September 30, 2022

Unitranche

Supportive Business Potential

Why Franchising Isn’t a Good Fit for Aspiring Entrepreneurs

Opinions expressed by Entrepreneur contributors are their own.

The franchise model leverages a system and business approach to help entrepreneurs start and run their own businesses. But a franchisee is really more of a systempreneur than an entrepreneur. True entrepreneurs invent a business from scratch and develop everything from the ground up. Systempreneurs use leverage of all types — debt, an existing operating system, best practices and information — to build their business.



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There is far more certainty of outcome and less risk, because you can evaluate the model ahead of time to determine the strength of the model and whether it’s a good fit for you. Franchising is an incredibly successful expansion strategy for one simple reason: There are many people who want to run businesses and who are capable investors and managers. But there are fewer true inventors in this world.

Related: Why Franchising Depends on Systems

Do you want to start a business or own a business?

The distinction is important. If you dream of starting a business from scratch and inventing every single system and product, franchising probably isn’t a fit for you. Unless, of course, you’re planning to invent a fresh new franchise concept and bring that business to market within a franchise business model. Then you’re creating a business from ground zero and building out all of those supporting systems and products for other people to follow. If instead, you dream of running and owning a business, where your daily focus is driving profitability, growth, scale and impact, then being a franchisee could potentially be an excellent fit.

The franchise model was designed with exactly this type of operations- and sales-focused entrepreneur in mind: the systempreneur. Strong franchisees are also typically good at managing people, listening, sharing, learning and collaborating. They have an open mindset. They see opportunity and have a can-do approach. You will be following someone else’s system, so it’s critically important to make sure you are prepared to do just that.

Related: 3 Reasons Buying a Franchise Might Be Better Than Starting Your Own Business

Are you prepared to follow a system?

It’s often said that franchisees are in business for themselves, but they are not alone. The flip side of this truism is that the franchise corporate team can and will monitor your progress. Most franchise agreements require that franchisees share their financial statements and even their tax returns. This is to help the team monitor unit-level performance and ensure that help is reaching any struggling franchisees. It is also required so that the system can report unit-level performance in the Franchise Disclosure Document, should they choose to report financial performance (financial performance representations are not required). Many systempreneurs are prepared to follow a system but may cringe at the idea that corporate will be monitoring their activities and reviewing their tax returns. This is part of the franchise model. Maintaining the health of the entire system is also important to you as a franchisee.

Franchises also have rules and operating standards that must be followed. You will agree to uphold system standards when you sign the Franchise Agreement. Many are core to the viability of the business, such as health and safety standards. But some are related to brand standards, including fixtures and colors you may use in your business location and advertising.

As a franchisee, I once had to spend $10,000 to move a huge wall in one of my franchise locations, because the corporate approval manager wanted the site to have a particular look. The location of that wall never generated a penny of income for me, but it still cost me $10,000 to move that wall. This type of thing is part of franchising, but it can grate on franchisees’ nerves. Are you prepared to live under someone else’s rules, and can you move forward even when decisions don’t go your way?

The operating model will also evolve and change to keep up with changing customer requirements and competition. You will be expected to keep up. Sometimes that will mean additional spending or rolling out new systems or products that were not contemplated back when you originally signed your franchise agreement. The ability of a franchise system to evolve with the times is important and is only as strong as franchisees’ collective willingness to follow the new system.

Related: Franchising Provides Owners With a Proven Model and Opportunities to Evolve the System

Self-assessment

The following questions and thought exercises are all about you and what you’re trying to accomplish by starting a business. Figuring this out is an extremely important step in your franchising journey. Without this introspection, you’re likely to lose sight of your objectives later. Take the time to invest in yourself by really working through these questions first. Talk through your completed answers with your support system and those who know you best, professionally and personally. Are there any blind spots in your self-assessment?

  • Do I dream more about starting a business or running a business?

  • Can I follow a system and playbook, or do I prefer to try to change things?

  • Can I ask for help and accept advice from others?

  • Am I comfortable reporting on my results and being transparent about my performance?

  • Am I comfortable with the fact that the corporate team will have the final say to enforce brand standards, and that I may have to go along with decisions I don’t agree with?

  • Am I prepared for the required operating model to change during the period of my franchise agreement?

As you complete this thought exercise, make sure your family is on board with your desire to run a franchise business as well. If they understand your objectives, it’s more likely they will support you, so you don’t have any last-minute surprises.

Get at the root of what you’re trying to accomplish. If you don’t know where you want to go, how can you build a plan to get there? Franchising is a terrific business model, but it needs to fit your goals and your desired working style. Are you an entrepreneur or a systempreneur?