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Franchise Opportunities: Buying Into A Big-Name Brand

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Franchise Opportunities: Buying Into A Big-Name Brand

By FranchiseKing, Guest Blogger
Published: December 5, 2012 Updated: December 5, 2012

A significant number of the people that I’ve provided franchise advice to over the years have insisted on looking at franchises that have a recognizable brand name.

I understand why they start their franchise business searches with “the brand” in mind, but do you? You will if you read this post.

Definition of a brand

Legendary marketer Seth Godin* has a great definition:

A brand is the set of expectations, memories, stories and relationships that, taken together, account for a consumer’s decision to choose one product or service over another. If the consumer (whether it’s a business, a buyer, a voter or a donor) doesn’t pay a premium, make a selection or spread the word, then no brand value exists for that consumer.

Now that you have the definition, let’s look at the number one reason that prospective franchise owners are attracted to the “idea” of owning a well-branded franchise.

Risk

Most franchise buyers think that if they buy a big-name franchise, they’ll be entering the world of franchising at a much lower level of risk…financial risk. Is that true? No. Here are a few reasons why:

1.  Experience

Let’s say that you decide to buy a food franchise with huge brand recognition, but you do so knowing full well that you have zero food-service experience. Do you really think that the brand name of the franchise chain can prevent your business from closing if things get bad enough?

(I use a food franchise as an example because it’s one franchise type in which franchisees, in most cases, can increase their chances of success if they actually have food-service experience.) 

2.  Capital

If you buy a franchise—and do so with a miniscule financial cushion to help you get through the very challenging first 12 months or so—no brand in the world can help you print money.

One of the most important things you can do that can actually increase your chances of success as a franchise owner is to have your finances in order. To do that, you need to figure out how much you have to invest and how much you’ll have for working capital and living expenses as your franchise business ramps up.

You’ll also need to get the right type of small business loan. And, you’ll have to come up with a business plan.

3.  PR 

If you’re part of a big-name franchise brand, your local business can benefit from some the good things that corporate does, like charity-related events, for example. It gives you a chance to roll up your sleeves and really get involved in your community. For a good example, take a look at how College Hunks Hauling Junk has partnered with Habitat For Humanity*. 

Of course, getting publicity isn’t always a good thing. For example, it was revealed that several restaurants of a popular franchise chain were closed down for health reasons. In this case, the “brand” couldn’t prevent these franchisees from losing their business.

While it’s true that the franchises in that story were only located in NYC, it’s possible that other media outlets (from other areas of the country) picked up the story and reported on it. Sometimes consumers only hear or read part of a story and assume things. So, it’s possible that owners of this chain in other geographical areas were affected negatively by this news story.

Publicity can be good or bad, and most of time you don’t have very much control over it. And sometimes, bad publicity can affect your finances.

In franchising, it’s important that you don’t get enamored by the brand name alone.

If you make sure that you’re a good fit for the business type, have your finances in order and understand that you won’t be able to always control what is being said or written about your brand, you’ll increase your chances of success as a franchise owner.

About the Author:

Joel Libava

Guest Blogger

The Franchise King®, Joel Libava, is the author of Become a Franchise Owner! and is a franchise ownership advisor. He shows people how to carefully choose and properly research franchises.   

Comments:

A franchise is only as good as its brand. But I agree that even sometimes when the brand has amazing success, the franchise location itself is not guaranteed to be successful.
Great article! Franchise opportunities can be very lucrative, but there are also royalty fees involved that not everyone realizes can be quite high. I agree that you really can't buy the type of PR that these large companies can give you.
You're correct. Some large franchises could hurt your business with bad publicity. One franchise does something or says something wrong, the other franchises could pay the price as well. People only see the name, not each individual franchise.
While a established franchised concept improves the possibility of success, the business owner must perform his due diligence on the way each franchisor deals with the franchisees. How much support is available, and if the franchisor is a true partner of the franchisees. Unfortunately, some franchise concepts have deteriorated from one where all parties share on the revenue to one where the franchisor’s main goal is to churn franchise fees. Last year, the SBA released loan performance by franchise brand. The data reflects loans approved from 10/01/01 to 09/30/10, which were assigned to a franchise brand and subsequently disbursed. The data shows clear differences between franchise brands with the best showing single digit failure rates, and the worst reflecting 90%+ failure rates. From looking at that data, I found that Quizno’s SBA loans had almost 4 times the rate of failure than Subway’s SBA loans. Don’t you think that this would be something to take into consideration if one was looking to start a fast food franchise? There is a lot of free information available to potential franchisees, but it needs to be found.

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