Considering Buying a Franchise? Learn from Expert & Author John P. Hayes at Franchise Expo South This Week
Yesterday we spoke with Dr. John Hayes who has recently written a new book tilted Take the Fear Out of Franchising. Dr. John P. Hayes will be at Franchise Expo South at the Kay Bailey Hutchison Convention Center starting Thursday January 12th through Saturday the 14th, where he will be a featured exhibitor between. Being a fan of the startup community, we had a few questions for him out of curiosity when it comes to creating a franchise or purchasing an already created one. He generously answered via email.
ILID: What does a startup owner need to consider if he/she wants their end game to be selling a franchise of the same business?
JH: Create the systems! The most important component of successful franchising is systems. Franchisees buy franchises because they do not want to create the system. Or they don’t know how. Or – this is most likely – they don’t have the money to experiment to figure out the systems that work. Franchisees don’t want to invent the wheel. They want to follow the proven system for marketing, sales, distribution, managing people, etc. Franchisors are successful when they can provide proven systems. Some people would say this takes the fun out of operating a business, but the majority of people are not cut out for developing new businesses. In fact, as becomes clear in Take the Fear Out of Franchising, that’s why people are forced to close their businesses. They run out of money trying to figure out the systems that work. They may invest their life savings and borrow money trying to get a business off the ground, and if they can’t do it, and they run out of money, they have no choice but to close the business and take their losses.
For those who succeed with a new business idea, if they want to franchise they must document the systems. Ultimately, that’s what a franchisee buys. Yes, of course, the name is important and the brand is important, but often times the name is new and the brand doesn’t really exist but people will buy a franchise because they like the idea, or they think it’s popular, and as long as systems exist to operate the business successfully the franchisee has a good chance of succeeding. The fear, of course, is that you will buy a franchise that doesn’t really have proven systems.
ILID: What are some of the best practices that set franchise owners up for success from a sellers POV? Documentation? Training? Marketing support?
JH: Success in franchising is a combination of documentation, training and support . . . but first and foremost a successful franchisor develops systems for how everything is to be done in the business. That’s why franchises are often called “turn key” opportunities. It’s a bit of a misnomer because some people think all they’ve got to do is buy the franchise, turn the key and voila they’re millionaires – and it doesn’t work that way. Franchisees have to be skilled operators. They need to have the personality for franchising – many do not. They have to be able to make good decisions based on the systems the franchisor provides.
It helps immensely if the systems are easy to learn, or they are easily transferrable through training classes that may last a week or three. Then it’s important that the franchisor mentors or guides the franchisee especially in the start-up phase of the business. Many franchisors today use videos to document their systems and provide training to franchisees. Live training events and mentoring by phone or Skype are also valuable. Prospects fear the possibility that a franchisor won’t meet their needs and requirements and there’s good reason for that fear.
ILID: What are some of the most common pitfalls that do not set up an owner for success and can end in squandered savings?
JH: No real systems! Why can McDonald’s sell more hamburgers than anyone even when McDonald’s doesn’t make the “best” hamburger? Why can Pizza Hut sell more pizzas than anyone even when Pizza Hut doesn’t make the “best” pizza? Systems! Good franchisors don’t get hung up on products or services. Instead, they meet the demands of the marketplace. Americans have made it clear that they don’t always need the “best” of any product or service. But they need it the way they want it when they want it, and franchise companies are there to provide what’s needed. Of course, some franchise companies, including food businesses but especially service businesses, provide the “best” quality products and services. But all franchisors are not created equal. Some are better than others. Some do not have real systems, or they are in the process of developing their systems while they’re selling franchises. This is to the disadvantage of the franchisee. The systems should be workable and proven. The systems should allow a new franchisee to step into the business and with some training and support immediately begin to transact business.
The fastest way to lose your investment in a franchise is to invest in a franchise that does not have systems. Another way: Invest in a franchise for which you are not a good fit. Again, many franchisors do not pay attention to the franchisee’s skills, values and qualifications. Franchisors need to sell franchises. They often believe that they can train anyone to operate their systems, but that’s not proven to be the case. As Take the Fear Out of Franchisingemphasizes: Some people are not cut out to be business owners. They should not be franchisees. And some people who become franchisees buy the wrong business. They’re attracted to a business because it’s “hot” but they lack the personality profile to be successful in that type of business. So often disgruntled franchisees are good people who merely bought the wrong business.
ILID: What should a franchise buyer look for in a franchise he/she is considering buying?
JH: Look for proven systems! What does it take to succeed with this business? Does it require a certain location? If so, what’s the franchisor’s system for finding locations? Does it require a certain type of marketing? Does it require certain types of sales people? Make sure you know each step that’s required to build a successful franchise and then make sure the franchisor has a system that shows you how to complete each requirement. Some people will complain that this takes the fun out of business, or this takes away the franchisee’s chances of making decisions, but successful franchisees will tell you that unless they have good systems there’s no fun in operating a business because the franchisee is constantly struggling to figure out what works. And they don’t have the money to figure it out! Consider location as a requirement. You can be certain that McDonald’s and Starbucks know precisely where to open a unit. They have systems for site selection and they use technology that dissects neighborhoods to show a franchisee where they should locate in order to reach the largest number of consumers.
No two site selection systems are going to be the same, but when you buy a franchise that needs a specific site, you must be sure the franchisor knows precisely where to locate the business. Prospective franchisees should also inquire about the skills needed to operate the business successfully. Ask for the names of the five most successful franchisees in the franchise network. Find out what those franchisees do and how they do it. A good franchisor will often give every prospective franchisee a personality profile to determine if they’ve got what it takes to succeed in the business. The franchisor can match the profile of a prospect to the profile of the top franchisees and determine if the prospect has what it takes to succeed. Take the Fear Out of Franchising offers readers a free profile to determine success in franchising. Prospective franchisees should also inquire about the success/failure rate of the franchise business. Forget about national data about franchising – it’s useless. Not all franchises succeed, but some franchise companies rarely ever have a failure. Buy one of those franchises, providing you’re a good fit and you have the money.
ILID: Are there authoritative lists that rate franchises and can they be trusted?
JH: It’s very difficult to find authoritative lists that rate franchises. And that puts more work on the shoulders of the prospective franchisee who must do the proper due diligence. The due diligence is not difficult to complete, but it’s essential to a franchisee’s success. Take the Fear Out of Franchisingincludes a chapter about how to conduct the due diligence. There is one authoritative list that is very revealing . . . the U.S. Small Business Administration tracks loan performance. They know which franchisees pay back loans and which do not. Every franchise brand that qualifies for lending that’s guaranteed by SBA is rated by SBA and included on the Franchise Registry. Brands that don’t perform don’t get future loans. Prospective franchisees can visit the SBA site for information about the Franchise Registry. Of course, many franchise opportunities do not qualify for loans guaranteed by SBA so these brands are not part of the Franchise Registry. But they’re still good opportunities. To determine if it’s a good opportunity for you, complete the due diligence that’s detailed in Take the Fear Out of Franchising.
ILID: Is there any reason why a startup business that requires a store front would not want to eventually sell franchises of their business?
JH: Not every business owner is cut out to be a franchisor. If you are operating a business from a storefront and you love what you’re doing, you may want to open, own and operate additional storefronts, but you may not want to become a franchisor. If you do become a franchisor, you must recognize that you’re no longer in the business of doing what you were doing! In other words, you loved selling widgets from your storefront. But once you become a franchisor, you are responsible for cultivating a franchise network that sells widgets but you may no longer sell widgets yourself. Franchisees are going to depend on you for training, support and guidance. Can you provide those services? Do you want to? Do you have the personality for it? Some franchisees are going to fail. Some are not going to do what you tell them to do. Some are misfits. And some will sue you. Are you ready to give up the joy of selling widgets for the trials and tribulations of becoming a franchisor? For some people, the answer is yes. They build their business with the idea of franchising it. But to be successful, they must be willing to transition from the storefront operator to the role of the franchisor. It’s not easy, but when it works it’s the greatest business of all. Imagine being responsible for helping dozens, hundreds if not thousands of people worldwide to become their own boss, securing their own financial futures doing something they love doing. Is there any greater reward in business?
About Franchise Expo South
Franchise Expo South (FES) is the premier event covering the franchise industry for the southern United States, and serves as the industry's one-stop shop for prospective franchisees. At Franchise Expo South, hundreds of the hottest franchise concepts and opportunities will be on display, and thousands of the most qualified prospects from the southern United States and other areas will be in attendance. Thousands of entrepreneurs and future business owners from across the United States will attend Franchise Expo South, looking for franchise opportunities. Visitors will have the chance to meet face-to-face with over 200 proven franchise opportunities in every industry, across every investment level, full-time and part-time. You can catch up with Dr. Hayes at the expo and have your questions answered. Register here.