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Thread: Does Owning A Franchise Guarantee Success?

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    Queen of the Forum Array KristineS's Avatar
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    Default Does Owning A Franchise Guarantee Success?

    I've been doing a lot of reading about this subject, since one of our companies sells supplies to commercial embroiderers. It seems that a lot of embroidery franchises are promising their franchisees that owning a franchise will guarantee success. While it's true a franchise may give you name recognition and provide some training, it is ultimately up to the business owner to make a success or failure of the business.

    I've always believed that. What do the rest of you think?

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    I had a friend in Switzerland that went into a hair salon franchise. At the time he thought it would be easier on him financially sine the head company provided him with all the equipment. Years down the road he learned that the franchising business, besides hard work, can be downright brutal. The company keeps making demands each year while he had absolutely no say in the products he carries and service he provided.

    I guess it all depends on the franchise contract. Reading the small print is definitely an absolute must.

    As for the failure or success of the business, I think it is true of every business, regardless of the fact that it is a franchise or not. One of the most common misconceptions young business people have is that they are free to do what they want and work when they want.

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    Member Wearing Out Keyboard Array Coach Morse's Avatar
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    Quote Originally Posted by KristineS View Post
    I've been doing a lot of reading about this subject, since one of our companies sells supplies to commercial embroiderers. It seems that a lot of embroidery franchises are promising their franchisees that owning a franchise will guarantee success. While it's true a franchise may give you name recognition and provide some training, it is ultimately up to the business owner to make a success or failure of the business.

    I've always believed that. What do the rest of you think?
    In my experience having a franchise is no guarantee. Failing in business is just as easy with a franchise as without one. As a franchisee I experienced being on the verge of bankruptcy and the franchise offered no protection. I've also coached franchisees back to profitability who were right on the verge of failure.

    Many franchises can claim very high success rates (or low failure rates) because they hold the master lease to each store. If an individual owner fails, the company takes over and continues to run the store, so it "technically" never closes. I believe, and more statistics continue to verify, that failure rates among traditional businesses and franchises are virtually the same.
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    Queen of the Forum Array KristineS's Avatar
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    Quote Originally Posted by Coach Morse View Post
    I believe, and more statistics continue to verify, that failure rates among traditional businesses and franchises are virtually the same.
    See, that's the stuff more franchisees need to be told. I think some people go with a franchise thinking that it will be a safer bet and easier to succeed. I wish there was a more realistic picture out there about what a franchise is and how one works.

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    I agree that the downfalls should be made more easy to find to the potential franchisees, however at the same time, i think that the lack of seeing it for themselves before hand comes from the common nature of people to want to make an easy dollar.

    While it may not really be an easy way to make money by owning a franchise, it is in many ways i would assume to some extent easier then opening your store in the same market, with no experience. But this then all comes back to the one key point, if you are going into a business, you need to know something about that business, you cannot just walk into a business with no experience be it a franchise or your own business and exect success just because the franchise system provides you with a fully worked out plan does not really change this.

    Owning a franchise i do not think guarantees success however it should improve your odds to a certain degree, depending on the type of business. If you went to a major shopping center and wanted to open a coffee shop, and call it "Joe's coffee to go" you would probably even have a hard time getting a lease in the center, let alone have people rushing to get to your store, where as if you had a franchise like "Starbucks", the first point is the lease would probably be already arranged by the franchiser, plus it is a known business and people would already know what to expect, and i think the success would be quite a lot easier, although should not be guaranteed.
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    Queen of the Forum Array KristineS's Avatar
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    I think you're right Joel, with some franchises there would be a certain amount of name recognition and customer expectation already built in. So that might be a benefit.

    You still, however, are going to have to work hard and you still might fail. I think that's where franchisees get burned sometimes. They think that a recognizable name means guaranteed success.

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    I do totally agree with you Kristine, and i think that a large part of that stems from the promises of locating the business and the systems run the business for you that is made by many franchise systems.

    However the biggest killer for many franchise businesses is the cost in getting started, which is not always as easy as you would think to regain. For example some of the retail or coffee shop franchises in Australia are going for anything from $300,000 to $500,000 or even more depending on location and size of store. When you think that while many businesses do stay in a location for many years, this is a lot of money to put out when most retail leases are 3 to 5 years, with longer options. Also often associated with the renewal of a lease shopping center's often require new fit-out for the store to refresh the center a bit, which is another large expenses for you just down the track a few years.

    All of this is before you even think about the fact there are franchise fees and such involved along the way as well.
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    Queen of the Forum Array KristineS's Avatar
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    Good grief, I didn't know the cost of starting a franchise was so much. I'm guessing there must be businesses over here that have the same steep fees as well. Wow, with a fee like that, you'd have to do a lot of business just to recoup start up costs.

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    Quote Originally Posted by Coach Morse View Post
    In my experience having a franchise is no guarantee. Failing in business is just as easy with a franchise as without one. .... I believe, and more statistics continue to verify, that failure rates among traditional businesses and franchises are virtually the same.

    That's a very interesting point, Coach. It also seems like some franchises I've seen really aren't in the business of whatever the business is. Instead, they're in the business of selling franchises.
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    blogdog, you are absolutely spot on, franchises are in the business of selling, franchises. While some do maintain a small group or even anything up to half the stores as company owned, many don't.

    Seriously which business model would you prefer, spending however many thousand dollars to start a business, and then do the same over and over again setting up each store and incurring the costs. Or would you prefer to do this once or twice then recoup the costs by selling the model to investor's who want to own a business without all the guess work or starting from scratch, plus make a nice profit on these sales, and then make an on going 2-10% of revenue of all the businesses that you sell to these investors.

    I know which option i would prefer and which option would make a lot more money for a lot less risk. Because you are transferring the majority of the risk to the investor purchasing the franchises.
    Joel Brown
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