Franchising has proven to be a very successful distribution mechanism for millions of people, for many years and in many parts of the world. But the franchisee who thinks that he/she is going to buy a franchise, hire a manager and visit the premises once a month to see how much money is in the box, is committing a very deep mistake and probably he/she will have to close the operation in a very short term.
Unfortunately there are people who argue that buying a franchise is an investment, in the sense that it can be compared to buying treasury bonds or financial options on the stock market, or cryptocurrency in an exchange, or staking, mining, trading, borrowing, lending or providing liquidity in a DeFi protocol, or arbitraging grain against other commodities. And this is not even a mistake: it is stupid, a deception and a lack of responsibility.
In a franchise, the franchisee is a key player, who must take care of his/her business, and not only working long hours a day, but also working strategically, with his/her mind and with a differential entrepreneurial attitude. There is no such thing as "passive franchises" as some claim. Even in multi-franchise pools or area developer contracts in which one franchisee manages multiple franchises, there is nowhere near the alleged "passivity" that some sell. The executives in charge of these large operations work hard, strategically and proactively. Those who want a quiet life should dedicate themselves to treasury bonds and not to franchises.
The franchisee must assume from the first moment that he/she is going to manage independently his/her own business, in a territory that is his/hers and that he/she is supposed to know very well, with established competitors who are not waiting for him/her with a bouquet of roses to give him/her a welcome party, and with employees that he/she will have to hire to make a success. That is, the franchisee must be assumed as an entrepreneur, and not as an employee of the franchisor or of him/herself. He/she must set the course, fill the tank, pay the tolls, and steer the ship.
What does it mean to be an "entrepreneur"?
1- The monthly income syndrome. The entrepreneurial lifestyle doesn't have to do with the "monthly income syndrome." Never throughout the franchise contract, the franchisee will earn twice the same amount of money per month. Therefore, the first exercise is to develop a strategic thinking system based on the medium and long term. This means looking at the entire chessboard and not just that bishop that is bothering a knight. It is true that many fixed expenses must be calculated in monthly terms, but this does not change the picture. The franchisee must learn (and the franchisor must teach him/her!) to handle the cash register in such a way that his/her cash flow is not affected by the fixed monthly payments, since he/she will not be able to go through any ticket office at the end of the month to collect a salary, as happens when working for an employer.
2- You have to invest every day. Whatever the franchise sells, if there is no investment in marketing and communication, sales will fall. This cannot be disputed, even when the franchise corresponds to a world class brand, with many years of experience, with extraordinary training programs for franchisees and their staff. Never mind. If you don't invest in staying competitive, sales will languish. Few franchisors show their franchisees in their business models a monthly marketing investment worksheet. They only speak of the initial investment, and some even speak of the capital necessary to cross the learning curve, but almost none of them speak of the investment that the franchisee will have to make throughout the contract in marketing and communication. There is nowhere in the world a company that makes a one-time investment and that's it. The entrepreneur invests every day in his/her business, and that is why there are franchises of the same brand that have totally different performances.
Businesses succeed or fail purely and exclusively because of the people who run them, and the same business in the hands of two different people gives different results.
3- Commitment to the community. The most successful entrepreneurs I know are committed to the community in which they work. Of course I am not talking about multinational corporations that say one thing and do another, destroying the planet and the ecosystem and sometimes lying rudely with their products. I mean 70% of the gross product, the small business, in our case, the franchisor and the franchisee, who work evenly every day because they seek to find meaning in their lives. When you talk to one of those successful entrepreneurs, you will always find that they have a great stake in their communities, in multiple ways. They are not stupid and want to earn money like any businessman, but they feel that they owe a lot of things to the community and so they participate and give back. They are far from being "passive". They give talks at their children's schools, they are coaches of the neighborhood soccer team, they organize trash collection after a storm, they organize the 5k marathon, that is, they build their reputation, and the community in turn recognizes it. I would say that this issue and the one that follows are the most important tasks of a franchisee in a territory.
4- Create jobs. When the franchisee understands that he/she has become an employer, then he/she begins to see the world differently. Because each of the employees who collaborate in his/her franchise is a world, and then he/she becomes responsible for that world and those new families that depend on the franchise’s success. Typically, between 2 and 15 people can work in a franchise, and those people now represent the brand and a joint medium-term commitment between franchisee and franchisor. It is clear that this function of being an entrepreneur on the part of the franchisee is the one that can most influence the lives of many people in his/her territory. The most successful franchisees I know are the ones who love their staff and put them above all material issues. They take them on trips to conventions, they train them permanently, even in topics not required by the franchisor, such as new languages, they make them participate in the development of new products, new attention systems, new sales arguments, new training tactics and many other things. They know very well the lives of their employees outside the working place, their hobbies, their fears, their fantasies for the future, and they speak and advise them in every way.
Later in the neighborhood they say “how well they serve you in that store!”
5- Have all the papers in order. None of us have a life assured, and no one dies the day before. Thinking of all the responsibilities that an employer has and taking into account that his/her daily work is usually much more messy than that of an employee in a corporation, the franchisee must make an effort to order his/her papers so that he can retire in peace. This is what is called an “exit strategy”. Every businessman/businesswoman should have an exit strategy for when the day of his/her retirement or death arrives. This may be unpleasant for many but it is a great contribution that, as an entrepreneur, you can make to your collaborators and to your family members and theirs. In these things many entrepreneurs differ from the rest.
Conclusion. If you thought that buying a franchise from a worldclass brand you could work "passively" until you retire, I have bad news. You chose to be your own boss and not your own employee, so you are expected to take the helm and steer the ship, not to complain about the uncertainty, the pandemic, the stimulus, the corruption or the unfair competition.
Anyway, if you buy a franchise, the road ahead is fascinating and I assure you that it is worth it.
Thank you for reading!
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