If you’re a current franchise owner, why are you working so hard? What’s your reason? Is it a short-term reason, or a long-term one? Do you have any idea what I’m really asking?
I’ll try asking you this question another way;
Do you have a plan?
What I’m really asking is this; what’s your long-term objective? If you’re willing to work 12-hour days, there must be a reason for it? Right?
I sure hope that it’s not the, “I’m a small business owner, and small business owners work really long hours, you know” reason.
If that happens to be your reason, it’s not a real good one.
There’s a reason that I know this myself. (Well, I know this now.)
The reason is that I read my friend John Warrillow’s new book, “Built To Sell.” It really got me thinking. You’ll be forced to think after reading it, too. Especially if you’re the owner of a small business-franchise or not.
John’s book struck a strong nerve with me, but it’s probably because I’m in a unique situation. I’m a one-man show…I’m a solopreneur. I’m a Joel of all trades. (Sometimes I even like it!)
The Preface
The first sentence of the preface pissed me off.
“This book is about how to create a business that can thrive without you.”
I have no plan. When I get my franchise advisory business to where I want it to be, who the hell is going to buy it, when I want to move to the beaches of North Carolina, or Fiji, or any other area that’s within walking distance of blue water?
What do I have to sell, when I’m the business?
So, my question to you is this; if you’re a one-person business, what do you have to sell?
John’s book features Alex Stapelton, the imaginary owner of an advertising agency. In Alex’s case, he has a few employees, but he’s The Guy; he’s the one that makes the deals and keeps things going. The question John asks, (through Alex’s story) is this;
If you’re the business, how the heck are you going to be able to sell it?
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If you’re the owner of a franchise business, and you’re working really, really hard, have you thought about your exit strategy? If you’re the primary driver of the business, how will you be able to replace you, so that you have something other than you to sell?
John has done an amazing job with this book. By using an imaginary small business owner, he’s effectively taken himself out of the book, and instead, has brought in an imaginary character that makes the book hard to put down. (I read it in two nights.)
If you’re a small business owner, or are thinking about becoming one, this is a must-read book. An exit strategy needs to be part of your plan. “Built To Sell” will help you come up with it.
Go to www.builttosell.com, and read a sample chapter.
Carol,
Thanks for that insight. You’re a smart cookie, and I don’t doubt that you know what you’re talking about-from experience.
However, most of the folks that buy existing franchises are buying them because of their upside; they’re branded. These buyers have no interest in being the franchisor. At all. They just want a business that they perceive has value-because it’s a franchise business, and because of the franchise model itself.
I’m guessing that the franchise transactions that you were involved with were large multi-unit or master franchise deals. In that case, there is a bit of a difference, as you so gently stated. It’s a totally different buyer than your typical everyday franchise buyer. That kind of buyer is looking for something big, and may want to embark on either a huge empire-building mission, or become the franchisor.
In summation, if I was looking to buy a business, and I had a choice of a franchise or non-franchise, as long as the franchise concept was a fit for me, and I felt that the brand name and the systems and marketing attached to it were more valuable than Joe’s Pizza, Pub, and Pool Palace down the street, my choice would be the branded franchise.
Thanks, again for your insights into this important small business matter.
You should write a book.
(Folks, Carol Roth Rocks. She DID write a book. It’s called The Entrepreneur Equation, and it’s a must-read for any future business owner, and an Amazon.com and New York Times, best seller. Buy it.)
I love ya, Carol. You help me so damn much.
JL
Well, Joel, I will respectfully disagree right back because I have sold both franchise and non-franchise businesses (not to mention taken public both), and there is a penalty for not owning the brand.
I can show you the market comparables and you will see the discount, because – all else being equal- if you have an operation that you own the brand, you can actually become a franchisor or expand that brand whereas not only do you not not own the brand as a franchisee, you are limited by territory restrictions on how much you can grow. And someone buying a business on a multiple basis is buying it for growth.
Now there are TONS of benefits in starting a franchise in terms of mitigating downside risk, but you mitigate that risk in lieu of a cap on the upside. That’s just the reality!
Hi Carol,
Thanks for your comment!
I’m disagreeing with you on this one, though.
When you’re the local owner of a franchise business, in the consumers eyes, your operation is the brand, and that does have value. As a matter of fact, if it’s a well-known brand, and it’s a successful franchise business, it’s going to have a higher valuation than an independent, mom and pop operation. There’s just no competition.
Mom (or pop) probably doesn’t have the same resources as a well-tuned franchise system. Think technology, marketing, and of course, a brand. (Possibly)
Let’s not forget the support (that franchisees do have to pay for) that’s available for a franchise business. There’s no such support from a Mom and Pop; once they sell their independent business, they’re gone. (Unless they agree to stay on as a paid consultant for awhile. But, we both know how that usually ends up.)
So, in response to your comment, I respectfully and totally disagree with your assessment of a the valuation of a franchise vs. independent business. There’s usually no comparison. Buyers know that they’re paying for all the things I mentioned.
Of course, that’s why they would buy an existing franchise business in the first place. They get that stuff.
The Franchise King®
As someone who has sold my fair share of businesses ($750+ million worth successfully and at least as much that blew up in process), franchise businesses present an interesting conundrum in the exit mindset.
Because you do not own the brand, you do not get nearly the valuation you might for a standalone business. Where the exit mindset is all about creating equity value, that is capped when you have a franchise, so you don’t get the same valuation “multiples” that you might from a business where you own the brand.
I suggest consulting with a knowledgeable investment banker as you think through the risks/rewards of going into a franchise or any type of business.