10 Myths & Misconceptions of Franchising
Franchising is a great way to test your entrepreneurial skills, but be aware of these misconceptions.
Franchising is a fantastic way for entrepreneurs, especially first-timers, to test their skills and passion in the world of small business ownership. As more executives leave Corporate America to pursue a career in business ownership, franchising serves as a viable option for many first-time entrepreneurs. Franchising offers a taste of what it’s like to own a business with the security of a proven business system. Franchises come in all shapes and sizes, in varying industries and with investment plans designed to fit almost any budget. Franchising offers some wonderful benefits to owners but with so many options, it is vital to do your homework before making the decision to buy into a franchise. Caution and thorough due diligence is essential because as with most things, there’s good, the bad, and the ugly with franchising.
With over 34 years of experience in the franchising realm, from both the franchisor and franchisee’s perspectives, I have seen significant growth in franchising interest. As with all business endeavors, the decision to buy into a franchise is not to be taken lightly, and there are many aspects of franchising that you should consider. Weighing the pros and cons of franchising is a good start, but you will also want to look at investment costs, success rates, advertising and royalty fees, franchisee satisfaction within the network, and so much more. While you are on your educational journey, be aware that there are many myths and misconceptions in regards to franchising. The best way to dispel these myths is to thoroughly explore what your options are, but for ease of information, we have gathered the top 10 franchising misconceptions that all prospective franchisees should be aware of.
Franchising is too expensive. One of the great things about franchising is that it is suitable for every budget. Many franchises can be started for less than $500,000 and some, such as CruisePlanners or 7-11, can be started for less than $10,000. Other than the one-time, upfront franchise fee and royalties, the expenses would not be different from most other businesses. Franchising investments can be fitted to your own budget, but remember, those costs may come with several benefits that a start-up would not.
I can’t manage a business that I don’t have experience in. Yes, you can. The beauty of franchising is that it offers opportunities in every industry and comes with a plan designed for success! This is a great opportunity to pursue a career in a field of your choosing where you will receive training, ongoing support, marketing materials, products, and a business plan from a tried-and-true corporate partner.
The only franchising opportunities are fast-food and retail. For many years, franchising was dominated by the retail and fast-food industries but not anymore. Prospective franchisees can find a franchise opportunity in almost every industry – and a successful one, at that. On an annual basis, Entrepreneur Magazine releases a list of Top Franchises, and some of the best ones aren’t just in food or retail, they are in hospitality, auto services, disaster restoration, fitness, elder care, and communications.
Success is guaranteed. While brand recognition, location, and a developed business system can take you far, the benefits of franchising do not automatically guarantee you success. Franchisors promise to offer the tools to succeed, not guaranteed success, and if they do, that is something to be very leery of. Owning a franchise is hard work and the only person responsible for the success of your business is you.
The franchise can function without me. Wrong again. Franchises are not the type of business you can invest in and then sit back and collect a paycheck. If that was true, the franchisor would have no use for the franchisee. While some franchises do offer an absentee option, most are going to require at least some work on your part. As the owner and key investor, you have a vested interest in the success of this business and thus it would behoove you to be actively engaged.
Franchising is easier than starting a business. In some ways, this is true. Franchising allows you to bypass the startup activities such product development, vendor selection, business planning, and sourcing investors. But don’t be fooled – skipping the initial startup steps doesn’t mean the road ahead of you is going to be any easier. Franchising still requires all of the same skills and responsibilities as if you started a business from scratch, such as managing employees, cutting costs, processing payroll, and working long hours, etc.
Choose a franchise with name recognition. Branding can work for or against you – if the national brand has success, you will draw in more people but if the brand is flailing or has experienced a public relations fiasco, your business will feel the pain. As novice entrepreneurs, it is easy to believe that a strong brand will equate to a successful business but people are not as brand loyal as we may think they are. The brand should not be at the top of your list when searching for a franchise – things like ROI, success rates, structure, product quality, and initial investment should be.
There’s too much corporate control and no room for creativity. In many cases, not true. Outside of the initial business plan and proven revenue-generators, you are mostly free to manage the business the way you see fit, as long as you abide by the franchise guidelines. You still have the power of a traditional business owner and make the decisions on items marketing or hiring and firing. Contrary to this misconception, many franchisors welcome new ideas and encourage franchisees to utilize their creativity for the good of their franchise and the franchise system.
Franchisors only care about the fees and not about my success. Franchisors want their franchisees to be successful! Without successful franchisees, there would be no franchise and they would not be able to collect royalties. Unsuccessful franchises damage the brand and deter potential franchisees from seeking opportunities. It is in the best interest of the franchisor to help their franchisees run a successful business.
Exiting the franchise is easy. Generally speaking, exiting a franchise is more difficult than exiting a business you outright own. The most effective way to cope with exiting a franchise is to read your contract so that you know what to expect during the exit stage. Oftentimes, franchisors want to protect their franchise market and most franchise agreements contain post-termination non-compete provisions. Exiting a contract early may also result in expensive fees and/or litigation relative to terminating the contract.
Choosing the right franchise can be a process and we hope we have helped debunk some of the myths you may have heard. Once you have narrowed down your search to some final contestants, we recommend getting in touch with current or previous franchisees to ask some of the deeper questions. Franchisors will often recommend that you speak with the top franchisees, but you will find that you can learn much more about the model, the franchisor, support, and exiting the franchise from average franchisees or past franchisees. Many of our intermediaries (myself included) have owned franchises of our very own and can assist you on your journey to entrepreneurship. We have also sold dozens of franchises over the years, and we recommend checking to see if we have any franchises listed for sale right now. Entrepreneurship is a way of life and we commend you on taking the first step to following your dreams.