Franchise Buying Advice: 9 Rules for finding your ideal franchise business
Over the last several years there have been significant changes to corporate employment in Canada – jobs have been offshored or shifted back to U.S. head offices; we’ve gone from long-term sole-employer careers to contract careers, where you’re only employed for one to three years, then you have to spend a bunch of months looking for your next gig. Many of our clients tell us that as they get older, this is getting more and more difficult; the jobs are also paying less than what they’re used to earning.
No wonder 35% of boomers are considering self-employment according to an October 2012 survey from TD Canada Trust. Well, there are a lot of options out there; franchising is WAY more than food or retail, and WAY more affordable than most people initially perceive. Here are 9 rules to help you find your ideal franchise business!
Rule #1: Ride Only One Horse!
Many people go into business part-time; with the attitude that “if I can make it work well enough, I’ll eventually leave my full-time job”. By part-time businesses, I mean a business where the only time it’s operational is when the owner is making time to be fully active in the business — this is usually the time that’s left over after a corporate job and family commitments are fulfilled. It’s quite common that this is when you’re tired and not fully capable of giving the level of attention and focus a new business truly needs. These are not the circumstances under which you want the market to have its first impressions of you!
We call this “riding two horses” — the corporate job is almost always like a fully trained racehorse; the part-time job is like a young, untrained colt or filly. If you put two real horses like these beside each other and tried to ride them both at the same time, think about how crazy it would be!
The only time I’ve ever seen anyone successful in riding two real horses is when they’re standing with one foot in each saddle; both horses are of similar size, strength and skill, and the rider can only go for a very short distance. It takes many months of training and tremendous skill to be able to perform this feat well!
The danger with this kind of “ride” in business ownership is that “falling” is inevitable; you usually fall in between the two “horses” and get trampled by both! Typical injuries from the split focus of “riding two horses” come in the form of spousal/family relationship stress; lower corporate job performance levels; financial stress; physical and even mental exhaustion, tremendous frustration from lack of results, depression, etc.
Unfortunately most part-time businesses fail, so we strongly recommend avoiding the trap of thinking “if I can make it work well enough, I’ll eventually leave my full-time job”.
“Riding only one horse” in business ownership is akin to devoting 100% of your focus to running that business, and significantly increases your likelihood of success, while simultaneously mitigating critical risk factors. Before you can devote 100% focus though, you need to:
- Have taken sufficient time to study and understand the marketplace and your prospective customer base;
- Be prepared to commit your full time and attention to the business, from its inception!
- Have identified the resources you need (staff, time, money, equipment, inventory, facility, etc.)
- Have created a detailed business plan so that you understand and are able to fund your business from inception through to breakeven
- Have created a personal financial plan to fund family expenses until the business is at a stage where it can begin to support you (often 9 – 24 months, depending on the type of business)
Business ownership is not easy, but for some people it’s exactly the right thing to do; for others, it’s not where they’re meant to be. If you want to truly excel though, in business (or in a corporate job), this high level of success requires 100% focus. The time when a new business needs the most from you is during the launch phase — the first 6 to 12 months, when you’re forging new relationships with customers, referral sources, suppliers — in short, when you’re creating the foundation of your business and its long-term desired reputation, so you’ll want to be there to observe the fine details and nuances of what’s working well, what’s not working, and what your customers like and don’t like.
One viable exception is where the Franchisor’s business model requires the hiring of a full-time manager from the beginning, so that the manager is running the business full-time, and you are then only required to manage the manager, usually for 20 to 30 hours/week during the launch phase, then 10 – 20 hours/week thereafter. This is still not an insignificant commitment, because in addition to the other financial requirements, you now have to also factor in the salary of a full-time manager during the launch period. Be cautious here — several franchisors claim that the business can be run as a passive engagement enterprise. To me, the true proof that a franchise can be run as a passive engagement model is where a number of franchisees who operate in this fashion are amongst the middle AND top performing franchisees in their chain. In too many systems, franchisees who use the passive engagement model are among the lowest performers.
Rule # 2: Avoid Shiny Things!
“Shiny Things” in business are businesses that are already up and running successfully, where someone else has created a good business model and lifestyle. We call them “shiny things” because many people see them and think something like ”hey, that’s a cool business; it’s making a ton of money, so I want one!”, or, “ that’s a great brand, anybody can run it, so I want one too!!
This is one of the most common and biggest mistakes I see people make when starting their own business — they become attracted to a business because of what someone else has achieved though that business, as a primary criterion for their search. This sounds like a pretty logical thing to do, right? Well, just because someone else is successful in running a business, this doesn’t guarantee your success. Yes, it’s important to know that a business can achieve your lifestyle and financial goals, and there will be significant opportunity in conducting your research to determine to what degree that’s possible, and more importantly, likely to happen. But not every business will suit your skills, experience and personality.
When you focus on “shiny things” as a primary criterion for your search, you’re VERY likely to focus on the wrong businesses and thus miss looking at opportunities that don’t have “surface shine”, but that have exactly what you need and want from business ownership!
Rule # 3: Know Thyself: Reverse-engineer the search process!
This is one of the most critical components to figure out, BEFORE you start your business search! It never ceases to surprise me that this is the one area that so many people spend so little time figuring out; instead, they spend ton of time wander through countless websites, franchise shows and business opportunity magazines, all the while hoping for that “I’ll know it when I see it” big ah hah moment that never seems to come – this is because they’re going about their search the wrong way.
It’s often been said in sales of major purchases that people buy emotionally and then justify their decision logically afterwards. Doing this when buying a business is very dangerous and significantly increases risk of failure! We take our clients through at least 8 to 10 “logical” criteria (i.e. structure of hours, # of staff, investment level, etc.), as well as several “emotional” criteria that identifies the most important “passion” connections (i.e. what type of work are you passionate about, what you don’t like to do, etc.). When you align the work you do with your skills and passions, this created optimum results — we call this WORKING SMART!
This is not as easy a task as one might think — most people have never bought a business before so they don’t know which questions to ask themselves or what factors to consider. It usually takes two to three hours of discussion with my clients before we’re able to identify which critical criteria are “must-haves”, and which are “would-be-nice-to-haves.” Until this is clear (what I call the Ideal Business Model, or Know Thyself), we’re not ready to start considering franchise options.
Getting to this level of understanding is the most critical stage in the search process because this becomes the yardstick against which you measure all your research. You can quickly qualify or disqualify concepts (during both early and deeper-level research) against how well that concept can satisfy your goals and dreams.
Rule # 4: Date a little, not a lot
There are a lot of interesting concepts out there and it’s quite engaging to look into bunches of them, but this is a huge waste of time and energy. Instead, we recommend that you look at only a few options; those being 2 to 4 business models that closely match your ideal business model. Be open to considering different industries, different business models and different investment levels, but you want to use your ideal business model as a bold pre-qualifier. Regardless of how “shiny” a business you’re thinking about looking at is, if it doesn’t match your critical criteria don’t waste your time researching it because you’ll never buy it!
Rule # 5: Do Some Dancing
As you begin to focus on these few options, now you’re ready to “dance” through the three phases of research. Phase 1, the “Franchisor Dance” stage, usually takes 2 to 4 weeks of phone calls, e-mails, seminars/webinars, etc. This is where you get information directly from the franchisor — such as marketing materials, a franchise agreement and Disclosure Document. At the end of this dance, you should have a clear understanding of 3 things:
1) what does a day/week/month in the life of a franchisee look like — in other words, what are the critical roles the franchisee has to do to drive success in their business;
2) What is the value proposition
- by the franchisor to you as the franchisee
- by you, the franchisee, to the end-user customer
3) What are the strategic differentiators
When you have a solid understanding of these, AND you feel that you have the skills and long-term motivation to do the type of work required of the franchisee, you’re ready to start Phase 2 – the “Validation Dance”, which usually takes 3 to 6 weeks to complete. This is the most important stage of your research! Why? Because this is where you truly find out how accurate all of the great and wonderful information the franchisor’s salesperson has told you is. We recommend talking to at least 8 to 10 existing franchisees — 1/3 top performing franchisees; 1/3 middle performers; 1/3 unhappy franchisees. This ensures a well-rounded perspective.
Rule # 6 – Fall In Love
As you dance through Validation, what you want is for one of your dance partners to get “prettier and prettier” — where you like one model better than the others; you like the people better than the others; you can start to see yourself running this business. Until this starts to happen, you want to continue looking at all of the businesses you originally selected as you started Rule #4. Once it does start happening though, you’ll want to shift most of your attention and energy towards that one business.
Ultimately, your research should answer all of your questions and concerns, to the point where you strongly feel that:
1) You understand what it takes to run the business AND your transferable skills and abilities ensure that you can do what’s required to drive success in the business
2) That you have a strong passion to do the type of work required
3) That you have strong conviction in the value proposition that franchisees offer
In other words, you’re falling in love with the business, BEFORE YOU BUY IT! If you can’t get to this stage, why the heck would you even thinking about buying it? After all, this will be one of the most important financial decisions you’ll ever make in your life!
Rule #7: Meet the Parents
Even though you’ve now you fallen in love with the business you want to buy, there are still two things that need to get done before you buy your franchise. You will want to attend a Discovery Day — this is where you’ll get to meet the franchisee support team and the senior management team (the “business parents”) — to make sure there’s a strong Values and Culture Fit, and that you’re comfortable with and have confidence in the franchisor’s capability to ensure you become successful in your business. You should not be expected to make a decision while you’re attending the Discovery Day, but you should be prepared to make a decision within 3 to 7 days of returning from this visit.
So, if you’re going to a Discovery Day, here’s the litmus test — you know you’re ready to attend a Discovery Day if you’re at the point of decision. If you like what you see, when you come back home you’re going to sign a contract and write a big cheque; if you don’t like what you see you’re going to close the file.
Rule # 8 – Prenuptials: Go to a FRANCHISE lawyer!
Once you book your flights to Discovery Day (yes, this is something you pay for in most cases), typically one to three weeks go by until you actually leave. This is the time to go to a FRANCHISE lawyer. Franchise agreements are significantly different from standard business agreements so you’ll want to have your agreements reviewed by a lawyer whose majority of practice focuses on franchise law. You’ll want to budget between $1,500 and $2,000 for this review. We recommend going to the franchise lawyer before your Discovery Day so that you can ask the tough questions and do whatever negotiating might be possible eyeball to eyeball with the senior executives of the franchise instead of over the phone — this way you can get a significantly stronger sense of the individuals you will eventually be relying so heavily upon!
Rule # 9 –Marriage: No One Is An Island!
It’s been said many times that a franchise is a “business marriage.” When you come back from your Discovery Day satisfied that this is the right opportunity, in the right industry, AND the right time, you are ready to sign on and launch your business! Be sure to take advantage of every resource available to you — for the first six to nine months you’ll be relying heavily on the franchisor for training, coaching and support, but don’t forget one of the most valuable resources to you — your fellow franchisees! These are the people who are doing what you will be doing day-in and day-out; many of them will have faced the same challenges you’ll be going through, and will also be able to help guide you to capitalize on opportunities within your immediate marketplace.
Buying a business is one of the most important financial decisions most people will make in their lives and “getting it right” will enable you to create tremendous freedom, long-term career security and financial independence. We call this LIVING WELL!
Getting it wrong can and will cause financial hardship, relationship stress and significant personal frustration. Getting it wrong isn’t just when a business fails — far more often, it’s being stuck in a business where you don’t like the work or the lifestyle, and thus you’re not performing at anywhere near your true capabilities. We call this just getting by, or EXISTING.
I believe the old saying “work hard, play hard” shouldn’t apply in business because over time it takes too much out of us. Instead, I believe in something far more liberating — “Work Smart, Play well!”
Gary Prenevost has been an entrepreneur for over 25 years’ and is one of Canada’s leading franchise experts. He has been involved in a number of successful self-employed businesses, both franchised and non-franchised. He helps mid and senior-level executives to objectively consider business ownership in franchising as a positive and viable career choice, exploring the best options that fit the individuals’ strengths and desires. This ensures greater success and quality of life, with less stress and more fun – after all, franchising is way more than just food & retail!