The Three Reasons to Buy a Franchise
And Why So Many Franchisors Get This Wrong
Thomas Scott, CEO, Home Run Franchises and Brand Journalists
I recently joined a franchise industry podcast with John Hayes, head of the Titus Center for Franchising at Palm Beach Atlantic University. The subject of this podcast was what are the reasons to buy a franchise and why do so many franchisors make recruitment mistakes?
I think if you ask most people – including most franchise industry professionals – why you should buy a franchise, you’ll get answers that say something like these statements:
- A franchise is a great way to generate wealth
- A franchise is a good way to gain control over your life
- Franchises have training programs
- Franchises have marketing systems
- You get a proven business model with a franchise
And so on!
Here’s my answer:
I think the above statements miss the mark and are so overused, they’ve risen to the level of jargon in our industry. To call a word or phrase jargon is to imply that it is so overused it lacks meaning at all. I think the above statements fall into that category!
When I think about the work I’ve done in my career franchising seven franchise brands, owning a dozen different franchise units and as a supplier growing over 350 franchise brands and helping teams recruit over 12,000 individual franchisees, here’s what I think are the important answers to this fundamental question:
1. In the era we are in where people are focused on income inequality, diversity and inclusion, privilege, and fairness of opportunity (or a lack thereof for some populations) purchasing a franchise is THE SINGLE BEST WAY FOR ANY INDIVIDUAL TO PARTICIPATE IN OUR ECONOMY AT THEIR FULL MARKET VALUE.
Let me repeat – if you want to maximize your personal value and receive the maximum benefit you can for your time and work, owning a franchise offers you the fastest path to accomplish this goal.
When you work in a job, you abdicate what your full value is, letting the actual business owner generate the difference in what you get paid and what they generate in sales. The tradeoff is regular pay. That’s it.
When you own a franchise, you become the person generating the market rate for your service.
Why is this important?
Franchising is just like the Army. The Army doesn’t care what the color of your skin is, what your heritage or race is, how much money your family has or what privilege you arrived on the scene with. They just care that you meet the physical requirements and can operate a weapon. That’s it. They allow EVERYONE to BE ALL THEY CAN BE. Go to basic training, join your unit and follow the regulations and you’ll thrive. Sounds a LOT like franchising to me!
Franchising does too!
If you have the drive, passion, and hunger to own a business and you have the minimum financial resources to get started, you can find a home in franchising. We want top performers and the more diverse the better.
According to Franchising World, the minority ownership rate of franchises is 26% compared to a 19% minority ownership rate of non-franchised small businesses. Black-owned franchises specifically earn 2.2 times more, on average, than Black-owned independent businesses.
If you care about diversity issues, want to see more people find a career that doesn’t involve college debt or want to see more opportunities for disaffected populations, look to the franchise industry. We outpace the rest of American business, and the gap is growing.
For me, a franchise purchase offers what is simply the fastest path to the maximum financial result and it addresses some systematic issues our society struggles with. Everyone wins!
2. You should buy a franchise because it offers a path for professional development. Do people really buy a carpet cleaning business because they are passionate about cleaning pet urine stains out of carpet?
You might buy a Chem-Dry Carpet Cleaning franchise, for instance, because you know someone who started with few resources and built a million dollar a year business running several trucks and now has an empire.
You might be impressed with the empire this owner built and admire the savvy business acumen they developed. A successful franchisee – like so many in our industry – is full of accomplished business owners who can run circles around college MBA graduates.
You will obviously learn about the actual business model – car repair, fitness, coffee, home services, ect. You will also learn how to market, how to manage people, how to understand and leverage data, how to recruit and retain talent, how to delight customers and differentiate your business. You will learn how to prosper and scale a business – in short, if you have the right mindset, any entry level franchise is a first step on a professional development path that can lead to as many units as your imagination can handle.
In an era where we are questioning the value of expensive higher education, this is an attractive path for younger entrepreneurs. Professional development is the reason younger buyers find franchising so attractive – they don’t want just one unit. They don’t even just want one brand – they are playing a huge, empire building game and franchising is in a position to deliver.
3. Franchise ownership allows you to improve the lives of the people around you and make a positive impact in your community.
I’ve employed hundreds of staff in my career in franchising and I can name every single one. I’ve enjoyed helping them on their journey – love to see when they marry, buy homes, start families, prosper, and even start businesses of their own.
Franchise ownership offers a business owner with an easier path to help the people close to you through employment, positive culture and professional development. Give someone a break the really need and help them grow and set goals – for many people, there are not enough (or any) positive people to open the door like this.
We’ve all patronized a local business where the employees are happy and it is clear the owner treats people well – these employees thrive and grow and the growth is contagious. Joy spreads!
A franchise is systemized; the reason franchise businesses outperform independent businesses by as much as 40% in sales is that you don’t spend half your professional life figuring out the business. You are free to operate the business and WORK ON your business. This is huge – a franchise owner has 50% more time to think about how they want to help people and they do.
You also can make a positive impact in your community. Franchises are substantial businesses with brand equity. Open a SONIC and your business becomes a positive force for community coming together. Operate a restoration business and you help people put their lives back together. Run a home care business and help people in your community age gracefully.
A franchise is an amazing force for positive change in just about any community if you approach it with the right mindset.
So why do so many franchisors struggle to make good recruitment decisions?
New franchise concepts start up daily – there is literally more than one new franchise system starting in the US every day. Add these to the 5-6,00 existing systems in the US and another 2500 in Canada, and there are a lot of choices!
Even with growth like this, we haven’t radically increased the number of new owners entering the industry. Every year, 15-20,000 new owners purchase franchises. Sounds like a lot, right?
There are over 25 MILLION people researching or planning to open a business in the US alone.
25 MILLION! 15,000 is just .0006% of the people looking. We should be embarrassed!
Why is there such a gap in recruitment?
Franchisors – wrongly – focus on financial qualifications as the primary qualification. “We won’t speak to you if you can’t show us the cash,” is the experience most potential owners have. Funding is important – make no mistake – I don’t believe it is nearly as important as we make it out to be.
What are the important qualifications? That’s the question more people need to ask.
In my career, I believe fundamental fit, passion, skills and a hunger for entrepreneurship are far more important!
I have seen more middle aged, corporate refugees who came out of a long career with an intact 401k think they might like to own a business fall flat on their faces and fail that I can count. So much so, I’m wary of this type of buyer. Again, in my experience, just because you have money doesn’t mean you REALLY WANT TO BE AN ENTREPRENEUR!
The business you want to buy might involve consultive sales and cold calling. If you’ve never sold anything, you might not understand how terrifying that can be and you’ll find reasons not to sell.
The business might also involve managing teenagers or kitchen staff. Managing a team of sales people or being a mid-level manager at a bank simply won’t prepare you for a life like the Hulu’s The Bear series portrays.
Fit is critical! I recruit Home Stagers, Realtors, Interior Designers, Mortgage Brokers, and Home Organizers for my Up Closets custom closets brand. These people – regardless of how much money they have – can excel in this business. It is so like what they already do, it doesn’t even feel like work. They quickly become top performers and thrive.
If franchisors would do the hard work of better identifying profiles or personas of the specific type of buyer that will do well, spend time on the marketing for this (which won’t come from broker networks or FSO organizations) they would find franchising growth a lot easier to accomplish. It’s the core work we do at brandjournalists.com and it works!
So what about the money? Doesn’t a candidate have to have enough to buy the franchise?
Well, yes. Duh. Sort of.
Every person is different. How much of a fit are they and are there creative ways you can help someone put together a deal? If you aren’t working with a broker and don’t have a huge commission, for instance, can you simply make easy payment arrangements on your franchise fee (which isn’t financing) so that buyer can get started?
The more flexible you are in recruiting TOP TALENT and not just selling units, the more successful you will be. Does a young buyer have a parent with home equity? Did you even bother to explore, or did you dismiss them because they are 23? In my former brands, 60% of my top performers were under 28 and I did creative funding for all of them. None had more than the barest financial resources and yet not a single one failed.
Change your mindset and you can change your results!
What are your reasons to buy a franchise and does any of this resonate with you?