Does Size Really Matter? Comparing Large Franchises and Small Franchises
By, Mary Ann O'Connell, CFE
Purchasing a franchise can be an exciting entry into a world where you can craft your own future, but it can be overwhelming, too. There are so many choices that it’s hard to know where to start. One of the basic questions you need to answer is whether or not you want to pursue an opportunity with a large system and well-known brand or a smaller, lesser known one.
When considering a franchise does the size of the system really matter? Yes, but bigger is not necessarily better. There are old, large systems that do not operate efficiently and there are new entries to the franchising sphere that have done a lot of preparation and hit the ground running. Here are the top 5 differences between emerging and established brands and T-scales to help evaluate the positives and negatives of each. You have to decide what is most important to you, the level of risk you are comfortable with and what your goals are to rank these criteria.
Franchisee/franchisor relationships
Before you decide on a brand, know how you want to conduct your business and what, other than financial gain, do you want to get from the business. What are the emotional rewards you want from the day-to-day interactions with the franchisor? Those answers will then help you define the relationship you want with the franchisor. Some franchisees prefer to have a very close and immediate relationship: Pick up the phone and the President himself can answer the question. These people want to belong to the organization and work collaboratively while others want to learn it and do it on their own. These people like the autonomy and being away from the scrutiny that can remind them of their corporate positions. Know yourself, and then you will know the system that is right for you.
Initial Fee
The franchise fee is your “buy in” to the system and should be based on the value of the system components you will receive at start-up and the equity earned by the brand name.
Territories and Locations Available
Where do you want to locate your business? Most people who buy a franchise are looking for more than an economic proposal – they also are looking for a venture that suits their life style. This may mean you want your business close to your house and that could be more difficult with an established brand. If that brand has been operating in your market, there is a good chance that the territory you want is already sold, but it could be available with an emerging brand.
Once you have decided on a market that is open, you will have to find a location. For the first time, you could be competing with your fellow franchisees for prime locations. This is in addition to all the other businesses out there that are looking for space with similar requirements to yours. If you are with an established brand, the market you want might still be open, but the “A” locations might not be.
Support and Training
In addition to these considerations, there are specific measurements for each brand you investigate and you should vet them all thoroughly. But, as stated in the beginning, start by knowing yourself. This new business will take your time, care, patience and money to grow so make the environment one that you don’t have to fight. Then look at your end game/exit strategy as it fits into the brands you are investigating and reverse engineer your decision from there. There are positives and negatives to each brand, no matter their age. Take your time, do the homework and ask a lot of questions – of yourself. Once you have been accepted into the franchise system and secured a location, it is time to learn the system and use it well every day. This requires great training and support. Since we adults retain only 30% of what we learn in a classroom setting (and only if we employ it within 90 days), both classroom and field training are essential as is ongoing support and remedial education.
Financial Strength and Exit Strategy
Before getting into a business, you have to have an exit strategy. Much like purchasing stocks: set your ceiling and floor and sell the stock when it reaches either (though always hoping for the ceiling rather than the floor), you should enter into a franchise agreement with a defined exit strategy. Strategies can range from selling the business to passing it to your heirs, folding into a larger venture, major expansion … There are many “end games” and once you have defined yours, measure the prospective franchise system’s ability to deliver that for you. The first consideration is whether or not the system will survive to reach your end game!
In addition to these considerations, there are specific measurements for each brand you investigate and you should vet them all thoroughly. But, as stated in the beginning, start by knowing yourself. This new business will take your time, care, patience and money to grow so make the environment one that you don’t have to fight. Then look at your end game/exit strategy as it fits into the brands you are investigating and reverse engineer your decision from there. There are positives and negatives to each brand, no matter their age. Take your time, do the homework and ask a lot of questions – of yourself.
About the Author
Mary Ann O'Connell CFE, has over 30 years franchising experience and is the President and Founder of FranWise, a full-service franchise consulting company. It specializes in operations, strategy, compliance and documentation.
Contact the author: info@franwise.net