Q: I have a tonne of experience in the food service sector. However, earlier this year, I lost my job. I’m lucky enough to have a good sized nest egg – helped by my redundancy payout – and no dependents, though I’ve struggled to find work since being let go. I’m now looking at starting up on my own rather than living off savings until I run out of money.
I have good experience in operations but don’t have much direct experience of sales and marketing so I’ve been considering the option of a franchise, probably in the fast food area. While every franchisor I’ve looked at claims to be the best thing since sliced bread, I’d really like a more nuanced view. Are there downsides to franchising that outweigh the leg-up I’d get in terms of marketing? And what pitfalls should I avoid at all costs?
A: You’re right to look for a balanced view, because it’s sometimes hard to see through the gushing of committed franchise advocates. Yes, a franchise will give you the chance to adopt a (presumably) successful model for running your business. But there are things you will have to keep in mind.
First of all, the leg-up in sales and marketing comes with the downside of less freedom to manoeuvre. Say you’d like to introduce a new menu item in response to customer feedback: with most franchisors, your hands are tied. Similarly, if the parent company manages to attract some extreme negative publicity for whatever reason, your business will suffer.
That might not sound like too much of a problem for an operations guy who doesn’t want to worry about marketing. However, many franchisors will understandably look to have considerable influence on your processes and operations as well to keep a uniform standard across the chain. If you’re the kind of person who gets frustrated working within structures set by others, franchising might not be for you – or you might need to limit your selection to a very ‘hands off’ franchisor.
Aside from this, you may find that some franchisors are so eager to set up outlets that they’ll allow two stores to open on each others’ doorstep, eating in to the same market, which isn’t ideal. I can’t name any names here, but do look around to see if this is something that happens to partners of the franchisors you’re considering. In fact, it’s worth putting out feelers to see if you can speak with other franchisees about how they’re getting on, and their experience dealing with the parent company.
Most importantly, you need to consider ongoing franchise fees as an additional fixed cost for your business. Sometimes, you’ll need to pay a substantial up-front fee and very little thereafter. Other chains work with a low entry fee, but higher ongoing fees. Either way, build payment of franchise fees into your business plan.
As we’re often told, there’s no such thing as a free lunch, and franchising a business comes with tangible and intangible costs. These don’t necessarily outweigh the advantages of working with an established brand in a successful model, but it’s imperative to understand them and make sure you’re comfortable with them before you proceed.
We advise a lot of potential entrepreneurs in this situation, and it’s always helpful to have independent guidance – especially when you’re new to running your own business. I’d suggest an initial, no-obligation meeting. Simply contact us to set one up.