There are lots of myths, misinformation, and even lies about buying a franchise that can cause you to make bad investment decisions. Franchise companies, franchise salespeople, and even franchise consultants do a great job of touting the success rate of franchises.
Because of these franchise myths, hundreds and thousands of people all over the world have bought a franchise that the franchisor should never have sold them. They were not fit to sell franchises in the first place.
Please don’t make the same mistake!
Buying a franchise has been touted as a virtually risk-free way of owning a business. The message delivered in countless franchise brochures and sales pitches is that buying a franchise turns business ownership into a much safer investment.
Business franchising is essentially a mechanism to deliver a product or service to consumers. The more consumers a business can reach, the healthier its profits are going to be. But to reach those consumers, a company will need large amounts of capital to develop new sites and open new outlets. Franchising allows companies to attract investment and expand quickly, while allowing franchisees an opportunity to run their own businesses marketing a proven product.
It’s a win-win situation right?
Wrong!
There are all sorts of potential problems in franchising — problems that can blow away a franchisee’s capital and leave him or her stuck in a franchise relationship that offers nothing more than frustration. These aren’t the kind of problems you’re going to read about in most of the literature on franchising.
When people think of franchising, they think of business ownership and success. They see the advantages of owning a franchise and the benefits of becoming a franchisee. They imagine:
- Buying a proven business model.
- Complete training in their chosen business.
- The advantages of name or brand recognition.
The bottom line is that franchising is often SOLD on the promise of success rather than on the merits of the individual franchise company.
Franchising clearly promotes the idea that you will have more chance of success as a franchisee than if you were in business on your own. In reality, the risks of owning a successful franchise are much higher than the franchise industry would have you believe.
Franchising — According to the Franchisors
Let’s look at what you’re being sold by the franchise industry. They’ll tell you that you can expect a caring and considerate franchisor, someone who is always there in a crisis, someone to guide you through the unknown, someone who is experienced in business as well as franchising, someone who is supportive and can fix your problems — they’ll have you believe you’re in a father/son relationship.
And on top of all that support, they’ll also give you a strong brand that will attract customers, and training to keep them happy. Understanding the true relationship between franchisor and franchisee is crucial to succeeding in the franchise industry.
The franchise industry has made a lot of promises. The most important of these is that franchising is a safe investment. One statement used widely in the past is that “only 5% of franchises fail in the first five years of business.” Another is that “80% of non-franchised businesses fail in the first two years.”
These figures lead would-be business owners to believe that franchising offers a low-risk entrepreneurial opportunity. The statistics are way off. In reality, thousands of franchisees FAIL every year. The promise by the franchise industry that franchising is the easiest and fastest route to success is not only a lie, it’s downright negligent.
Let’s be clear about one point. There are successful franchisors. We see them everyday of our lives, and we buy their goods and services. But for every successful franchisor there are many more that trade-off the reputations of these well-known brands, and even some of the most successful franchises have their drawbacks.
You would expect that as a franchisee, there would be laws in place to protect you.
Well, in reality there aren’t!
All the franchisor has to do legally is disclose all of the details of the franchise to you. Once you’ve signed, if problems arise later in the relationship (which is anytime after the Franchise Agreement has been signed) you will have waived any rights.
The pitfalls of franchising are many and serious. But only by understanding all of them will you be able to make a fully informed decision on the franchise you are appraising.