Apart from the system and branding, the new franchise unit itself is, in fact, a business startup.
Surprisingly, many franchisee candidates believe that buying a franchise is buying an established business that guarantees them a certain amount of income and a certain Return-on-Investment (ROI.)
First of all, nobody can guarantee you any results. Financial claims are based on averages, projections and/or estimates from past performance. If a franchise guarantees a certain amount of profit or my money back, I’ll definitely buy the franchise!
Let us clarify things…
What is an established business?
An established business is a business that already makes a certain amount of profit in a certain period of time.
I consider loss-making business as an established business, but it wouldn’t be a good buy if you don’t know what you are doing.
Buying a profit-making established business allows you to skip startup period that usually is the first 3 to 6 months of a business’ life, thus allowing you to enjoy well-built customer base and healthy profits since day one of your ownership.
What is an established franchise unit?
Not all franchise units are established ones – Many of them are simply startups, and share the same risks as any other business startups (many claim them to be lower, but some surveys contradicted the claim, concluding that franchise businesses are as risky as other type of businesses.)
Established franchise units are similar to any other established business – They are revenue-generating and have a history of business performance in a certain period of time. Again, in my opinion, loss-making franchises are also established franchise.
Unless you buy a franchise resale, you are actually starting up a business with a franchise concept embedded in it.
The main benefit of starting out with a franchise is you receive the branding benefits, tested-and-true systems and ongoing support, thus allowing you to start right, with minimal trials-and-errors.
Of course, those being said, you still need to grow your business through the startup period. You need to allow your business to settle in and let the community knows your presence, so you can start building your customer base – pretty similar to other type of business startups.
Wrong mindset = wrong expectation = bad franchise unit performance
To tell you the truth, I enter franchising with the same mindset that many of us have – Buying an established business that bear 95% success rate in the form of franchise unit.
I assume that having the ‘established stuffs’ and 95% success ‘guarantee’ will rush people into my store and buy from me. Wrong.
I still need to do my ‘due diligence’ – I need to do the right marketing campaigns; I still need to do trials-and-errors; I still need to build brand awareness. Many things are not as I expected.
Am I disappointed with my franchisor and franchising in general? At that time, yes. But I finally realised that it’s not my franchisor or franchising to blame. Who’s the culprit? Me, myself, and I.
Luckily, my franchisor helped me in minimising the damage I cause to my franchise units, due to my wrong mindset and expectations. And that’s why I endorse franchising concepts to everyone who asked me about franchise ownership.
The great thing about franchising is during the partnership period, you get all the support you need – You will receive support and troubleshooting on regular basis. Sure, there could be discrepancies – But as long as you understand the franchise agreement well, you can always questions and/or requests based on the agreement.
Again, buying a franchise is not buying an established business, unless you buy a franchise resale. Never fall into traps that persuade you to buy a franchise because it is an established business. Well, it may be a well-established franchise company, but your franchise unit is certainly brand new.
Ivan Widjaya
Startup franchise unit
Image by dierken.
