Q:
I've found a franchise system I really like. They have a great
presence in the upper Midwest but don't yet have units anywhere
else in the country, including the area where I live. What are the
pros and cons of getting involved with a franchise that's not
national?
A: To
determine this, you must first be aware of what a franchisor
provides franchisees. As a franchisee, you should receive these
three basic components:
- Brand. The brand and trademarks of the franchise system
should have value in the eyes of the customers of the business. The
best value exists if the brand is already established in the market
area you will be operating in. The next best situation is when the
brand can be easily established or expanded in your market
area.
- A proven operating system that produces predictable
results. You want to find a franchise system that has worked
the bugs out of the system and perfected the operating systems
before you get involved. This saves you from being one of the
franchisees who may have to help the franchisor learn some lessons
the hard way. These lessons can be expensive, not only for the
franchisor, but also for the pioneer franchisees.
- Operating support. This includes the initial support the
franchisor provides to help you establish your business and get it
moving in the right direction--building your unit, training your
staff to run the business, teaching you how to market the business
effectively and any other information you need to become
successful. This also includes any and all forms of ongoing support
to provide franchisees with whatever assistance they need to
operate their business for the long term.
As you review the components listed above, it becomes obvious
that a franchisor with a strong regional focus is just as capable
of delivering good value to you as a national franchisor. It really
should make no difference in the value of the franchise for
you.
Content Continues Below
Whether you are dealing with a regional or national franchisor,
make sure you are not going to become an "Orphan"
franchisee. This is the real risk you run, regardless of where the
franchisor is currently focusing its operations.
As an Orphan franchisee, you're out in a market all by
yourself with no strong assurance that more development will
rapidly take place around you. In your situation, with a regional
franchise with strong operations in the upper Midwest, if you
decided to open a unit in Tampa, you would likely be an Orphan.
Even in the case of a nationally focused franchise company with
units in many states, if you're the only franchisee in Boston,
you would likely be an Orphan.
The issue here is the value equation we discussed above. If
you're in Tampa or Boston all by yourself, with no strong
development commitment from the franchisor to expand the market,
how powerful is the brand going to be? And, frankly, if you are
going to be the only one spending money to build the brand, why pay
more money to be a franchisee?
If you're going to be all alone out there, you also need to
carefully consider the proven operating system of the franchisor.
Boston or Tampa may have differences that make an operating system
designed for the upper Midwest less effective in that market.
Boston has completely different real estate characteristics than
the upper Midwest. The demographics in Tampa, particularly the
average age of the population, are quite different from the upper
Midwest. Don't automatically assume you'll get the same
results as other franchisees if their market areas are
significantly different from yours.
Finally, consider the ongoing support services of the
franchisor. Support services are always stronger and personal
visits more frequent when the franchisee is in or near a
concentration of units. It's simply easier and cheaper for the
franchisor to provide support on this basis. Don't assume
you'll get the same level of support if you're an Orphan
franchisee.
As a final word of advice on this issue, if you are considering
being a trailblazer (that sure sounds better than an Orphan,
doesn't it?), make sure you heavily weigh the validation of
other trailblazing franchisees when investigating the franchise
system. Their experience will be much more relevant to you than the
experience of franchisees in the middle of a bunch of units.
Jeff Elgin has almost 20 years of experience in franchising,
both as a franchisee and senior franchise company executive. He is
currently the CEO of FranChoice
Inc., a company that provides free consulting to consumers
looking for a franchise that best matches their needs. He can be
reached at jelgin@FranChoice.com.
The opinions expressed in this column are those
of the author, not of Entrepreneur.com. All answers are intended to
be general in nature, without regard to specific geographical areas
or circumstances, and should only be relied upon after consulting
an appropriate expert, such as an attorney or
accountant.