My Own Franchise Nightmare Began When...
I was made redundant. I got a good payout though and decided I was finished with working for somebody else; I really wanted to be my own boss. I spent a lot of time thinking about what kind of business I could do, but something held me back - the fear of starting a business that would fail and what this would do to my wife and kids.
It was then that I heard about the success rate for franchises. What I read was something like "after 5 years, 90% of franchisees are still in business while 80% of none-franchise startups have disappeared". Wow, this completely blew me away. I had an 80% chance of failing if I started my own business. So all I had to do was buy a franchise and work hard at it to make sure I could earn a good income and have a business that would stay the course.
Made it into an easy decision for me. And so I spoke to some franchisors and they didn't argue with these stats. In fact, I think when I said I was looking for a business with staying power, they even quoted the 90% rule back to me. My next step was to speak to a few franchisees to check the story out.
The Franchisees I Spoke To All Said...
"It is a great business to be in, I love it. You can earn a really great living and create something that is special. There is a huge sense of achievement."
And they all said the same kind of thing - just how wonderful it was. In fact they were so enthusiastic, they practically sold me on the franchise on their own, without the franchisor being needed at all. For the odd one or two I spoke to who weren't doing so well, I kind of rationalised away that they were not as capable as me, or were not as driven or ambitious. Anyway, even these guys lower down the ranks of performers seemed really happy and enthusiastic.
So I thought it was time to get some independent advice.
My Accountant & Solicitor Said...
The franchise agreement was typical and that the fees, while high, were in the normal range too. They also explained that it's not possible to negotiate with a franchisor, you just follow the rules. Basically,suck it up and hand over your cash, franchises are good, safe and reliable places to put your cash.
I paid their bills and said "thank you."
A few months later I got trained up and opened my doors for business. It was only then that I started talking properly to other franchises, without their guards up, over drinks at franchisee conferences or on the phone when things didn't go so well. Finally I started to learn what I wish I had known all along.
The Truth About Franchises
It seemed that many of the franchisees in my area had negotiated some special side-deals with the franchisor. The kinds of things that began to eat at me. Why didn't I get the same special deals that these guys had? I bought the same franchise, so why didn't I get such a deal.
So I started to question why it was that my accountant and solicitor both told me that you can't negotiate. Clearly I didn't, but how come so many others had? Then I found out, after many drinks and late night at the bar, that another franchisee was even paying less money than me for the franchise. So how come I got screwed over? I am not stupid at business and have done some pretty neat deals in the past. Just something about doing it for myself that meant I missed stuff I shouldn't have missed.
And then I got to thinking - all the people who advise you about businesses have a vested interest in selling you a franchise. The franchise associations are all run by franchisors, the franchise expos are paid for by franchisors and so on. So there is no strong voice for the potential franchisee.
Just one thought really nagged me though. Why did other franchisees not tell me the truth about it, before I bought?
Why Franchisees Tell You Lies...
It simply comes down to human psychology.
Let's say you just spent £14,000 on a new car. You have been looking at cars for a month or two and finally decide to get one. You spend a huge sum of money on the car and take it out for a drive. You love it. Of course you love it - you just spent £14,000 on it and you know you can't give it back!
So now let's say you spend £25,000 buying a franchise and another £10,000 to open up in business. You are very proud of what you have done. A year later you are not making huge sales but you have spent £35,000 and a whole year of your life trying to make it work. Somebody calls to ask if you think buying your franchise was a good idea, and what do you tell them? You are not going to say, "Don't do it, you would have to be stupid to spend that much money for this crap!". Nope, you tell them that "I have had a few problems but I love the business and can't wait for next year. The franchise is brilliant it is just that I didn't do it all right to start with and that has cost me."
So the franchisees fool themselves into thinking it is great!
Now of course this isn't true of every franchise - I really wish I had bought a Subway or McDonalds at the right time to really catch the wave. No, the problem is that the crappy franchises ride on the backs of the famous big ones, pretending that they are as good and as profitable for you.
The message I am trying to give you, is what they used to say on Hill Street Blues...
Hey, Let's Be Careful Out There...
Keep your eyes, ears and nose open. Pay attention to your feelings - if it seems to good to be true, it almost certainly is. Listen to what the everybody tells you but make decisions based on the hard facts.
I got stung for £25,000 that I should never have spent. I rushed into the franchise without doing my research properly. I got conned by the confidence of a franchisor who was really a first-rate con-man. The other franchisees were like a cult and I simply didn't see it coming. Of course, I didn't know how to properly research a franchise since it was my first time. Here's a great series of articles on buying a franchise that helps you to cut out the bad franchises quickly.
You'll also find questions to ask a franchisor in another hub I've written.
Good luck in starting up your own business.
- Story of a couple who got into a bad way with a bad franchise
It is worth reading about a few franchise nightmares before you commit to buying your own.
- story from Entrepreneur magazine about a franchise with a bad name
There's lots to know when you are considering a franchise. Just take the time to do your research before handing over your cash!
- Dunkin' Donuts Alleged To Have Sued 154 of Their Franchisees Since 2006
Brooklyn Daily News story about a successful Dunkin' Donuts store partnership that have been run out of business by the franchisor. The story mentions that the franchise has sued 154 franchisees in the last 2 years - scary :-(