In a sense, franchising is a business model whose primary purpose is risk minimization. Every study ever done on the success rate of new (non-franchise) business startups concludes the same thing. Starting up a new business is very risky. Most studies show that over 90% fail within three years. The primary reason that the failure rate is so high is that the owners have to go through the learning curve of operating that specific type business.
Unfortunately, the market place is not very tolerant of the inexperienced neophyte trying to learn how to operate a new business. If you cant compete in the market place, you get eaten by the sharks very quickly, you go bust, you lose money, your credit, your home, your reputation and sometimes even your family. Failing in business can be a horrible experience. Unfortunately, this happens to thousands of poor souls every year in the U.S., and it is so unnecessary. Unless you have considerable experience in the specific type business that you are considering going into, it is very probable that you will fail.
Business format franchising is as close as you can get in today's marketplace for a guarantee of success. All the studies done have found that franchise new business startups rarely fail and when they do it is typically because the franchisee did not stick to the franchisers systems. In all human endeavor there is involved a learning process. This learning process requires going through a series of trial and error encounters wherein knowledge is gained by trying and failing, trying and failing again and again and eventually trying and succeeding. This process is generally called the learning curve.
In the context of franchising, the franchiser has already gone through the learning curve and has learned the secrets of success for the specific business. In business format franchising all that has been learned by going through the curve is transferred to the franchisee. This is fundamentally, why you buy a franchise, to minimize risk and give yourself the best possible chance to succeed.
Another reason why it is prudent to buy a franchise is that a franchise investment can be thoroughly researched before any significant expenditure is made. With a new business startup (non-franchise) you are always operating in the dark. No matter how much research you do it is very difficult to get a handle on so many aspects of the new business. With a franchise, the franchiser is a wealth of information about the business from how to prepare a pro forma to the best personality traits for the business. Nevertheless, the most important information comes from the existing franchisees.
With a good systematic approach, you can get answers to nearly all the key questions. Such as, Do you feel that you were properly trained, how long did it take before you reached break even, what is your annual return on investment, how do you feel about the day to day duties of the business and if you had it to do over, would you do it again? You can truly try the business on before you buy to make sure it is a good fit for you.
Another very important reason to buy a franchise is intertwined into its basic nature. Franchising inherently leads to rapid growth, because the franchisees provide the expansion capital. There are few restraints to growth in franchising. As a franchise, system expands into hundreds of units many positive things begin to happen. The name begins to become well known because people see it everywhere. Most people associate size with success. The bigger the franchise the better it must be.
The large number of units enables the franchise to advertise heavily, which tends to increase sales. A synergy begins to be created in which success begets success. The franchise begins to squeeze out competition through its sheer size. The franchise can buy products in large quantity at significant discounts, which it passes on to the franchisees. The synergy just grows and grows.
A recent Gallup Poll of franchisees found that over 94% considered them successful and that over 75% would buy their franchise again if they had it to do over. The same poll also found that the average pre-tax gross income was $ 124,290. As Mr. Spock of the original STAR TREK would say regarding franchising, " The Logic is Inescapable".
In summary the primary reason you should buy a franchise as opposed to starting up a non-franchise new business, is to minimize risk and enhance your chances of success.
0 comments:
Post a Comment