Do Ex-Execs Make Good Franchisees?

One of the most significant trends in franchising over the past 15 years is the emergence of ex-corporate executives as new franchisees. This trend began in earnest with the downsizing of the early '90s, and has continued steadily--corporate layoffs of white-collar workers have become a way of life in large companies.

This is actually exciting for franchisors, because the pool of potential franchisees isn't only larger--it also contains many people with extensive management experience. Many of these prospective franchisees also have significant capital available due to severance packages or simply via years of earning high salaries (read "Executive Decision").

Yet from your perspective, there are certain dynamics of being a franchisee you should be aware of. Your experience as a franchisee running a small business will probably be light years away from the world of being an executive in a Fortune 100 company.

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If you're an ex-executive considering becoming a franchisee, realize that, in a franchise operation, you won't have large budgets and staff personnel to support you. You need to make decisions much more rapidly and almost always without having complete information at your disposal. The risks of making a mistake may be much smaller in a financial sense, but they're also far more personal, since it's your own treasure that's at stake.

It's essential that you communicate well with your franchisor and understand clearly what your role will be as a franchisee. Failure to do so could seriously jeopardize the chances of you being happy and successful as a franchisee.

Your first decision in making the transition between corporate employee and franchisee is whether you want a "standard" or an "executive" franchise business. Both can be great, but they're quite different in terms of the role you'll play.

In a standard franchise business, you'll be very involved in the daily operation of the unit. You can expect to spend a significant amount of time working at the physical location of the business or trying to increase business through marketing or sales. This is very much a hands-on role, and you'll probably work harder than you have in quite some time, especially during the first few years.

The standard franchise can be quite exciting and rewarding if you're an executive who's tired of all the bureaucracy, committees and decision levels involved in a large corporation. This gives you the ability to personally control and drive the business and make decisions on every level, and on an immediate basis. You can also interact with your customers and know from first-hand experience what makes the cash register ring. The downside is that in addition to being the CEO of such a business, you'll have to take on potentially every other role, from the janitor on up. Expect to get your hands dirty in this type of franchise.

In an executive franchise, your role is much more indirect--you work through others to drive the success of the operation and usually have very little, if any, interaction with customers. In this type of franchise, typically managers or other key employees actually run the business operations, while you supervise the managers and key employees.

The advantage of an executive franchise business is that it's tailored to match the corporate experience you're familiar with. It feels comfortable, because it's how you're used to working to achieve results. The downside is that, just as in corporate America, if your subordinates don't perform, the responsibility ultimately rests with you (and in this case, failure has a very personal financial impact).

There's no right or wrong answer as to which type of franchise is best for you. This is a personal choice based on your individual desire, but it's very important that you understand the distinction and the role you'll play in any business you choose (read "The Golden Ticket").

Some other factors you should consider when making your decision include:

• The type of employees you want to work with. Some franchise businesses feature large numbers of minimum-wage employees; others have fewer or higher skilled employees. Consider the types of employees you can most effectively manage and work with in choosing a franchise that'll match up well for you.
• The hours you want to work. You need to be involved in the business during the high-volume periods. Many retail franchise businesses do most of their volume during the evenings and weekends, yet you may be used to having your evenings and weekends free. This is a very important point you need to resolve--otherwise, you'll probably experience a great deal of anxiety once the excitement of the new business wears off.
• The franchise's potential for larger than normal operating margins. Such businesses are simply more forgiving of mistakes and, despite whatever success you're used to having, starting any new business is going to involve making some mistakes. Many of these potentially higher margin franchises are in the service or sales sectors, though you can also find such opportunities in retail or food if you research carefully.

If you're a displaced executive, take heart: The franchise industry represents a great potential opportunity. The secret to making the transition a positive and successful one is to figure out what you want from a business and to gather all the information you need to ensure the franchise you buy is the right one for you. If you do that, you should be well on your way to a better and more rewarding life.