PDA

View Full Version : most successful: franchise or a new business



rezzy
02-20-2009, 02:24 PM
How successful are franchises versus new businesses?

I know franchises have some pretty steep startup costs, that can make it less advantageous. I have considered opening a store front business, because I think it can maintain and market itself, at some point.

vangogh
02-20-2009, 04:06 PM
Can't say I know all that much about franchises, but it seems to me the main selling point is you get to start with a known brand. Take McDonalds. If you open one people already know who you are, what they can expect, etc. If instead you opened Joe's Burgers you have to work to build that brand.

The other advantage is in the marketing the franchise does on your behalf. I'm sure I'll see a commercial for McDonalds before the day is out. I won't see one for Joe's. I think franchises will also offer training in what works for their franchise.

Of course all that comes with a cost and being locked in to doing some things the way the franchise insists you do them. I'm guessing you can't buy a McDonalds and then start selling hot dogs for example Maybe you can, but I can't recall every seeing anyone try and I would think it's because the franchise says no.

You pay the franchise for all the things they give you to help you in your business. Depending on who you are and what you want to do and whether or not you can afford the cost, it might make sense.

rezzy
02-20-2009, 04:15 PM
From my understanding it can cost upwards of 100,000- 200,000 for franchises. How long does it take to make the investment back?

Dan Furman
02-20-2009, 04:28 PM
From my understanding it can cost upwards of 100,000- 200,000 for franchises. How long does it take to make the investment back?

I think that would vary on the franchise in general.

Franchises can be good for corporate people who take a buyout, etc - someone who has solid management experience, but doesn't really have that "bootstrap" mentality. The franchise, because of the rigid structure (besides the things already mentioned, they also have a proven way of doing business - that's part of what you are buying), are perfect for that kind of person.

I'm not sure if a franchise is the best idea for someone who really wants to go out on their own, though. Part of the reason I am in business is I do not want someone telling me how to do something. I'll cook the burgers the way I want to, thank you very much.

Thus, I would not be a good franchise owner. :)

CraigFLA
02-20-2009, 04:42 PM
It depends what kind of person you are. Franchises make the rules for you. It's just like working for someone. They sell you the formula and provide the training and financing but you are a slave to them. You make small amounts of money off of large sales. If you start your own business, you are independant. You get to carve your niche on your terms. I don't think I could work for anyone ever again and that includes franchises.

Steve B
02-20-2009, 05:15 PM
Wow, what Craig said.

The only thing I would add is that if you're totally clueless about running a business, the franchise route might be best for you. A friend of mine is very happy with his franchise and he seems to be doing pretty well. He could have never started a business without their help, so for him it was the only option for getting out of the corporate world he was in. For me, it would be like buying a job and a boss.

vangogh
02-20-2009, 05:30 PM
Franchises aren't for me either. I like the independence of running my own business and setting my own rules.

It really depends on the person though. I've worked in a couple of franchises and the owners seemed fine with them and made good livings. Just a different personality type. I'd guess most of us here would be the type not to own franchises, but I don't want to knock them. I think for the right person they can be a great way to own a business.

Patrysha
02-20-2009, 06:20 PM
How much freedom you have depends entirely on the franchise. Some give great support and others give no support while tieing your hands and preventing innovation.

McDonalds was actually quite good for those with an entrepeneurial streak (at least in the old days...how it is now...I really don't know) - it was individual franchisees who invented things like Egg McMuffins & Filet o' Fish in response to local market pressures. It was franchisees who came up with the idea of combining forces to buy advertising in the markets they shared, and who initially came up with the clown as a mascot...so the communication went both ways and new ideas were welcomed and tested. If I recall correctly at one point they did try rolling out hot dogs in some markets, but they didn't catch on.

Yeah, I'm a nerd...I've read up on the history of McDonalds (and thought it was really fascinating...yikes)...among other weird topics.

vangogh
02-20-2009, 08:03 PM
Yeah, I'm a nerd...I've read up on the history of McDonalds (and thought it was really fascinating...yikes)...among other weird topics.

You're not the only one with strange reading habits. You should see my library.

I don't know everything about McDonalds, but I think they make an interesting case study for any business to read. There are good reasons why they're so successful and it's certainly not the quality of the food.

rezzy
02-21-2009, 06:40 AM
I think everyone is missing an important part of having a franchise and is purely getting caught on a boss over them...

Franchises give you a security blanket and protect you. The company handles the marketing and almost guarantees you a customer base.

With a home owned business, for instance Rezzy's Burgers, I have to create the menu. I am no culinary expert. Without out the "company" behind me to give me the cooking skills, I couldnt have had the opportunity otherwise.

Running a franchise has always been a side thought, but the uncertainty about that type of business has always kept me from making the jump. My curiosity is about the profit margins with running such a business.

Has anyone come across any resources about prospecting for a franchise?

CraigFLA
02-21-2009, 07:53 AM
I actually considered a McDonalds franchise some 15 years ago and did interview with them. In order to get started, I would be required to work in their restaurants for several years at peon wages learning their business. After that, I could get a single restaurant in some unknown location (I needed to be flexible), financed by them. While they do the marketing and the name brand gets you automatic business, a reasonable working wage cannot be had with a single location. Because the McDonalds formula for success requires you to follow it exactly-- because no matter which place you go to you can expect the same food-- you are unable to substitute to save money. For example, you need to buy your McMuffin buns from them even if you could get them 20% cheaper from somewhere else.

I think you would find that the places with the most guaranteed road to success would be the most controlling ones.

rezzy
02-21-2009, 10:07 AM
Craig: How much money do they normally want as a downpayment?

How long do you think it would take you to be able to step out of the business and let it run on "autopilot" without having to actually run it?

I see owners who work their business everday, my goal is to get the business to a point where it runs without me and I can focus on other business opportunities or stores.

Patrysha
02-21-2009, 10:56 AM
Rezzy,

I think you're mistaken that having a franchise protects you. Sometimes the franchise changes hands several times - the location stays, but the ownership changes. The Subway franchise in town has two locations and has changed hands three times in the past four years.

Yes, they provide training and arrange for marketing, but you are paying for it. First out of your deposit and later out of your gross sales at your location. In most franchise situations a percentage goes back to the franchiser. They don't provide the services out of the goodness of their heart.

In many cases you do not have a say in what corporate does with the funds once you've coughed them up. For instance the Taco Time franchise here in town...corporate has decided that they will only purchase radio time on Rock stations. However in this town the country station has the lions share of the market and in truth the frachisee never hears his own commercials because it's tuned to the other station in the store. The marketing agency wouldn't even listen to him --the person on the account is lazy and doesn't have any interest in differentiating their buying patterns for the individual franchisees they just do what they've always done and use the cities as the base of their trends.

The Quiznos location has been open two years and the franchisee is still onsite a great deal of the time.

The A&W is the one franchise in town that I don't see the owners there all the time (they also own the Tags franchise) - I believe that took them about 10 years to achieve (I could be wrong on the timing but that's what I recall from when they were presented with an award last year).

The M&M meats location has been open four years now and the owner is on site only a couple of days a week now...she's been working towards having a manager take over most of her duties on site. Of course, that's not the only business interest the family has in town.

From what I've seen, franchises are a great way to make a decent income, but they aren't neccesarily going to make you rich unless you have many locations and businesses...

rezzy
02-21-2009, 06:53 PM
Rezzy,
The Quiznos location has been open two years and the franchisee is still onsite a great deal of the time.


I found this to be a very common. I have noticed several Quiznos owners working their stores everyday.