After 16 years of being a franchise consultant, I know that there are a lot of myths and misconceptions about what you’re owed and what you’re going to get when you’re a franchisee… so here are my Top 10 Biggest Myths of Owning a Franchise:
Number 1: It’s the franchisor’s job to find customers for me. If the franchisor could find your customers for you, why would they need you? You aren’t paying them to find your customers. You are paying them to tell you who the customer is, how to cost effectively reach that customer and how many customers you will need in order to have a positively cash flowing business. Finding customers is what owning a business is all about!
Number 2: Build it and they will come. This myth is very similar to the thinking that you don’t have to advertise or find your own customers. These are very dangerous thoughts because if you have a false expectation that you can open your doors and people will come to you, you will blame the franchisor, your location, the competition or anything else when the people are not showing up. Owning a business is about owning it…yes, you can enjoy the customers who do walk in but you should also be executing marketing plans, referred lead programs and community sponsorships to build your own loyal following. When you learn to own your lead flow, you will feel in control of your business.
Number 3: Prior experience is important to be successful. Franchisors are not looking for widget masters. They are looking for people with general sales, management and operational experience. They can teach you how to position a product or service or the basics of running their operation, but they can’t teach you how to love to cold call in a sales environment, or inspire a team of young employees to work hard for you. They can’t give you a competitive spirit that will drive you to overcome obstacles and compete to win. You can hire for experience, but you need to have the mind and commitment of a champion to be successful.
Number 4: It’s the franchisors fault when a franchisee fails. I have resold a territory where the first person I placed failed and the second person I placed went on to become rookie of the year in that same territory. I have met franchisees in the same system who barely get by and others who grow to multiples and are enjoying all the freedoms and benefits of franchise ownership. The difference between those who do and those who don’t in a franchise is following the system, asking for help, staying the course, growing into business ownership by improving skillsets and mental discipline and always keeping a positive attitude. It’s usually not the franchisor’s fault when a franchisee is not successful.
Number 5: Franchisors get rich at my expense through royalties. It is true that franchisors makes money through your royalty stream, but you need them to make money because that’s how they are going to grow your opportunity. I wouldn’t begrudge them the opportunity to make money, after all, this is a partnership. If you’re questioning the value of a royalty ask yourself this….let’s say that the royalty is right in the national average and is 7% of gross revenue….so the question is….do I believe that by partnering with this leadership team and their experience, support, technology and training that I can make 7% more than if I was running this business without the support of the franchise? Since 90% of start up businesses fail before they ever become profitable, and you can see the success rate of the franchise prior to becoming a franchisee, the answer should be an easy yes! The national average for royalties is between 6-10% of gross sales typically collected on a monthly basis. Any questions you have about royalties should be directed first at the franchisor and then validated out by the existing franchisees. If franchisees who are paying the royalty are happy, should you really be questioning it?
Number 6: I should use earnings claims to make an investment decision. An earnings claim is not a reason to invest in a franchise and more importantly it is not a reason to walk away from an opportunity. These are numbers on a page, and until you bring them to life by talking to franchisees- how can you judge them? For example, maybe you see an average net earnings of $50K, and you say well I need to make $150K so this investment doesn’t work for me, but what if when you meet owners, they tell you they put in $200K to start the business and are working about 5-10 hours per week to turn that $200K investment into $50K per year of net income. Is that worth your time? Where else can you get a 25% return on investment? And oh yeah, those same franchisees may tell you that they own 6 units each. Is $300K in relatively passive income worth your time? An earnings claim is a nice bonus to give you some place to start when thinking about the financial opportunity of a franchise, but by no means should it be used to limit your thinking about what’s possible or to walk away from an opportunity.
Number 7: Franchisees don’t own their business. A franchise is a proven business system that gives you a business plan, marketing support, training, technology and mentorship. When you are awarded the opportunity to join the franchise, it is your business to make or break. It is your business to build and sell. It is your business period.
Number 8: Inconsistent validation on earnings is a reason to not invest in a franchise. The easiest way for me to explain how ridiculous this myth is– is to pose the following analogy….if you and 5 friends join a gym on New Year’s Day and you all hire the same personal trainer who gives each of you the same plan – do all 6 of you reach your fitness goals at the same time? Do all 6 of you even reach your goals? If you don’t, does that mean that the gym is not a good place to get in shape or that the trainer’s workout was not effective? Of course it doesn’t! The gym is THE place to get in shape and hiring a trainer who can give you an effective fitness plan and support you throughout your journey is one of the– most effective ways –to reach your health and fitness goals. So why then doesn’t everyone who joins the gym and hires a trainer get in shape at the same time? Because individuals vary – in genetics, commitment, focus, intensity, follow through and goals. The same is true of franchisees. What each owner does with the opportunity given to them is 100% on them. One owner may have a goal to work 3 days a week and cover his healthcare costs and basic living expenses during retirement with his franchise business and another owner in the same system may have 4 kids to put through college, a $1M mortgage and lifestyle to support. Both could be very happy with their results, but both could have very different outcomes. If you find franchisees who are making the money you want, role model what they did! But if no one is making the money you want to make, it doesn’t mean it’s not possible. It could just means the opportunity is waiting for you!
Number 9: Franchising is for Dummies. I do think that some people look down on franchising like it’s dumbed down business and truly educated people don’t need a franchise system, but having an MBA is not a guarantee that you will be successful in business. Most entrepreneurs fail by running out of money before they figure out how to really make money. If you want to be a pioneer, you can try to beat the odds, but if you’re looking for a business investment where the start up risks are mitigated so that from day one your time and money is moving you toward profitability rather than trying to figure out how to make money, a franchise is a great option. I think truly smart investors align themselves with mentors who can coach and support them through business ownership providing technology, buying power, systems and other leverage that allows the owner to work ON the business rather than IN the business and to not be a slave to what they’ve created but rather to enjoy a great quality of life while scaling and building wealth, and these smart investors are called Franchisees.
Number 10: I will have to work 24/7 to be successful in my business.
I don’t want to make it sound too easy because definitely when you’re starting anything new there’s a learning curve, but since a franchise business is already proven, and you are buying the recipe rather than trying to figure it out, your time should be invested in moving you toward profitability from day one, and you should be able to control how much time you will need to put in. I think some owners by their nature work more than others; some owners have great organizational skills so they can get more done in shorter amounts of time; others have inspiring management skills that allow them to delegate and walk away from the business, but no matter where you start as an owner, all of these skills can be learned if you’re willing. You should not have to be a slave to your franchise business. Some franchise businesses aren’t even looking for full-time owners. These are called semi-absentee investments. As a franchise owner, you will work hard, but you will be in control of how you spend your time and how much time you put in.