Why People Invest in Franchises

by Chris Conner, President, Franchise Marketing Systems

The entire franchise industry has gone through enormous change and evolved significantly with the "Amazon Effect" impacting nearly every industry and business on the planet. Many have even surmised that traditional retail is dead and the entire concept of a retail store is extinct. The reality is that the market segment has just changed and has been forced to evolve. Franchising is a huge and diverse industry—from fitness gyms like RockBox Fitness to QSR Food service models such as Grab N Go Tacos and specialty retail boutiques which create value at the store level like Ideal Feet. The franchise industry continues to grow and thrive with new ideas and breakthrough franchise brands.

So why consider a franchise vs. just starting a business? A franchise essentially offers an entrepreneur a completed blueprint of a successful business based on a proven track-record. The Franchisor should have the experience and expertise to provide guidance and support to the new franchise owner to skip the learning curve and shorten the timeframe from opening to breaking even. The franchise terms and conditions are outlined in the franchise disclosure document or FDD and operational processes are documented in the Franchise Operations Manual. All of these documents provide a clear sense of what the Franchisee's responsibilities are to be an effective and efficient business owner while being compliant with the terms and conditions of the franchise.

As a franchisee, the franchisor has already done all the heavy lifting so the new business owner doesn't have to. The franchisor developed the idea, documented the financial model and business plan, tested the business model, and defined the franchise marketing system through promoting and selling the product/services through advertising and marketing.

A Franchisee can take advantage of these experiences and resources from the Franchisor and ultimately have a higher success rate than traditional business start ups.

A FRANCHISE ESSENTIALLY OFFERS AN ENTREPRENEUR A COMPLETED BLUEPRINT OF A SUCCESSFUL BUSINESS BASED ON A PROVEN TRACK-RECORD.

Perhaps one of the most difficult elements of building a business is establishing a professional and credible brand. A strong brand is what allows you as a business owner to marketing yourself, and create trust with consumers which ties in directly to your ability to create revenue. The barrier to entry is high for new brands to compete with more mature brands that have captured their consumer base. Buying a franchise is one way to lower that barrier to entry by leveraging an existing brand and credibility that the Franchisor has developed.

As a start-up business owner, it can be difficult without having a reliable support network and resources to support better decision making during the new business ramp up. As a franchisee, you’ll have the support of the franchisor as well as other franchises who in most cases probably have run into the same obstacles you’re encountering. Owning a franchise offers a nice balance between that feeling of independence and maintaining a comfortable level of risk. However, there is a cost associated with investing in a franchise over a new business start up.

A Franchise typically includes a requirement to pay an initial franchise fee to the franchisor and ongoing royalty fees as a percentage based on how much revenue your franchise generates. Franchising requires sacrificing a little independence and freedom, but offers greater security and support in a new business endeavor. Essentially, investing in a franchise is one way of minimizing your risk of failure and maximizing your rate of success due to leveraging a standardized and scalable business model.

What is the process of finding and selecting the right franchise brand and how do you analyze the market to make the best choice? Choosing which franchise to invest with is similar to the first steps of creating a business plan for a new business start up. Some things a prospective franchisee should consider are:

What kind of business might you like to own and operate? Each business requires certain daily responsibilities and skill sets, find ones that match up best with your skill sets and interests and odds are you will be happier in the long run.

Do you prefer to work more as an individual or as a team member? Some franchises require large staff numbers and teams to operate, others can be managed with a very low number of employees or even as a single operator.

How much capital is available to invest? A franchise which requires a physical store location is more expensive to operate and maintain than maybe a mobile business which could be run out of home office.

Is there a demand for that type of business in a particular market or area you are interested in? If your local or regional market is saturated with similar brands or offerings, it can be increasingly difficult to compete for new consumers. On the other hand, If the market doesn’t offer much competition, you might have a significant opportunity for the product or service your franchise would offer.

There are over 3,000 franchise brands active in the U.S. today. Many are some of the best brands and businesses the world has ever seen, others are not as strong of an opportunity. Get help when analyzing the franchise market and making a decision with this much importance, there are countless franchise consultants who can provide direction and support to help new franchise owners go through the franchise investment process.

ABOUT THE AUTHOR

Chris Conner has worked in franchise development since 2002 and began his career as a franchise developer with a Chicago-based franchise consulting firm. His work focuses on strategic planning, marketing and sales of new franchise brands, he has worked with several hundred brands to implement franchise platforms and bring these organizations into the franchise market. In 2009, Mr. Conner founded Franchise Marketing Systems, a full service franchise development firm with 26 team members based in Atlanta, Georgia which has provided franchise development services to new franchisors globally. Mr. Conner hold's a B.S. in Finance from Miami of Ohio and an MBA from the University of DePaul.

chris.connor@fmsfranchise.com