And God Created The Franchise

Jim Blasingame One of the questions I am asked most is, "What business should I go into? I know I want to do my own thing, but I don't know what."

These folks have the passion to be a small business owner, but are not passionate about anything in particular. God understood that there would be people like this, which is why he created franchises.

Purchasing and operating a franchise is entrepreneurial coloring inside of the lines. You get the rush of working without a net, without having to come up with all of the answers.

Starting from scratch; digging it out of the dirt; creating something from nothing, is not for everyone. In truth, those of us who operate this way know that that propensity is often more of a curse than something to be desired. But we can't help it. We are wired to operate on the unassigned frequency of raw entrepreneurialism, which truly is NOT for everyone.

If you want to set out on your own, and don't have a problem playing in a sandbox someone else built, you might want to consider buying a franchise. There literally are thousands. Maybe tens of thousands. From auto repair to air filtering. From carpet cleaning to car rental. From hamburgers to home improvement. You get the picture.

If you have decided that you aren't ready for the "doing your own thing" high wire act, congratulations. You are probably a good candidate for owning a franchise.

The bad news is that the franchise universe is very broad and can seem intimidating. The good news is that the fundamentals you should apply to conduct your research, regardless of the franchise you may choose, are basically the same.

To help us understand these fundamentals I call on Andrew Sherman, an attorney, an expert in franchising and intellectual property, and the author of a number of excellent business books. Andrew is also one of our Brain Trust Leaders.

In his outstanding book with the unpretentious title, Franchising and Licensing, Andrew identifies a number of key components in any relationship between a franchisor, the developer of the franchise, and a franchisee, the purchaser of the franchise. Andrew says that by following these fundamental keys, you will establish a strong foundation upon which you can build a successful franchise operation. There are many, but I am going to discuss four of the most important ones here.

1. A Proven Prototype
One of the things you should expect to get when you lay your money down for a franchise is a model that works. Period. Not only must the product be something you can sell, but you must be able to replicate that product over and over again without having to reinvent and modify as you go along. Indeed, the essence of the benefit of a franchise is that consumers seek out a franchise product because it is a known quantity. McDonalds may not have the best hamburger in the world, but whether you are in Moline or Moscow, you know it will taste just like the one you had in Meridian.

2. A Strong Management Team
Not yours. Theirs. Yeah, the folks you are writing the check to. You can't possibly imagine how much support you are going to need. A thousand questions. And that's just the first day. Check out the management team's credentials. Also, check out how long the key folks have been with the franchisor.

Not only do you need to know that you can reach out and touch someone at your franchisor's office, but you need to believe that person can answer your questions. There should be virtually nothing you can ask that they haven't experienced and anticipated. Here's a tip: If you aren't getting overwhelmed with support and answers during the due diligence process of qualifying each other (their franchise and your ability to pay and produce), how much support do you think you are going to get once they have your money? Don't forget, franchises are like buses, if you miss one, another one will be along in six minutes.

3. Sufficient Capitalization
Franchisors are just like all other businesses, they must have working capital to:

Grow. The best thing for you is for someone driving by your franchise location to have seen one just like it in the place they just left.

Innovate. You can't sell the same stuff forever. And since you are a franchisee, you can't introduce your own ideas. Andrew likes to tell the story about McDonalds franchisees in the south who were selling grits. Not any more. It's in the contract. But your franchisor must be able to provide the "grits" that your customers want.

Penetrate the market. You are going to be required to pay your franchisor some percentage of sales which, among other things, is to pay for brand development. Advertising and marketing. You don't want that money being used to keep the lights on.

Weather the storms. Into everyone's life a little rain must fall. There will be storms. Competitive threats. Deflation. Product obsolescence. Cultural and demographic changes. Ask your franchisor prospect how they have handled past storms and prepared for the ones that are surely around the corner.

Andrew stresses that you have a right to know exactly how financially strong your franchise prospect is. ASK!!!

4. Comprehensive Training Program
In order to make that "hamburger" look and taste just like the last one your customer ate, you must be able to learn how to do it yourself, and teach your people how. That training MUST come from the franchisor. You should, and will call others who are already operating a franchise like the one you are considering. One of the most important questions to ask them is, "How is their training program?"

As I said before, these are just a few of the critical areas to pay attention to as you select a franchise that fits you. There are many very important elements, each giving rise to a thousand questions. You should ask ALL of them, and if you don't get good answers, simply say, "Thank you for your time. Have a good life. I'm outahere." Whatever you do, it's OK to get excited about a franchise, but don't fall in love with one until you've FULLY investigated it, and actually written the check.

Write this on a rock... When the entrepreneurial sap starts rising in your bark, don't get frustrated or intimidated if you don't KNOW what you want your business to be when it grows up. Check out the world of franchising. Just think about it. You may be one of those people for whom God created franchises.

Andrew is a capital partner in the law firm, Katten Muchin & Zavis. Andrew's books are available wherever books are sold. If you are thinking about buying a franchise, Andrew's book, Franchising and Licensing is a critical resource that I recommend.

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