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Assessing your suitability to become a franchisee

Everyone who decides that he would like to have his own business should subject himself to a detailed self-examination of his attitudes, capabilities and long-term goals. Some factors in any such examination apply whether or not the business is a franchise, and some are specific to franchising. There are factors which are fundamental to the assessment. Every potential franchisee must:

  • engage in this self-examination exercise,
  • be completely frank and self critical, and
  • not be deluded into pursuing his original desires regardless of what he learns of the proposed franchise opportunity; he must not lose his ability objectively to judge the correct answers to the questions which he must ask himself.

Consideration should also be given to a factor to which no attention appears to be paid when franchisee failure is reported in the media. Franchisees can be the cause of their own downfall. It should be borne in mind that at least 50 per cent of franchisees who experience failure are responsible for their plight. The provision by the franchisor of his know-how, system, and business format does not guarantee success. The franchisor provides what is basically a DIY business kit, but the success of its operation depends greatly upon the franchisee’s skill and ability in maximising the opportunity which it presents.

This factor sometimes makes it difficult to ascertain the reason for failure, although there is now enough experience available to identify the characteristics which give rise to self-induced failure by the franchisee.

Any potential franchisee who engages in self-examination should be aware of these characteristics in case he recognises that he himself possesses one or more of them. What are these characteristics? They include the following. (The examples quoted have actually occurred.)

1. The franchisee who has previously been in business for himself, and possibly in the same type of business as the franchise system.
Such a person may have entrenched ideas of his own and thus be less receptive to the ideas of the franchisor and the disciplines of the system. It is not just a question of learning new ways; it is necessary to abandon former knowledge and maybe habits of a working lifetime – that is not easy. It is for these reasons that many franchisors will not accept as franchisees those who have previous experience in that type of business. Life being what it is there are exceptions, and there are some businesses where previous market knowledge and experience are essential. However, in such a case the acceptance of, and submission to, the disciplines of the franchise system are fundamental.

2. Franchisee complacency.
No franchisee can afford to be complacent. There have been cases in which franchisees have failed to make the necessary effort because, as they put it, “I am now a boss and bosses don’t work.” The “boss” syndrome can be quite dangerous. Franchisees who have this problem behave in the way that they think bosses should behave, which they usually believe means spending without working and earning. No one can succeed on that basis. If the franchisee’s expectations of business life as his own boss are along these lines he should avoid self-employment because if put into practice he will be doomed to failure.

3. The franchisee who loses his nerve.
This takes two forms:-

(a) The franchisee who simply loses his nerve when, after opening, the responsibilities and magnitude of the task of being a self-employed businessman dawn upon him.
(b) The franchisee who cannot live with the losses which many businesses make in the early days before they become established. This loss of nerve occurs even in cases where the franchisees have been warned that it will happen and have been advised to arrange their finances on such a basis that they have the working capital to sustain them during the unprofitable start-up period. A strong nerve is necessary to be able to cope with trading losses while building a business.

4. The franchisee who does not follow the system.
This is a phenomenon which is more likely to occur after the franchisee has been in business for a period of time and has become successful. He begins to believe that he and not the franchisor is the reason for his prosperity. In part, he will, of course, be contributing to his own success. Some franchisees are better than others and some are more prosperous than others because of their diligence and hard work. The danger arises where this leads to an arrogant belief by the franchisee that he knows best and where this in turn leads to a rejection of the franchisor’s system and a desire to impose his will and effect changes without authority.

5. Interference from other family members, or well intentioned but busybody friends.
It is important that the franchisee should have the support of his family (particularly the spouse or partner), but support is one thing and interference is another. It can be appreciated that a spouse or partner will have the welfare of his (or her) partner at heart, but the spouse or partner should not usurp the franchisor’s function, or take on the franchisor on behalf of his (or her) spouse or partner. That is a recipe for disaster. Many franchisors will wish to interview both husband and wife or partner, even when only one is applying for a franchise in order to make an assessment of the degree of support which is likely to be forthcoming, as well as the degree of interference. Busybody friends should be avoided like the plague. They should be politely kept apart from the business, especially those who profess to have an expertise which they consider to be of vital benefit to the franchisee. Above all don’t listen to the “know all” you may meet in the pub. A person who is easily led and finds it difficult to reach decisions independently will find self-employment a dangerous undertaking.

6. The franchisee who expects too much to be done.
Some franchisees develop a feeling that the franchisor should be doing more for them on a day-to-day basis than is allowed for in the franchise system. The franchisee who previously had a job with a salary will have to accept that he is now dependent upon his own performance for his take-home pay. He may mistakenly believe if the going gets tough expect the franchisor financially to bail him out. A franchisor should provide fall back assistance to a franchisee with problems. He cannot be expected to offer a day-to-day presence, or the local involvement and initiative necessary to develop the business. These are the franchisee’s responsibility and no prospective franchisee should enter into a franchise relationship if he believes that the franchisor should be involved on a day-to-day operational basis in the business. The exceptions are the franchise systems which specifically provide such involvement. (This could occur, for example, where the franchisor operates a central booking or ordering facility, or accounting system).

7. The franchisee who does not have the right aptitude.
This type of franchisee falls into two categories. In the first category are those who are so blinded by the attractiveness of the franchise opportunity that they do not recognise their own inabilities and deficiencies or, indeed, those of the franchisor. A franchisor can never know as much about the franchisee as the franchisee knows about himself. The franchisee must be honest with himself and the franchisor. If, for example, the franchise system needs the franchisee to be an active salesman, as many do, and he knows that this is something he would find difficult he should hesitate to become involved. On the other hand, a franchisee who likes meeting people and who finds that the franchise of his liking will involve him in stifling administrative duties should think again. In the second category are also those who have perhaps been in employment at a senior management level and are not accustomed to rolling up their sleeves and working hard at the basics and at the sharp end of a business. The subsequent sale of a franchised business which has been taken over by a franchisee with the right aptitude and attitude often proves how wrong was the predecessor’s attitude.

These then are the characteristics which signal problems for the prospective franchisee. Those who are counselling the franchisee, including the franchisor, should assist him in questioning whether he will fall within one or more of these categories. The characteristics should be kept in mind as a general background against which to proceed with the evaluation process.

Let us now consider a widely-voiced statement, “Franchising is safer than independently setting up in business on your own account.” This, broadly speaking, is correct. In the UK, this claim is borne out by the experience of members of the British Franchise Association as a whole, and of reputable franchise companies and bankers involved in franchisee finance. The annual NatWest/BFA survey sponsored by NatWest also supports this claim.

It is popularly believed that while 90 per cent of all new businesses fail within a five-year period, the comparable percentage in the case of franchises is not more than 10 per cent. This popular assertion is a step in the right direction, but it is an overstatement of the position. The anecdotal evidence from those most exposed to the market place indicates that the prospect of failure for a newly established franchised business is around one-sixth of the prospect of failure for a newly established non-franchised business.

However, there are dangers in making assertions about the high level of success in franchising generally. The potential franchisee may:-

(a) drop his guard when evaluating a franchise because he has heard such claims and come to trust the system as a whole, regardless of what may be the position in the particular franchise which he is considering;

(b) be lulled into the false belief that all he needs to do to make a lot of easy money is to sign a franchise agreement;

(c) ignore the fact that it is still necessary to select the right franchisor who has properly prepared the franchise for its marketplace and one who is right for the franchisee.

The lessons to be drawn are that each franchise must be considered on its own merits in the light, preferably (at the very least) of the guidance offered in this booklet and in the certain knowledge that franchising is not the easy way to quick riches. In life, nothing comes easily and this is certainly true in franchising. Most successful franchisees have worked very, very hard to achieve their success.

Franchising should reduce the risks inherent in opening a new business. This is because one of the main attractions is that the franchisor is selling the benefit of the experience he has gained in running his own business (or his pilot operation) and has detected and solved the problems with which any new business is always faced. Franchising should, therefore, provide the franchisee with a business system, which has a proven record of success upon which he can build. No franchise should ever be offered, or be considered as a work-free way of making money. If it is offered in this way, you should be suspicious, and if you regard it in this way, you should stop deluding yourself or being greedy and come to your senses.

It is surprising that there are a significant number of prospective franchisees who take proper advice before entering into a franchise contract, but who fail to heed that advice because it was not what they wanted to hear. In other words, they have already made up their minds when they take advice and despite what they are told it makes no difference. This particularly applies with new franchise systems where the tendency is to believe that however badly structured and inadequately tested it is, getting in early is desirable because those in first make the most money.

This attitude is really only a manifestation of greed which prevents rational thought. While those ‘in early’ in a well structured and properly-piloted franchise may do extremely well, the risks are higher, as will be seen below, and the prospective franchisee must be prepared to take a deep breath, reconsider his position and say ‘no’ however much he is enamoured of the proposition unless objective investigation, coupled with sound independent advice confirm the necessary quality of the franchisor and his proof, by spending his own money, that he indeed has a well-tried, tested and successful business format.

The factors discussed are all important in the process through which all prospective self-employed businessmen should go before taking the plunge. Indeed, the prospective franchisee must not lose sight of the fact that in deciding whether or not to go into a franchise he is also deciding to go into business on his own account, albeit in a particular type of business which has been structured in a certain type of way.

The following questions should be asked and answered honestly.

  • Do I understand franchising and what is involved?
  • Am I qualified physically and temperamentally for self-employment?
  • Will my age/health permit me to run the business long enough to recover my initial investment and to make the effort worthwhile? Conversely, am I too young to have the maturity to run my own business, and employ and direct people?
  • Do I possess sufficient financial resources to enable me to start a business, and survive while it is struggling to become established?
  • Do I have the nerve and force of will to survive expected losses while building up my business, or to cope with any unexpected set-backs?
  • What are my natural aptitudes and skills? Does this franchise opportunity provide me with the right platform for me to exploit and maximise my strengths?
  • Do I have the skills and ability to be a salesman?
  • Am I at my best with mental or physical tasks?
  • Do I mix well with people?
  • Will I be able to handle staff?
  • Do I have the ability and commitment to work hard?
  • Am I prepared to work unsocial hours?
  • How will my family be affected by my decision and the calls which the business will make upon my time?
  • Do my family wholeheartedly support my proposed venture?
  • Will any of my family be able, available, and happy to help me?
  • Am I prepared to put whatever assets I now possess at risk? Can I stand the stress which may follow from taking such a risk?
  • Am I able to raise sufficient finance?
  • What am I looking for, and can I achieve it:
    a) job satisfaction?
    b) capital gain?
    c) lots of money; Is this a wise goal?
    d) an investment (absentee owner)?
  • Will the business be sufficiently challenging for me over a period of time?
  • Can I accept the disciplines of a franchise system?
  • Will I resent the franchisor’s authority?
  • Do I possess sufficient ability to capitalise on the opportunities presented to me?
  • Would I enter the ranks of the self-employed other than through the franchise route?
  • Finally, what do I want to achieve in life?

It is vital for the prospective franchisee to subject himself and his attitude to the closest possible scrutiny. He should be sure he knows himself and knows what he is looking for. He should ensure that in carrying out the self-assessment procedures which are recommended that his particular strengths and weaknesses are relevant to, and would be effective, if put to use in the particular proposition which he is considering and the demands it will make.

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