The concept of franchising was reportedly suggested by I.M. Singer & Co. in the 1850’s and was the advent of today’s franchise business ideas. At the time, the American public was skeptical of the intentions of the company, and the idea failed. But as the industrialized age continued to unfold, more franchise vendors became nationally known, and their brands began to alter the economic landscape. In spite of these early successes, the concept of franchises didn’t really take off until the late 1950’s. Prior to that, the only franchise businesses that were considered very profitable were those for automobile companies, soft drinks, and gasoline.
In the late 1950’s and early 1960’s, the design of franchise business ideas exploded with such giants as Holiday Inn, Dunkin Donuts, McDonalds, and Baskin-Robbins. But today not every franchise business venture is a success as you have to do your best to predict how one will do in a specific geographical area. And not every franchise business idea works in every geographical area. Prior to investing in a franchise, it is important that you do your research to reduce the risk of it failing.
Have you ever been on a business trip or visiting family and been introduced to a wonderfully thriving business that is unique and offers a different twist on a product or service? You learn that franchise opportunities are available for this product or service–and you wonder if this franchise business idea can be transplanted to your hometown.
One way to ensure success is to thoroughly research the area where you want to develop your franchise and how these following items could affect your business: the number of customers available, the population density in the area, the ethnic characteristics of the area, and the income levels of the geographic population. Most of this information is considered market research and will be required to obtain financial backing from a bank. However, some franchise businesses require such a low financial investment that you may not require a loan and thus will be tempted to forgo this step. Neglecting this step is one of the primary ways by which your franchise could potentially fail. Remember that not everyone thinks as you do. This means that while you believe the idea is phenomenal, the rest of your home community may not.
Another pitfall in purchasing a franchise is to become enamored of a business that doesn’t have a proven track record. As more companies are outsourcing midlevel positions to computers and low-paid workers outside the country, individuals in midlife are finding they must explore other career options to provide for themselves and their families. Many of these workers are considering franchise businesses because they believe that they can be their own boss in a business in which the failure rate is lower than in mom-and-pop businesses.
To meet the demand of this growing population more and more franchises and opportunities are popping up. These new franchise business ideas have few established locations, unseasoned management, and an unproven track record. These factors increase the risk that it will fail and severely affect your financial stability and emotional health. When one fails, it can cause negative repercussions in your family life and your self-esteem as well as affect your bottom line.
You must realize that it is no easy task- work on your franchise opportunity as hard or harder than you would at any other new business venture. In other words, you may have to give up other priorities in your life during the first year or two as the business grows and matures. If you are thinking about doing some consulting or continuing with a hobby, you could become very frustrated when the hours aren’t available. As a special note of warning, your franchise can fail if you don’t spend the necessary hours to help it develop and grow.
Another example of how your business could fail is that the corporate office may give in to competitive market pressures and place a company-owned store in direct competition with your franchise. Before investing in a franchise business, ask the franchisor’s plans about locating company-owned stores in your area and include a clause in your contract that a company-owned store can’t be placed within a certain radius. Make sure that if corporate organizations solicit customers directly over the Internet they pass those inquires on to you.
Questions you should answer before investing in a franchise business idea include:
1. Will your franchise business work in your geographical area?
2. Does the corporate office for your new business offer brand-name recognition with multiple locations in your area or across the country?
3. Has the particular franchise been in around long enough to demonstrate that its fundamental business model is successful?
4. Does the corporate office have a management staff that is experienced?
5. Is your franchise your primary priority in your business life? It will take long hours to develop and grow your business.
6. Have you done extensive market research in your geographical area to determine if the area will support your franchise business idea?
7. Do you have a clause in your contract with the corporate office of your franchise business that they will not compete in the same geographical area with the same or similar products?
