Franchise investors are groups/businesses that invest in franchise companies for one reason, and one reason only. To get a high return on their investment. Here’s an example of a business that focuses on that that metric.
In contrast, franchise buyers are people who want to own their own businesses so they can be their own boss. Greg Moore is a perfect example of someone who did just that (quite successfully).
FYI: I just answered a question about investing a franchise at Quora.com
Stay with me, because this post is going to show you why you need to stop acting like you’re a franchise investor.
Because you’re not.
On Franchise Investors And Franchises To Invest In
Investment firms that invest in franchise companies and large multi-unit franchise groups have teams of people who use spreadsheets, franchise market data, and proprietary algorithmic software to help them analyze the franchise investments they’re considering. Now that’s all well and fine. For them.
After all, they’re looking at multi-million-dollar deals. More specifically, deals that can potentially earn them millions of dollars.
Furthermore, the deals these firms are looking to make take anywhere from 6 months to as long as a year to complete.
Finally (and this is important), the players who are part of these investment firms aren’t looking to step away from corporate America to pursue their dreams of business ownership. Why?
Because they don’t need to look into franchises to invest in.
They’re in it for the major paydays that come with major deals. Those paydays can provide remarkable lifestyles for them. Especially if they’re partners (owners).
Now let’s look at a typical franchise buyer.
On Franchise Buyers
Today’s franchise business buyers want change.
For a lot of them, corporate life isn’t cutting it anymore. And they don’t want to do a job search. Again.
In a nutshell, they may be sick of travelling, working long hours, and/or having to take on more and more responsibilities. Why?
Because it’s having a big impact on their family life.
So what do they want?
They want more freedom and more control.
They want to attend their children’s sporting events and dance recitals.
They don’t mind working hard…they just want to work hard for them. For their futures.
That’s why their looking to become their own bosses.
And for some, owning a franchise seems like a good way to go.
But there’s a problem or two.
The Franchise Space Is Crowded And Confusing
It’s becoming increasingly difficult to figure out which franchise opportunities are good and which ones are money pits…losing propositions. Why?
First off, there are more franchise opportunity choices than ever before. That in itself creates confusion.
Secondly, it’s becoming harder and harder to figure out who to trust.
More on that in a moment.
Thousands Of Franchises And You Only Need To Pick One!
Hold on to your hat, because what I’m about to tell you isn’t going to make you feel very good.
There are approximately 4,500 different franchise opportunities currently being offered in the United States.
That means that you, as a franchise buyer, “only” need to pick one to buy.
In other words, you have a 1 in 4,500 chance of choosing a franchise that will enable you to make money. Again, a 1 in 4,500 chance.
As you gather your thoughts, I need to share something else.
Your chances aren’t really 1:4,500.
That’s because the numbers go down as you narrow your search.
Looking at a home services type franchise opportunity?
You’re probably looking at a 1:250 chance. Much better.
But I have a feeling you’d like to increase your odds of success by a lot.
Well there’s a specific way to do that.
And I’ll tell you what it is in a moment.
The Franchise Industry Has Some Trust Issues Concerning Franchise Investing
It’s no secret that most industries have trust issues. Some more than others. Can you think of any?
In the case of franchising, issues of trust tend to stem from how franchises are presented and sold.
But there’s something else today’s aspiring franchise buyers need to be on the lookout for.
Because specific words are (strategically) used by some website owners.
Words that come extremely close to misrepresenting what they provide for would-be franchisees.
With that in mind, here’s an example from one of the newer style franchise opportunity websites.
“Our team has reviewed over 5,500 franchise opportunities.”
No they haven’t.
Keep reading, because “reviewed” is one of those words.
Franchise Buyers Can Get This Information For Free
What some of these website owners have done is copied and pasted information that anyone with a laptop can get for free, in two minutes or less, from the Wisconsin Department of Financial Institutions.
This information is taken from Franchise Disclosure Documents (FDD’s). And providing this information is not a “review” of anything.
That said, I encourage you to click here and try it yourself.
Admittedly, it would take you a lot of time to download every single FDD.
But you don’t need every single FDD. No one does.
On the contrary, you only need FDD’s from the franchise concepts you’re seriously investigating. And in almost every case, franchisors will send them to you fairly quickly.
In fact, you don’t need to get and read FDD’s from franchises you’re only curious about. It’s not like they’re fun to read. It’s a huge waste of time. Your valuable time. But I digress.
You ARE using Quickbooks, right?
Additional Services Are Normally Offered
Note: some franchise “review” websites provide more than free, readily available information that anyone can gather from a Franchise Disclosure Document.
For instance, some of them offer deeper analysis for franchise company investment firms. Again, for franchise investors.
Another thing some of these websites do is link to franchise brokers who obviously compensate these website owners if the broker earns a commission from a referral.
Finally, some offer “consulting” services to franchisors who want help with their “reviews.”
Translation: franchisors who have lots of unhappy franchisees.
“Reviewing” Franchise Opportunities Takes Time
In my estimation, it would take a team of 142 “researchers” 4.7 months to “review” 5,500 franchise opportunities. And a little over $2 million in payroll costs to pay the “researchers.”
Can you imagine how long it would take a web-based business in a small niche like franchising to make back $2 million dollars in “research” costs?
One more thing. Is reviewing something the same as researching something?
Let’s find out.
What Is A Review?
“A review is a critique of something—a look at something’s good and bad points. Reviews are very common in every industry, and many people rely on them to learn more about something they are interested in, especially something they want to buy. A person who writes a review is a reviewer.” Courtesy of Dictionary.com
So how does one determine the good points and bad points of a franchise opportunity?
Not by data alone, that’s for sure.
You need to have real-world knowledge. And it’s not going to come from 3rd party websites.
For instance, you can scour the internet to your heart’s delight to try to see what customers say about the franchise business you’re focused on. It can take time, but you can usually gather some information from websites like Yelp® and Trip Advisor®. However…
But the most important thing you need to do, (no ifs ands or buts), is talk with (and visit) the people who own and operate the business. In this case, the franchisees. And you need to ask them lots of questions. Like the powerful ones I’ve included here. And talking with franchisees is where the rubber meets the road.
Because that’s where you’ll get the facts and the truth about the company, along with their own experience as franchisees.
Things like how much they make, how long it takes to get to break-even, how good support from franchise headquarters is….and much more.
And these are the things the franchise buyer needs to do. Not some “researcher.” Why is that?
Because it’s not the $16.00 an hour “researcher” putting her money on the line. It’s the franchise buyer. You.
When you’re thinking about purchasing a $250,000 franchise business opportunity, you need to have data. Just not volumes of it!
“But Joel, I need to see the numbers. I like spreadsheets and the like. It’s how I make my decisions. I need lots of data, man!”
I get it (not really). Because I’m not that guy. Spreadsheets and the like don’t do it for me. And that’s okay. We’re all different.
But if you are that person, if you tend to dissect the numbers a lot… sometimes until you can’t anymore, experience tells me unless you spend time with franchisees, in-person and over the phone, the data you’ve collected will only take you so far. Eventually, your emotions come into play.
In addition, and I don’t know if I’m describing you or not, but it’s relatively easy to get in the weeds. To bury yourself in data. And you know why, right?
To delay the inevitable.
The decision to buy or not buy the franchise you’ve been investigating for months.
Remember: You’re A Franchise Buyer
If you’re buying a franchise because you want to be your own boss, there’s a specific way you need to gather information. I’m talking about the crucial information you need to make a smart, fact-based decision on a franchise to buy.
And while some of the information you gather will include the same things franchise investors look at, a great deal of it won’t.
Finally, it’s perfectly okay to say you’re “investing” in a franchise. Why?
Because you are investing.
In your future.