Copyright 2013 by Morris Rosenthal
All Rights Reserved
Product Development (Topics Covered)
Franchises (Book Excerpt)
If you are looking to jumpstart your business identity and product line, one option is to obtain a franchise. In the early days of the computer business, most franchises were rip-offs. But a couple decades have washed out many of the con artists and given the stronger brands a chance to flourish. Prices for franchises range from a few thousand dollars to tens of thousands of dollars. Monthly fees of a few hundred dollars or a share of the gross sales are part of some deals. Franchise models range from retail locations in shopping malls to a cell-phone dispatched repair business that could be run out of the trunk of a car. All of the franchisers offer a whole laundry list of benefits, many of which are of small or questionable value.
I can't think of a more expensive path into the computer business than buying a franchise, so you had better come up with a list of questions to ask. Insist on satisfactory answers up front - don't settle for "that's competitive information that we can't possibly give you until you sign up." I would start with asking how many franchisees they currently have, what the average first full year income was for those franchisees, and what percentage of people who purchased franchises are still doing it for their primary business. Get these numbers in writing and find confirmation in SEC filings for the parent corporation. Ask for the names of the franchisees nearest you and visit them. I wouldn't put much faith in what a regional "Master" franchisee has to say, since these people have a vested interest in signing you up.
You want to talk to franchisees who are operating at the level you will be on. If visiting existing franchisees involves using up a week of vacation from your day job, or appreciable travel expenses, I'd still do it. To buy a franchise, we're talking about amounts of money that would pay for a condo in some places - would you buy a condo sight unseen? Find out how long the franchiser has been in business, and if they are a public company, check out their financial statements in Dun&Bradstreet online or at the nearest library that subscribes to the Million Dollar Database.
An important exercise is to go down the list of "ad-vantages" they are offering you and put a value on each. One of the first things most franchisers will offer you is an exclusive territory. Well, last time I checked 100% of nothing is still nothing. There have to be a dozen McDonalds within driving distance of most places I've lived, so if somebody offered me a franchise that covered my whole state, I'd assume that something fishy is going on. Another big selling point for franchisers is business documentation. I could take this book, transfer it onto 8.5 x 11 sheets in a loose leaf binder and include bulleted items at the beginning of each chapter. Would that make it worth thousands of dollars? Business materials are another selling point: stationery, printed t-shirts, a starter kit of spare parts, possibly a couple hundred dollars worth of stuff you could easily have found locally (and met local business owners in the bargain).
Franchise deals normally include a couple days of initial training (you pay for travel and lodging). Find out exactly what the training will consist of, including an hourly class schedule, and determine how much of it is actually relevant for you. In other words, if you're already a great tech or trainer, you aren't going to derive any benefit from a beginner's course on this subject. Count the hours for whatever remains, and assign a reasonable value, certainly less than a hundred dollars an hour. Check with your local unemployment office or community college to find out about the availability of equivalent or more comprehensive training in your area, to give you a point of comparison. Another questionable value is help with start-up advertising, press releases, etc. They're probably talking about giving you some canned press releases and ads, not tailoring a campaign for you, and if they actually pay for any advertising, rest assured that they're doing it with a portion of the money you've forked over.
Leads and referrals are the plum of any VAR type rela-tionship, but can a franchiser generate real leads for you? This is why it's so crucial to actually visit and talk with some current franchisees, to find out how much business they are getting as a direct result of their having laid out a ton of money. I'm not aware of any computer franchisers who have a national reputation or national media presence, something that would lead a customer to pick your number from the yellow pages over somebody else's. If the deal involves a retail location and branded merchandise that can be sold for a substantial markup, you should take this into account.
My negative tilt on the whole subject of laying out money for a business relationship should be obvious because I have witnessed a lot of "nothing for something" transactions foisted on small businesses. There are all sorts of products and business models that have failed in the retail world, only to be recycled as "opportunities" for new businesses to break in with. I'm always suspicious when I see some guy on TV who claims to know how to make millions in real estate trying to sell me cassette tapes on how I can do the same for just $49.95 - in three easy credit card payments. Somebody in your family or community might help you get a start in business from the goodness of their heart, but when it comes to paying tens of thousands of dollars to some corporate entity, you better make real sure you're going to get your money's worth.
The 161 page paperback book "Start Your Own Computer Business" is available through your favorite bookstore or you can order through Amazon.com for $14.95, or buy the instantly downloadable PDF version for $11.95.