Sixteen months ago I bought my first franchise, a hair salon. I currently own two. At the moment I an on the verge of having a fairly successful business, but it's been a struggle in some ways and still is. I am enjoying it and wouldn't trade what I am doing for a regular job, but I think the entire concept of franchising is fraught with pitfalls. I would like to share some of what I have learned.
Both of my salons were bought from previous owners who were not successful, and I've had to figure out what made them fail in order to figure out how to succeed.
1. First and foremost you really shouldn't do it unless you are really suited to own and operate your own business. It seems that most people think that they can run a business and if they take a pop-quiz on the internet or in a magazine, they only use it to conclude that they have the personality. The reality is that most people are not suited to own their own business. I'm not sure how you figure out if you can or not. Most businesses require many people to run them, even small ones. If you are not the sort of person who can get other people to want to work for you, you are going to have a really really hard time. In my case, I have a lot of experience in larger businesses as an executive, manager and professional. I think it helps in many ways as far as knowing how to run the business, but the thing that helps me most is that people tend to find me likeable and want to work for me. I've seen hair stylists transition into becoming very successful owners (although most aren't suited for it), and I've seen seasoned professionals fail. It's not about your ability to create spreadsheets; it's about people.
2. It's incredibly hard to weed through the garbage on the internet and in magazines to figure out the truth. Almost every website and magazine that gives you information about small business ownership and franchises is trying to sell you something, usually a franchise. There is truth buried in all the garbage, but it's hard to ferret it out and most of us aren't equipped to separate the wheat from the chaff.
3. Owning a franchise is owning your own business. When you own one you are an entrepeneur. I don't care what anyone says. The risk is high. If your ability to tolerate risk isn't high, you'll be miserable. Don't expect the franchisor to be any kind of safety net. You will get training. You will get a business model. They aren't going to hire your employees for you. You've still got to market locally. They aren't going to supervise your business. If you don't have what it takes to be an entrepeneur on your own, you don't have what it takes to own a franchise.
4. In my system I figure that probably over 90% of the franchises "succeed" in the sense that they stay open for a number of years. However, the amount of owner turnover is significant. Both my salons were started by others. One was started by someone who couldn't quite make a "go" of it. The other was very successful then sold to a new owner who eviscerated it. The first one was essentially a "do over". I am now making a small amount of money at it, but I totally remodelled the store and replaced all the employees. That was not my original plan but it was necessary. The second is looking like a gold mine (or cash mine is more like it), but I've got to figure out how to keep the money from going out the door in the pockets of my employees rather than mine.
5. Even though most of the franchises stay open, albeit with a string of owners, I figure that about half break even or make their owners a small sum of money (if the owner is a stylist and takes the place of an employee they can make an OK living). A third are really good businesses and some people make a lot of money. (By that I mean that the owner can take $5000 a month or even much more in real profit - not just owner salary - from a store). There's no way you can glean this info from the franchisor which is protected by their inability to make earnings claims. They never give you straightforward data. But, once you are in the system and learn to read the data they do give you as well as talk to other owners you learn how to read the situation.
6. The franchisors love to make a big deal out of their successful owners. And in our system they give a lot of awards to successful stores. This can create unrealistic expectations. Every location is different. At one of my salons I really have to market intensively to get customers, and I have to get a high price per ticket to make any money. At my other salon I am afraid to market too much because I don't have the staff to handle the capacity it would generate.
7. Overall I've really enjoyed the experience and I can see my efforts are starting to pay off. You can't kid yourself though, it's starting a business pure and simple with all the risks and possible reward attendant thereto. I chose a franchise over just starting a business because I didn't have experience in the industry. I don't care that much what products I sell or what the name on my store is, and I've appreciated the franchise setting me up with suppliers, software, a POS system, a marketing framework and advice on hiring. I've also appreciated some of my fellow franchisees who are close enough to be a support network but not so close to be competitors. At least one local franchisee has been very generous in sharing information that's been very helpful.
8. You'll find a lot of information on the web about franshisees who've had bad experiences. Believe it. First of all, even the best franchises have their problems. I'd give the system that I'm in very mixed reviews. A lot of the owners are very bitter. And a lot of them are very happy. My perception is that we are neither the best, nor even one of the best, but we are also far far far from the worst. To some extent the competing chain that's been a bit more successful in my opinion has mostly been so because they've been more selective in who they'll sell a franchise to.
9. Plan on having adequate capital. I went into this with a pretty full bank account. And I've learned that one of the best ways to have a million dollars as a franchisee is to start with two million dollars.
10. Be prepared to work. The guy I bought my second salon from had cameras installed and all kinds of lock downs on the computer system. His employees were stealing him blind. There's no substitute for your presence and your involvement. At my first store I still have to be there at least a little while every day, which is hard now that I have two.
11. There are big advantages in owning multiples. The second is easier than the first in dozens of ways. But supervising two is harder than supervising one.
12. For the Franchisor, franchising is a fantastic way to expand its business but it is a huge management challenge. I am extremely leery of any franchise that hasn't been around a while. I am extremely leery of anything that involves work at home.
13. Reading the experiences of others, even the frustrated ones on some of the web sites, has been hugely helpful.
14. Bottom line. So far I like it. I'd do it again. But, it's risky, very risky and takes patience. I would be willing to bet that the overwhelming majority of people who buy a franchise end up losing.
