Learn me franchises

I am starting a business again. 

I am debating starting from scratch (again), or buying a franchise. 

Starting from scratch is a really slow start. I'd rather the faster start of a franchise, and could use the corporate resources available- marketing, web tools, training, lead generation, etc. 

The franchise fee is stopping me- nearly $100K. I don't mind investing, but I am not excited about flushing $100K.

How to evaluate?  Pitfalls?  Opportunities?

I've owned several businesses. Never owned a franchise- always started from scratch. But I have recently relocated to another state, and feel like the start will be painfully slow being in a new area.

FWIW, I have a current full time job (and don't intend to quit soon). I have over 30 years construction experience, and the franchise is construction related.

Company appears solid, and I am in a prime area for the niche.

Thoughts?

Make that franchise work for that $100k.  I partnered with a friend from church in a carpet cleaning franchise.  During training they promised him the moon with ongoing support, exclusive contracts, marketing.  After a few months, when we noticed some discrepancies and called in to home office, we were given a lot of runaround.  They treated the franchise fee like a key to their door but not an ongoing fee for services rendered.  Ask other franchisees in different markets if the franchise will actively promote the business and really stand up for you.  $100k is a lot.  Make sure you're getting at least that much value and not just access to their name.

In reply to Crxpilot :

Good point. 

I made a mistake. 

$100K is not the franchise fee. It's the top end of the projected startup cost to a new business (which includes the franchise fee) 

The franchise fee is $28K

In reply to SVreX :

If I’m reading correctly you’d be the first franchise within your market? Does the franchise have enough nation-wide name recognition that local people would recognize it(and thus presumably call you before the competition)?

If not, you may not be any better off than building it from scratch. 

This may sound like basic "well duh" information, but we definitely learned some things the hard way--

• Make sure you know exactly what you are getting out of the franchise fee and any additional funds you might be paying the head office you as you get set up-- there may be lot's of stuff they can add in that you have to purchase from them like corporate approved decor, computer systems, etc.
• Make sure you're on top of what they will collect on an ongoing basis-- the deal we were in took 15% of the gross to cover all of those "corporate resources", another $450/month for access to their corporate VPN and IT support, etc.
• If there are any stipulations in the franchise agreements requiring specific goals for future growth for your business that you don't see as possible to meet in your market, see if they are willing to give on those, in writing, or bail.
• And top of the list, if their operating practice is that all receipts of the business are to be deposited into an account that, by policy, you will have no signature authority on, with disbursements settled monthly, run.   Run, run, run, run.

In reply to Karacticus :

I wouldn't say those are "duh" at all... very helpful. Thanks!

In reply to Pete Gossett :

Its a big market. I'd say less than 10% saturated. 

You're right, their name will have a lot to do with lead generating capability.  Their name is good, but not enormous. Franchising for 30 years with 50 or so units.  But they offer other things- design services, marketing assistance, industry specific coaching and training, etc. 

I could do these services at a lower cost in-house, but only at a much larger scale. There may be advantages to paying extra (hourly rate) during the startup phase, rather than supporting these needs through increased payroll and direct expenses. 

I had thought about getting into dustless blasting for retirement income until I saw the cost of the units.   The arrangement also sounded somewhat sleazy. 

I knew a guy that open up a Redi-Strip franchise years ago.  They reamed him over consulting fees" when the solution was no longer working.   He dropped them an went at it on his own.         

In reply to SVreX :

One other point: I’ve always found a better value from serviced-based businesses with smaller shops - if I need plumbing I’d call a plumber, not a plumbing company. If I needed fire/mold/whatever cleanup I’d find someone local before calling ServPro, for example.

Maybe I’m a minority in that regard(this is GRM after all), but unlike a fast-food chain, I don’t see a franchise having nearly as much value in a service/construction-related field. 

In reply to Pete Gossett :

I think you may be in the minority. 

ServPro does a pretty good business

One of the (if not the biggest) positives with franchises is the advertising aspect.

I don't know a plumber or electrician by name/phone number in the event of an emergency...but I (or others around me) have at least heard of the big chain places, from all the advertisements.  That's who I would call in an emergency...and pay dearly for it...but the job would be done.   Same with HVAC work or restoration work.

You and I have heard of Servpro due to the advertising, and so has everyone else, and they'll get lots of calls for business.

...AND, I can probably have the best of both worlds in that regard. 

Having a franchise would not mean I could not also have an identity as the owner-operator of a smaller shop. 

They are not mutually exclusive. 

SVreX I think your last point is a good one, especially for repeat business if that's possible and the service you are providing can be more than a commodity.  I used to regularly go to my local Mr. Tire because the GM owned it for many years, ran it fairly like his own small shop, hired well, treated his folks well, and was priced reasonably, and could and would do stuff beyond oil and tire work but not over his tech's heads.  When I moved to the area and sought recommendations, I got several recommendations to him, and they said don't get scared by the chain - he's good.  When he left (not sure why-probably retired), and a new GM took over, it became the same chain oil chain places that exist up and down that strip of road, with a new face every time I go in there (which is now pretty rare).  

SVreX said:

In reply to Pete Gossett :

I think you may be in the minority. 

ServPro does a pretty good business

They did an outstanding job in my daughters house when we had a water leak. 

SVreX said:

...AND, I can probably have the best of both worlds in that regard. 

Having a franchise would not mean I could not also have an identity as the owner-operator of a smaller shop. 

They are not mutually exclusive. 

What sort of noncompete do you have with the franchise?  How will they take to you using their advertising to get the call and then having your indy shop do the repeat business or similar work/contracting?.  In car terms, would it be like going to get brakes and an oil change done at a chain, and having the tech say "pay for the oil change, give me a call when I get off and I can do brakes in your driveway for half price"  Pretty scummy thing for the tech to do.  

I'm fairly anti-franchise...you're buying a job in many cases.

California seems to have tougher reporting laws for franchisors, so if you dig enough (and it takes some digging), and your franchise is offered in CA, you can find out who owns the other franchises all across the nation, along with the franchise agreements they won't show you until fairly late in the game.

*EDIT* I guess it took me awhile to dig, but here is the site...I searched servpro for kicks and got some returns.

https://docqnet.dbo.ca.gov/search/

_________

What's the percentage they want? 

I looked into one and it was 6% (to a point, then a sliding scale)...That's a lot to pay forever, and your competitors start off with a 6% advantage.

Another thing is: Will they allow you to have a full time job? Some allow 'absentee owners' and some require you to be the GM and face of the company every day.  (To say nothing about how are you going to run it with a full time job.)

No direct experience, but the sense I got when investigating options quite a while back was they are like poop...

Too frequently dealing with them means you accomplish nothing but crap.

Too infrequent dealing with them is painful.

In the end you are still dealing with E36 M3...

Pirtek looks to be well run to me.  

In reply to jamscal :

I agree with "buying a job" in general. I'm sure there are good franchises, but I don't know how to tell the difference.

How does subway get someone to work constant 80-90 hour work weeks for $50k annual salary? They call them an "owner".

93gsxturbo said:

What sort of noncompete do you have with the franchise?  How will they take to you using their advertising to get the call and then having your indy shop do the repeat business or similar work/contracting?.  In car terms, would it be like going to get brakes and an oil change done at a chain, and having the tech say "pay for the oil change, give me a call when I get off and I can do brakes in your driveway for half price"  Pretty scummy thing for the tech to do.  

I think what he's saying is that a franchised location can, in many cases, still have its own distinct reputation, one where the customers know who's running the local franchise and know that he's someone who stands behind the work. Not that he'd have a separate shop in the same line of work, just that he doesn't intend to trade purely on the reputation of the franchise itself.

MadScientistMatt said:

93gsxturbo said:

What sort of noncompete do you have with the franchise?  How will they take to you using their advertising to get the call and then having your indy shop do the repeat business or similar work/contracting?.  In car terms, would it be like going to get brakes and an oil change done at a chain, and having the tech say "pay for the oil change, give me a call when I get off and I can do brakes in your driveway for half price"  Pretty scummy thing for the tech to do.  

I think what he's saying is that a franchised location can, in many cases, still have its own distinct reputation, one where the customers know who's running the local franchise and know that he's someone who stands behind the work. Not that he'd have a separate shop in the same line of work, just that he doesn't intend to trade purely on the reputation of the franchise itself.

That is exactly how i read it as well.   For example, when I needed exhaust work I went to the Midas on Piney Branch Road because the guy who ran the place was a legit hot-rodder.  I'm confident that SVreX is suggesting exactly that kind of situation.

I've got a buddy who owns a successful business and he's always saying "dude you should buy a franchise from me!" His name is really only regionally known, and even then not by a large margin. I fail to understand what the franchise would get me. I think he just wants to help me and he'd be pissed if I took his training and knowledge I learned working with him and went out on my own (even though I haven't worked with him in 6 years). 

IF anything, he'd benefit from me using his name because then it would make his company seem much larger than it actually is. 

Anyway, nothing else to add.

93gsxturbo said:

SVreX said:

...AND, I can probably have the best of both worlds in that regard. 

Having a franchise would not mean I could not also have an identity as the owner-operator of a smaller shop. 

They are not mutually exclusive. 

What sort of noncompete do you have with the franchise?  How will they take to you using their advertising to get the call and then having your indy shop do the repeat business or similar work/contracting?.  In car terms, would it be like going to get brakes and an oil change done at a chain, and having the tech say "pay for the oil change, give me a call when I get off and I can do brakes in your driveway for half price"  Pretty scummy thing for the tech to do.  

That's a good question. 

I wouldn't do that, and don't perceive a problem. 

The franchise is a niche market- outdoor living spaces. Decks, patios, gazebos, hardscaping. They market the franchises as value-added niches for existing contracting companies. It would be pretty easy for me to keep other services separate (like general contracting, handyman, commercial, kitchens, etc). I see no conflict of interest. 

I would market the services as 2 separate companies. 

Robbie said:

In reply to jamscal :

I agree with "buying a job" in general. I'm sure there are good franchises, but I don't know how to tell the difference.

How does subway get someone to work constant 80-90 hour work weeks for $50k annual salary? They call them an "owner".

That's true. 

Chik-fil-A does the same thing. But the owners make more like $250K