What leads people to want to become involved with franchises?
What I’ve seen is that a lot of people want to have their own business. To have control in their life, to be independent. And one day it comes to the forefront. These days I am seeing a lot of people being nudged into it thanks to downsizing, and some who are ready to take the leap on their own accord. Those who do that by getting involved in a franchise find considerable benefits. A franchise offers you a lot of safety, security and affordability. You get a lot of support.
Can you tell me about FranNet BC and the services you offer?
FranNet BC (FranNet.com) is a franchise consultant group. For franchised companies, we’re like executive recruiters in the sense that we find them quality franchisees. And for individuals, we’re like a matchmaker because I help them figure out specifically what best suits their preferences and skill sets; and their personal, business, financial and lifestyle goals.
And you have a wide network?
Yes. FranNet’s been around since 1987; since 1990 in Canada. We have about 75 offices worldwide and about 100 consultants.
What are the attributes of those people who become successful in franchises?
Often it just turns to be a blend of some of the skills that people already have in their existing career, and can transfer: sales, marketing, leadership, computer skills, general business management, a strong customer-service aspect. They don’t necessarily need them, though. Someone might be stronger in marketing; someone might be stronger in sales.
Would you say that, if someone’s been successful in their career, they have a reasonable chance of success with a franchise?
Generally, yes. Most franchised businesses’ functions are not all that complex in what they do and the way they go about it. A successful franchise owner will have been trained on how to properly sell for their specific business. Less than a quarter of those who go into a franchise business have past experience in that business. So, really, you don’t need technical expertise at the outset. And sometimes it’s better not to have someone with experience, because that person has to spend time unlearning it, and then relearning it properly, and that can really get in the way at times.
Has anyone ever come to you and said they want a franchise, and you’ve counselled them that they’re probably not the ideal candidate?
I’ll be honest with somebody if I feel that they are not going to be a quality franchisee. There are certain indicators that suggest that someone wouldn’t follow systems as much as they tell me they will – much as they may believe it – or maybe they’re just not equipped to get into business. Or, it may not be affordable enough for them. There are a number of criteria I look at.
What’s the range in start-up costs for the franchises that you represent?
We represent about 60 different franchise concepts. The range can be anywhere from little less than $50,000 to over $1 million, depending on the type of business. We’re talking about the total investment: the initial cost, whatever is required for you to get ready to open your doors. And then, how much working capital you need to support the business until it turns a profit: in other words, the total cost of ownership. Most of the franchises that we see interest in involve an investment of around $75,000 to $125,000.
What’s the return on investment on some of those franchises?
The interesting thing is that there isn’t really any direct correlation to that return on investment. People can make more money bottom-line on a $50,000 investment business than they can on a $500,000 investment business. And if we’re looking at something that’s inexpensive to start, it’s home-based, and it has a little overhead, low risk and very high margins. People seem pleasantly surprised with the earning potential of the opportunities, and that they don’t have to risk a lot of money to do so.
What’s the real advantage of owning a franchise versus starting your own business?
There are two main aspects to that. The first one is that, when you are partnering up with the franchisor, it’s the first time you’ve built a business, but they may have dozens, hundreds or even a thousand franchisees who have gone before you. You’ve got somebody in your corner with a vested interest in helping you successfully start and run your business, which means that you get the essential framework.
The other aspect is the knowledge base you can get – both before deciding and after starting. You’re able to talk to many business owners from the same business, to ask them very specific questions, so that you can get a really solid understanding about what it takes to be successful, what are some of the things to avoid, what are some of the problems that people have encountered. Look at it this way: it’s a huge reduction in risk.
What are some of the common mistakes that people make when looking for a franchise?
We aren’t naturally inclined to properly research franchises. A big mistake is failing to distinguish what the function of the business is, from the function of the owner of that business. It’s key to understand what the business does, and what their function as the owner of that business will be. The second mistake is to decide based on emotion. People feel an emotional connection to what a business does, rather than being practical about what owning that business would entail for them.
What’s the sign of a well-run franchise?
One sign of a good, healthy franchise system is that those involved all think highly of the franchise. They’re happy with their decision to be involved in it; they’re enjoying their business, and generally it’s a healthy system. If they could go back, they’d make the same decision again. On the flip side, the sign of an unhealthy franchise system is that some of the franchise owners aren’t successful. Maybe they’re not making the money that they expected, or they don’t get the support they were promised. There may even be litigation involved.
What are some of the concepts that are doing well right now in this economy?
Businesses that help other businesses seem to be a very strong category, so sales training would be an example. Certain businesses do really well regardless of what the economy is doing, such as hair care. Fire and flood restoration are other examples. Some businesses are driven by demographics. A lot of business categories are targeting the aging population or shifting demographics.
Can you give me an example of the range of categories you represent at FranNet?
On the low investment side, there’s sales training, business coaching, child education. Senior care is relatively affordable to get into. In the mid-range of investments, there’s retail, home services, sign manufacturing. On the more expensive side, there’s food, and automotive repair, area developer and master franchises.
How do people finance franchises?
Canadians are generally conservative, especially compared to our US counterparts. Most of my clients are able to self-finance the businesses. Some choose to mix it up, for example, by going into their home equity. In the more expensive franchises, people tend to go with bank financing.
Do you have any statistics on the success rate of franchises versus regular start-ups?
I believe the Canadian Franchise Association says more than 90 percent of franchises are still in business 10 years after they start, compared to 16 percent of independent businesses in the same timeframe. That’s compelling.
What can you tell us about the folks who are typically your clients?
I see a wide range. Clients can be anywhere from 30 to 60 years old. Most are in some sort of transition. They’ve realized they don’t want to go back in the workforce. They come from all sorts of different walks of life. Some are changing careers, maybe because they’ve been laid off. A lot of people I work with have never seriously considered owning their own business before. An interesting thing is that most people I work with never saw themselves getting into a franchise business. That may be because the general view of franchising is that it’s fast-food or really expensive. n