One of my favorite themes is that choosing what type of business to start should be a matter of looking at the mirror, reflecting on who you are, developing a business based on what you like to do and what you do well. And I’m sticking with that story. But there is also an exception to that rule worth noting: it’s called a franchise. A good franchise is like building a business with paint by numbers: it may not be creative, exactly; but you do the work, and you get the results.
So that’s a special case. Don’t know which business to start? Then find a good franchise. Which is why you see a picture here in this post of my friend Joel Libava, the franchise king, on this post (more about that below).
There’s a catch to that idea, however, and it is worth some real emphasis:
This idea works only if you find a good franchise opportunity. There are good franchise opportunities, not-so-good, bad, and scams. All marketed as franchises.
Back in my consulting days, and in the early days of Palo Alto Software, I had a chance to look at franchising in depth.
- Apple Computer paid me to study McDonalds and other franchises when they started the initial Apple Centers, which were the precursors to the current Apple retail chain.
- McDonalds did a custom business plan version of Business Plan Pro, back in the 1990s.
- I had the privilege of teaching business planning at what they call Hamburger U, the McDonald’s training facility outside of the Chicago airport.
- I followed a local franchise business in depth for several years as part of the curriculum for the course I taught in starting a business at the University of Oregon.
My conclusion from that experience is that with the good ones, good franchises, you get a how-to guide, recipe book, ongoing guidance, national marketing, and so forth. It is like buying a business you can succeed with if you do the work and follow the instructions. It isn’t easy by any means, but it’s easier than doing it all by yourself.
And, just as important, I also saw that there are a lot of franchises that aren’t worth the time and money and don’t give a franchisee what they promise. Franchises normally charge the franchisee an initial fee and then an ongoing percentage in exchange for executing a business formula.
McDonalds franchisees, for example, make lots of money. McDonalds makes sure they are successful. So it’s hard to get a McDonalds franchise, expensive, not readily available anymore, and easy to lose. To preserve the value, McDonalds enforces its own rules ruthlessly, and cuts of franchise owners who fail to keep up. They have great training, lots of requirements, and even secret inspections to enforce the guidelines.
On the other hand, there are franchises for sale that are little more than a logo and a slipshod attempt at a manual. There are franchises selling themselves to people without ever having proven success in a single flagship location. So the buyer has to beware.
So I do occasionally recommend to the person who just wants to own a business, but doesn’t know or even care what kind of business, that he or she look into franchise opportunities.
And when I do, I also recommend that they get some good unbiased information about different franchises available, how to choose, what to look for, and what to watch out for. Which is why I put Joel’s picture onto this post. For the record, Joel’s a friend, although I’ve never actually met him (and he isn’t paying me in any way, just in case you wondered). We connected through social media because I needed to find an expert to recommend, and Joel’s my expert on this subject. I think of him as somebody not paid by any franchisor who knows the territory and can guide a new franchise prospect through the pitfalls.
So yes, if you ask me which business to start, I’ll answer with look in the mirror. But if you might be in the market for a franchise, I’ll suggest you do that carefully, and do some homework before you jump. Buyer beware.
Tim Berry is the founder and chairman of Palo Alto Software and Bplans.com. Follow him on Twitter @Timberry.
