Should I Buy a Franchise?

This article was written by Betty Otte, SCORE Orange County Management Counselor

Editor’s Note: This is the first of three articles by Ms. Otte on the subject of franchising. If you miss any of the series, refer to the archives banner on our blog where you can catch up.

When most of us think about franchises, we are referring to the business-based franchise like the top 500 franchises published in Entrepreneur magazine each year. Entrepreneur’s 75 different categories range from automotive to services, but they all have one thing in common – a systematic method to deliver services or products.

Franchising is not for everyone, but for an individual who has limited business experience or someone who enjoys working within an established system, franchising can be the best possible path.

Franchising is simply a method of distributing products or services, with at least two levels of people involved. The first is the franchisor, who lends his trademark of trade name and a business system. The other is the franchisee, who pays a royalty and often and initial fee for the right to do business under the franchisor’s name and system. The contract binding the two parties is the “franchise” but that term is often to mean the actual business that the franchisee operates.

Do You Have What it Takes?

Before you go into any business, franchise or not, it is important to first ask yourself these important questions:

· Do you have strong motivation and drive to achieve success?

· Do you have confidence and enthusiasm for the product or service you will be representing?

· Are you able to motivate yourself and others and train employees?

· Do you have experience in the industry?

· Are you willing to promote your business and the brand?

The Franchise Lifestyle

Figure out if a franchise lifestyle fits into your own lifestyle. Do you have the necessary support system to open this franchise? Does your family support this decision? Do you have an accountant, banker, and attorney who will assist you in your start up and growth phases?

The Importance of the Brand

In the franchise world, belonging to a system gives you, the franchisee, a competitive edge, which primarily compensates for the cost of being in the system. The main value in franchising is the identity related to the brand. McDonald’s is the largest franchisor in the world with over 31,000 units. Due to consistency of product delivery and global advertising, McDonald’s has a major advantage over, say, Joe’s Diner.

It is important to remember that since the brand’s value is more important than anything else -- including the service or the product -- the customer’s loyalty is to the brand, NOT the individual franchisee. No consumer walks into a Dunkin Donuts franchise because they know the owner. They know Dunkin Donuts. What this means is that within a franchise system, you have to play by their rules. You couldn’t open a McDonalds and sell pizza for example.

Your success as a franchisee is based on your willingness to work within a pre-existing system, and help to build the value inherent in the brand. This kind of a business is not for everyone, so you have to be honest with your ego on this one.

Choosing a Franchise

So let’s say you are willing to work within a system promoting their brand or service and you are not concerned that customer loyalty is not directed to you personally.

Now what? What kind of business should you think about?

The choices can be overwhelming. Approximately 45% of all retail sales are franchise driven – everything from tires to laser hair removal. One out of every 12 businesses is a franchise, with a new outlet opening every 8 minutes. In addition, there are over 75 industries to choose from, with many of those industries having dozens and dozens of options. How do you decide?

Go back to your personal likes and dislikes. Don’t gravitate to the fast foods just because you already know how to make a sandwich. Some top industry choices include auto, children, cleaning, exercise and chicken. Find an industry that you wouldn’t mind doing and thinking about 24/7. Then research all the different options within that industry. Some good resources include Entrepreneur Magazine’s annual top 500 franchises list, the International Franchise Association, franmarket.com or even Google.

Taking the Next Step

You have decided that you don’t mind building the brand and you confess that you will most likely have a higher success rate within a franchise than on your own. You also want to be a part of the annual $1.55 trillion dollar franchise revenue and you have selected your industry. Now what?

Now the fun begins as you start the research that will determine the difference between good and bad franchises. Remember that SCORE has many volunteers ready to help mentor you, many of whom have franchise experience. Seek help from your next SCORE office or online SCORE counselor. SCORE counseling is always free and confidential.

Have We Lost a Generation of Small Business Owners?

This article was written by Scott Shane, republished by permission

We’re down more than 1.1 million. That’s how many fewer self-employed Americans there are today than when the Great Recession began.

According to Bureau of Labor Statistics figures, there were 589,000 fewer incorporated self-employed people and 569,000 fewer unincorporated self employed people in December 2007 than in February 2011. Perhaps most remarkably, on a non-seasonally adjusted basis, we have 753,000 fewer self-employed people now than when the recovery began in June 2009.

The most severe losses have been among the one third of the self-employed who head corporations. As the figure below shows, back in December 2007 there were 598,000 more incorporated self-employed Americans than there are today, and back in June 2009, there were an additional 95,000.

Click for larger chart

The recession and tepid recovery that has followed has eliminated 10.1 percent of the incorporated self-employed. To give you a sense of the magnitude of this loss, between December 2007 and February 2011, the total number of Americans with jobs declined by 5.6 percent on a non-seasonally adjusted basis.

As a result of the recent decline, the current level of incorporated self-employed is back to the level we had in April 2004, despite a significant increase in the population.

The disappearance of so many incorporated self-employed is troubling given the characteristics of this type of self-employment person. An article by Steve Hipple, a BLS economist, explains that self-employed heads of incorporated businesses are less likely to work part time and are more likely to have employees. Moreover, nearly half of self-employed heads of corporations have at least a college education, making them more educated than the unincorporated self-employed, on average.

Hipple finds that many incorporated self employed are found in construction and professional services. Doctors’ offices, law firms, accounting firms, dental practices, real estate agencies and insurance agencies, for example, all involve a lot of incorporated self-employment.

The staggering reduction in the particularly valuable incorporated form self-employment has me wondering, “How long it will take America to rebuild our stock of small business owners?”

Show Me The Money. . .

This article was written by Barry McKinley, SCORE Orange County Management Counselor

I recently heard an athlete interviewed on TV and he was asked, “Were you surprised to find yourself in the points lead?” The athlete promptly answered NO, and continued to say “if I didn’t think I was capable of being number one I would have never started the season!” I wonder how many people in business don’t think that way!

My experience in both business and now in mentoring is that many new start-ups as well as established companies concern themselves with items that will not make them any money. It is almost like they are afraid to pull the trigger! “There is an old saying that is very fitting, “Draw, Aim, Fire” but many people “Draw, Fire, Aim” which doesn’t work because you certainly miss a lot of the time. . . the same if you ”Draw, Aim, Aim, Aim” which is when you are afraid to fail so you don’t pull the trigger. Failure is good –smart business people learn and move on. Any business person who has not failed certainly has not taken any risks or conveniently has a very short memory. “The bigger the risk---the bigger the reward!”

If you follow the normal business guidelines of establishing a business plan, doing sales and expense projections, doing testing of marketing ideas, projecting required cash and establishing funding for your business. You have now completed the “Draw & Aim” phase of your business.

I recently worked with a client who had spent probably days if not a week developing many different “Mission Statements”. This was going to be a one person business and then they would hire employees as the company grew. The “Mission Statement” should have been ---“Do Your Plan” and then “Go Make Money”! Another client who has an excellent medical product and has spent years and millions of dollars developing it only to now to be facing the reality of running out of money. This cash shortage has been going on for over two years and the product could have been marketed over two years ago, and started to generate cash. Instead the owner wants to develop phase two, three and four before introducing Phase One! Unfortunately like so many good ideas they fail before they even get out of the ‘starting box’! Did Apple wait to have four phases of the IPod ready before they introduced Phase One? Absolutely not! They developed an excellent product and allowed the market to do some of the field testing and to dictate to them what the next product would be.

When I was in business I tried to run every potential task through my simple check and balance system. I asked myself will this task make me money now or in the future. Is the return worth the effort? Will I benefit some other way from doing this task? If the answers were negative then I would ask myself what is the value in doing this. Many business people mistake busy work for productive work.

As cold as it may sound, if you can’t “Show Me the Money”, don’t waste my time!

Teaming in Government Contracting

This article was written by C.P. Krishnan, SCORE Orange County Workshop Presenter

Teaming has been a subject much ignored when it comes to Government Contracting. In the commercial sector, businesses are always teaming to launch products & services. It is not any different in the arena of Government Contracting. The following are areas that address the strategies governing successful teaming.

The federal government is a big supporter and proponent of small business participation. Not only does the government direct a considerable percentage of its procurement to small business, but it expects Teaming to be an important strategic process for achieving it. Some contracts are too large for many small businesses to handle alone. This is where small business can team with other businesses to collectively perform contracts. It is a great way to build credibility and demonstrate proficiency to the government.

Teaming is especially appropriate when contracts require a larger workforce or a higher volume of work than any one small business can handle. There are more and more government agencies “bundling” several contracts into one larger contract to save time and money. The federal government recognizes and encourages teaming arrangements as a way to serve these types of contracts.

Proper Groundwork

A proper foundation is critical for any structure to stand and flourish. It is no different in Teaming. Successful teaming occurs long before the actual solicitation is advertised. Building effective relationships happens through human interactions at various events, conferences, business associations, resource centers, and many other avenues such as these. Mutual understanding and agreements start the road to Teaming.

Screen Potential Partners

Be sure to conduct a thorough background check on any potential business partner. Exchange financial information, sign confidentiality agreements, and talk to references. Check on payment history, business track history, and ask for more information before teaming with them.

Put It in Writing

All details regarding the target contract and the relationship needs to be put in writing. In the written agreement, identify objectives, deadlines, tasks, responsibilities, quantifiable results as much as possible. You will also need to draft a teaming agreement for specific bids. It should cover everything from when the project begins and ends to how the parties will be paid. Have a legal counsel and accountant to review documents before signing.

Start Small

Teaming is a partnership journey and the best test is time. It would be best to work together on a few small government contracts together before going after the large ones. In doing so, both parties will learn about each other’s habits, business structure, and company culture. This will also help in developing procedures that make the joint operation run smoothly. A track record is also established of companies working together successfully.

Define Areas of Responsibility

Define and clarify each team member’s role & responsibilities and update those roles as the project progresses. Designate company-wide contact personnel to act as liaisons to avoid miscommunication on important matters.

Complementary Services

The idea of teaming is not just to have more capacity but to have synergistic capacity. Great teaming relationships are based on partners working together who complement each other and add value to the overall performance.

Joint Ventures & Subcontracting

Depending on the type of contracts pursued it might be conducive to either have a Joint Venture formation or Prime/Subcontractor relationship. Each party must seek counsel and direction from experts in this matter including, but not limited to, legal counsel. In all cases, all items of the arrangements must be in writing and completely understood by all parties before proceeding. The various benefits & requirements for each type of relationship are many and must be thoroughly considered before proceeding.

5 In-Your-Face Business Lessons

From PR Legend, Michael Levine, As published in Business News Daily, reprinted by permission

Michael Levine thinks America is in big, big trouble.  The good news is: If you’re determined enough, you can climb over the rotting corpse of the American dream and take advantage of our great nation’s demise.

Levine is the author of “Guerrilla P.R.: How You Can Wage an Effective Publicity Campaign ... Without Going Broke” (Collins, 1994), which is considered a PR bible by many. He is also featured throughout the new Morgan Spurlock documentary about product placement, "Pom Wonderful Presents: The Greatest Story Ever Sold," which premieres April 22.

In an exclusive interview, Levine tells BusinessNewsDaily – in his unique way – how small-business owners can capitalize on everyone else’s laziness and why Starbucks started selling soy lattes.  Here are five of his lessons.

Lesson 1: "Big = Stupid, Small = Nimble"

Small-business owners, take heart: Though it may not be immediately apparent, you do have an ace in the hole. Namely, you’re small enough to move quickly.

“If you’re a coffee shop owner and you want to start selling yogurt, you can start doing that tonight,” Levine said. “If you’re Starbucks, it will take you four years.”

The best way to put your nimble nature to work is to exploit your competitors’ weaknesses. Find out what your competition is doing poorly, then do those things well, Levine said.

“If it takes the stoner kid at Domino's 19 rings before he answers the phone, make sure your pizza shop answers on the first ring,” Levine said.

Lesson 2: "How to eat cheesecake and stay thin" (You can't)

There’s a reason it’s hard for your company to get customers’ attention, Levine said. Everybody’s got something to sell. And nobody wants to work for it.

“We’re a nation of people who can agree on nothing except that every single American is trying to figure out how to make as much money as possible for as little work as possible,” Levine said. “Everybody wants to figure out how to eat nothing but cheesecake and stay thin.”

The best way to get your customers’ business, he said, is to work for it – hard.

Lesson 3: “Approach solutions like a junkie looking for dope”

Why do small businesses fail? Because owners are not willing to work hard enough, according to Levine.

“You need to work hard,” Levine said. “You need to work nights and weekends and do whatever it requires. Today people are much more interested in posting pictures on Facebook than they are in working.”

Levine says drug addicts look for drugs relentlessly and don’t stop until they find them. You need the same approach when looking for solutions to your customers’ problems.

“You need to work relentlessly. If you do that, you’re going to win, because most people do nothing at all,” he said.

Lesson 4: “Have stuff people want”

Levine tells a story about a diner near his house where the only desserts on the menu are giant portions that cost in the neighborhood of $6. If you’re not in the mood for a chocolate cake the size of your head, you’re out of luck, Levine said.

“If you want a cookie, say, for a dollar, you can’t get one because they don’t sell cookies. So what do you do? You walk your butt down the street to Starbucks and you buy a cookie for a dollar,” Levine said.

Why doesn’t the diner sell an alternative to its oversized, overpriced desserts? Because the owner doesn’t care, Levine said. “He’s busy with his golf game, taking his kids to Gymboree, and posting pictures of animals on Facebook.”

Levine’s point is that if you care, you’ll listen to your customers and give them what they want.

He points again to Starbucks, which, after listening to its customers’ repeated requests for soy milk, increased its sales of soy-based products from nothing to 9 percent of its sales over the course of the last few years.

“Most business owners aren’t hungry enough,” Levine said. “Howard Schultz [founder and CEO of Starbucks] wants it bad enough.”

Lesson 5: "Americans are stupid and lazy"

Levine believes that most Americans have lost their edge and no longer value work as a legitimate pastime.

Entrepreneurs and business owners who can do better and try harder will succeed, he promised.

“It’s easy,” he said. “You’re going to win. Because everyone else is stupid and lazy.”