do to get there. Our franchise gave annual awards for store-of-the-year and so on.
Whatever you do, don’t rush into it. A franchise can give you nice building blocks but it can also keep you on too much of a leash.
You’ll also need to see what the real-estate is available and the cost of leasing a location. Some areas have strange zoning requirements which some of our owners ran in to.
I would also shop around between similar franchises. There are often pros and cons to each.
Some of the biggest mistakes I saw our owners make:
Didn’t follow our guidelines for sales, marketing, etc. They would just expect the business to run itself or would ignore all of our tools (they were often amazed that when they did follow our advice - they performed better.)
Did the bare minimum for franchise guidelines and marketing. Sometimes they would break the rules and would then be in violation.
Didn’t hire good staff or good managers. They tried to do too much themselves and so their “extra” things like social media would be tossed aside.
Some were honestly very bad at customer service. They didn’t respond kindly to any customer complaints and would get bad review, get into arguments with people, etc.
Lastly, some - even well-performing stores- would kind of be at odds with corporate. They would constantly want to change the way we did things. And while we didn’t always disagree it would cause a lot of stress between those owners and corporate. Corporate would always feel attacked and the owner would feel like corporate were idiots. It seems that those owners wanted more than we could give them OR really wanted much more control than a franchise can offer.
Some of the things our best preforming owners did well:
Had managers and staff that they trusted, trained, and paid well. They could hand off a lot of things.
They were quick learners with technology, social media, and advertising. If they weren’t fast learners they would rely on us and follow our advice or listen to their staff.
They were constantly looking at what they could improve. What was competition doing? Often corporate has a large overview but some areas had different things - with retail - even seasonally. We had stores where there wasn’t a winter season. So the advertising for December was different for those locations.
They understood the restrictions and rules of a franchise and worked well within them. They were strong people.
They could put their food down with bad employees or bad customers in a way that was still respectful.
They understood that corporate were also just humans and we all wanted everyone to do well.
I will not obviously (at least) publicly say where I worked or if I would recommend it….. I mean messages exist in this world.... soo...
posted by SockWombat at 9:13 PM on February 22, 2017 [2 favorites]
At the company I worked for, owners had quite a bit of control. All of their requirements were lined out in their franchise agreement. So ask to see the franchise agreement and just literally openly ask about things you have concerns about.
Ask them to give you yes/no answers and have a lawyer look over requirements. Tour corporate and talk to the people you’d be working with.
Then you need to see how much support corporate has and how much freedom you have. Do they offer additional services? Are there co-op groups for areas with lots of stores that will pool marketing efforts? Visit the other locations and talk to owners. Try to visit the top preforming store to see what they do to get there. Our franchise gave annual awards for store-of-the-year and so on.
Whatever you do, don’t rush into it. A franchise can give you nice building blocks but it can also keep you on too much of a leash.
You’ll also need to see what the real-estate is available and the cost of leasing a location. Some areas have strange zoning requirements which some of our owners ran in to.
I would also shop around between similar franchises. There are often pros and cons to each.
Some of the biggest mistakes I saw our owners make:
Didn’t follow our guidelines for sales, marketing, etc. They would just expect the business to run itself or would ignore all of our tools (they were often amazed that when they did follow our advice - they performed better.)
Did the bare minimum for franchise guidelines and marketing. Sometimes they would break the rules and would then be in violation.
Didn’t hire good staff or good managers. They tried to do too much themselves and so their “extra” things like social media would be tossed aside.
Some were honestly very bad at customer service. They didn’t respond kindly to any customer complaints and would get bad review, get into arguments with people, etc.
Lastly, some - even well-performing stores- would kind of be at odds with corporate. They would constantly want to change the way we did things. And while we didn’t always disagree it would cause a lot of stress between those owners and corporate. Corporate would always feel attacked and the owner would feel like corporate were idiots. It seems that those owners wanted more than we could give them OR really wanted much more control than a franchise can offer.
Some of the things our best preforming owners did well:
Had managers and staff that they trusted, trained, and paid well. They could hand off a lot of things.
They were quick learners with technology, social media, and advertising. If they weren’t fast learners they would rely on us and follow our advice or listen to their staff.
They were constantly looking at what they could improve. What was competition doing? Often corporate has a large overview but some areas had different things - with retail - even seasonally. We had stores where there wasn’t a winter season. So the advertising for December was different for those locations.
They understood the restrictions and rules of a franchise and worked well within them. They were strong people.
They could put their food down with bad employees or bad customers in a way that was still respectful.
They understood that corporate were also just humans and we all wanted everyone to do well.
I will not obviously (at least) publicly say where I worked or if I would recommend it….. I mean messages exist in this world.... soo...
posted by SockWombat at 9:13 PM on February 22, 2017 [2 favorites]
Best answer: My parents bought a franchise for a company that made signs for businesses - they did everything right at first (researched the right city and location within the city for growth, followed the guidelines, took the extra training and made sure their employees got it). But they ended up selling the franchise (at value, so they didn't take a loss, but it wasn't the success they had hoped) when they realized that while they had all the skills they needed to run the place together (my dad knew printing and operations, my mom did sales and human resources), they didn't work well as a team. So my dad stayed running the company and needed to hire a manager and salespeople to take my mom's place, and he kept running into personnel problems - because it was a higher-skilled job, but still basically working for a franchise, it was harder to get and keep quality people. Even though that slowed down their planned timeframe considerably, if they had kept the franchise for a few more years it would have been successful enough for them to retire on it. Unfortunately health issues intervened and they ended up having to sell it - the people who bought it from them were basically handed a fortune, and had it going successfully within two years.
So the lesson they took from it was, if they could have found a not-yet-successful or foundering-for-fixable-reasons franchise to buy rather than start a new one, that would have been a better bet, because the initial costs would have been lower. But it still would have meant rethinking how they would staff it. Hiring and firing (and how you do it) is more crucial than you might initially think. People don't think of franchises as being as good of a job as working for independent companies, and treat you accordingly.
posted by Mchelly at 4:08 AM on February 23, 2017 [2 favorites]
So the lesson they took from it was, if they could have found a not-yet-successful or foundering-for-fixable-reasons franchise to buy rather than start a new one, that would have been a better bet, because the initial costs would have been lower. But it still would have meant rethinking how they would staff it. Hiring and firing (and how you do it) is more crucial than you might initially think. People don't think of franchises as being as good of a job as working for independent companies, and treat you accordingly.
posted by Mchelly at 4:08 AM on February 23, 2017 [2 favorites]
Best answer: Most of what I know about franchising comes from the food/restaurant business, but I think most of it generalizes.
There is an inherent tension between franchiser and franchisee. Your interests are aligned in generating sales and satisfying customers. Your interests are not so aligned about how the profits are split. There have been plenty of franchisers who have viewed their franchisees as a captive customer base to whom they can sell stuff at high prices as a way of moving money from the franchisee's pocket to their own. This is often justified on the basis of quality control. Sometimes it really is quality control. Some franchisers have an elaborate "this is how we do it" education program, others just pocket the franchise fee and wish you luck.
Pretty much every franchise has a limited earnings potential, and you want to figure out what that limit is. It's higher for a McDonald's than for a Subway, which is why the former costs more.
When you do your due diligence, you want to talk to other franchisees, and not just the hand-picked few that the franchiser recommends. You want to figure out how the terms of the deal affect your specific situation. Example: A Subway had exclusive rights within a mile radius meaning no new Subways that close. A new one opened 1.1 miles away and took half his business. In his particular area, a one mile radius was not big enough. This is also a good example of the franchiser acting in his own interest without regard to the franchisee.
posted by SemiSalt at 6:32 AM on February 23, 2017 [1 favorite]
There is an inherent tension between franchiser and franchisee. Your interests are aligned in generating sales and satisfying customers. Your interests are not so aligned about how the profits are split. There have been plenty of franchisers who have viewed their franchisees as a captive customer base to whom they can sell stuff at high prices as a way of moving money from the franchisee's pocket to their own. This is often justified on the basis of quality control. Sometimes it really is quality control. Some franchisers have an elaborate "this is how we do it" education program, others just pocket the franchise fee and wish you luck.
Pretty much every franchise has a limited earnings potential, and you want to figure out what that limit is. It's higher for a McDonald's than for a Subway, which is why the former costs more.
When you do your due diligence, you want to talk to other franchisees, and not just the hand-picked few that the franchiser recommends. You want to figure out how the terms of the deal affect your specific situation. Example: A Subway had exclusive rights within a mile radius meaning no new Subways that close. A new one opened 1.1 miles away and took half his business. In his particular area, a one mile radius was not big enough. This is also a good example of the franchiser acting in his own interest without regard to the franchisee.
posted by SemiSalt at 6:32 AM on February 23, 2017 [1 favorite]
Best answer: I'm coming back to elaborate more, because I posted my answer at midnight after repairing a washing machine. It's probably not my most cogent answer, and I think this question deserves more than I was able to give last night.
I think SockWombat's list of dos and don'ts is a good one. But if you think about it, those same dos and don'ts can apply to just about any other situation as well. If you were to make a list of what makes a good independent business owner, or a good C-level executive at a Fortune 500 company, or a good partner in a law firm, or a good cabinet minister, you'd get a lot of the same things. Those things, plus a little luck, are common to all successful people. If you can succeed at franchise ownership, you can probably succeed at other endeavors. So why franchising?
I will reiterate what I hinted at earlier: franchise ownership is all of the bad stuff about owning a business (stress, uncertainty, etc.), without any of the good (independence). Likewise, it's the bad stuff of being an employee (being told what to do all the time), without any of the good (letting other people worry about the stuff that doesn't matter to you). It's the worst of both worlds.
Your ability to run your own business is severely constrained in a franchise. Are you interested in serving locally-grown organic produce? Too bad. Have you thought about decorating for holidays? Better get corporate's approval first. Do you want to send a message of support to a local sports team before a big game? Not unless corporate is one of the team's official sponsors.
You're also very likely to run into some unsavory people, especially in restaurant franchising. With all of the obesity stuff right now, things like soda taxes, your corporate office will have an army of lawyers and lobbyists, many of whom have cut their teeth representing Big Tobacco, Big Oil, and Big Pharma. Regardless of industry, you are almost certainly going to come across lobbyists fighting minimum wage increases and other labor laws. How comfortable are you giving money to these people? Because that's what your franchise fee is going toward.
Finally, think about what will happen if you run into trouble. One of my best new franchise owners got hit by a car three months after he bought his franchise, and had to abandon it, losing his down payment. My regional director actually said something like "it's sad, but if he can't run his business, that's a problem". I had another franchisee who was an Albanian immigrant, who took a vacation for the first time in twenty years to visit her family back in Albania. She left her business in the hands of a cousin, who made some mistakes, and in the two weeks she was out of the country, her franchise (by which I mean her career, her livelihood, her *life*) was revoked. These are extreme examples, but I only worked at this place for 14 months, with around 40-50 franchise owners. It's not as uncommon as you'd hope.
I just think there are better things you can do with your life savings.
Having said all that, if you're still interested, Entrepreneur magazine publishes what it calls the Franchise 500, which is kind of like the Fortune 500 of franchising. There's a lot of data you can use to compare different opportunities. It's pretty heavily pro-franchise, but if you read it critically, you can learn a lot.
posted by kevinbelt at 7:19 AM on February 23, 2017 [3 favorites]
I think SockWombat's list of dos and don'ts is a good one. But if you think about it, those same dos and don'ts can apply to just about any other situation as well. If you were to make a list of what makes a good independent business owner, or a good C-level executive at a Fortune 500 company, or a good partner in a law firm, or a good cabinet minister, you'd get a lot of the same things. Those things, plus a little luck, are common to all successful people. If you can succeed at franchise ownership, you can probably succeed at other endeavors. So why franchising?
I will reiterate what I hinted at earlier: franchise ownership is all of the bad stuff about owning a business (stress, uncertainty, etc.), without any of the good (independence). Likewise, it's the bad stuff of being an employee (being told what to do all the time), without any of the good (letting other people worry about the stuff that doesn't matter to you). It's the worst of both worlds.
Your ability to run your own business is severely constrained in a franchise. Are you interested in serving locally-grown organic produce? Too bad. Have you thought about decorating for holidays? Better get corporate's approval first. Do you want to send a message of support to a local sports team before a big game? Not unless corporate is one of the team's official sponsors.
You're also very likely to run into some unsavory people, especially in restaurant franchising. With all of the obesity stuff right now, things like soda taxes, your corporate office will have an army of lawyers and lobbyists, many of whom have cut their teeth representing Big Tobacco, Big Oil, and Big Pharma. Regardless of industry, you are almost certainly going to come across lobbyists fighting minimum wage increases and other labor laws. How comfortable are you giving money to these people? Because that's what your franchise fee is going toward.
Finally, think about what will happen if you run into trouble. One of my best new franchise owners got hit by a car three months after he bought his franchise, and had to abandon it, losing his down payment. My regional director actually said something like "it's sad, but if he can't run his business, that's a problem". I had another franchisee who was an Albanian immigrant, who took a vacation for the first time in twenty years to visit her family back in Albania. She left her business in the hands of a cousin, who made some mistakes, and in the two weeks she was out of the country, her franchise (by which I mean her career, her livelihood, her *life*) was revoked. These are extreme examples, but I only worked at this place for 14 months, with around 40-50 franchise owners. It's not as uncommon as you'd hope.
I just think there are better things you can do with your life savings.
Having said all that, if you're still interested, Entrepreneur magazine publishes what it calls the Franchise 500, which is kind of like the Fortune 500 of franchising. There's a lot of data you can use to compare different opportunities. It's pretty heavily pro-franchise, but if you read it critically, you can learn a lot.
posted by kevinbelt at 7:19 AM on February 23, 2017 [3 favorites]
Best answer: Definitely seconding looking at the Franchise 500 list, and I think another magazine (Forbes?) puts a different annual one out as well. Some are much better than others in terms of how much you're likely to keep of the profits and how many people who own franchises are able to make them successful. You really need to do your homework.
posted by Mchelly at 7:55 AM on February 23, 2017
posted by Mchelly at 7:55 AM on February 23, 2017
Response by poster: To answer the question of why, I like the idea of a franchise because what the business does has already been established as a thing. What would I do starting up an independent business? An independent business doing what? You're right that I'm pretty bright and creative, and I'm bright enough to know that my creative skills have limits. Working an entire business model up from scratch is not one of them. So that's a huge part of it. I'm really good at people, I'm really good at problem solving, I have a decent innate business sense, and I'm excellent with money. I'm not super confident at magicking something up from zero. Those are some of the reasons why franchises appeal to me.
...
I hope that asking a question like this literally an entire decade before I want to move on it suggests that I'm the kind of person who does her homework. That is why I'm asking this question.
posted by phunniemee at 8:09 AM on February 23, 2017 [2 favorites]
...
I hope that asking a question like this literally an entire decade before I want to move on it suggests that I'm the kind of person who does her homework. That is why I'm asking this question.
posted by phunniemee at 8:09 AM on February 23, 2017 [2 favorites]
Do you mind if I MeMail you? I obviously have a lot to say, but I don't know how much more you want to hear, and I don't want to take over the thread with 100 comments.
posted by kevinbelt at 8:18 AM on February 23, 2017
posted by kevinbelt at 8:18 AM on February 23, 2017
Best answer: I suggest visiting Unhappy Franchisee to see which franchises could cause you big headaches.
posted by tacodave at 2:07 PM on February 23, 2017 [1 favorite]
posted by tacodave at 2:07 PM on February 23, 2017 [1 favorite]
Best answer: We've been casually researching business ideas too, including franchises. I'm coming from a much less experienced place than the other posters here, but what I've learned is that there are franchises and then there are Franchises. Like, a Subway or a Dominoes: glorified babysitting, constant hiring and firing and rehiring of minimum-wage staff. But on the other hand, I have a friend who bought into a brand new franchise started by a colleague of hers, something to do with baby and preschool educational programming, and that seems like an excellent opportunity. Maybe, when the time comes, you can find something a little smaller that might be a better fit.
posted by bluebelle at 6:26 PM on February 23, 2017
posted by bluebelle at 6:26 PM on February 23, 2017
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One thing that's constant, though, is that you'll have someone from corporate on your ass pretty much constantly, and it's often for trivial BS. I don't know how many times I had to tell one of our franchise owners "hey, your toilets were so clean that I could eat sushi off them, but your shirt is untucked, so I have to write you up". Even if you're a top performer, corporate will generally see ways you can improve, and you have to take their suggestions. Personally, this defeats the purpose of owning a business. Isn't the point to be your own boss and do things your way?
One other thing: it's hard for me to shake the thought that, as a franchise, you are taking money from a mom-and-pop. This might be a personal thing for me. I got through college in part because my mom took on cleaning jobs at her office and her friends' offices to help pay my tuition. The whole time I was working for the cleaning company, I was thinking to myself that I was screwing over women like my mom. If she lived in the same city as I do, I literally would have been competing with her. The world can generally get by without another Burger King or Aspen Dental, but mom-and-pop businesses are often all their owners have in the world. I personally felt really bad about that. But I'm extremely sentimental, so your proverbial mileage may vary.
May I ask why you're considering buying a franchise instead of going independent? From reading your answers her on AskMe, you seem quite intelligent and creative.
posted by kevinbelt at 8:56 PM on February 22, 2017 [5 favorites]