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Tuesday, September 19, 2006

Franchising: Some, but not as much assembly required

If you want to own your own business, but can’t ever come up with that really great idea for what type of business to start, franchising might be that great idea. An ever increasing number of Americans are deciding to forgo the labor of building from scratch and instead are buying the basic components of what it is going to take to become an entrepreneur.

By the end of this decade, over 50% of every retail dollar spent in the US will come from a franchise. Why is the number growing? I’ll give you two reasons. The Department of Commerce estimated over 80% of independent small businesses fail in the first five years, while the International Franchise Association estimated that only 5% of the all franchises fail in their first five years. That sounds like enough of a reason for me.

Franchising can be defined as a business, licensing its trade name and operating systems to a third party while retaining some level of control over the operation in exchange for payment. An important thing to understand, according to Micheal Seid, is that “McDonald’s does not ‘franchise’ hamburgers. They franchise a business system.” I like to think of it as buying a prefab home. You still have to do some ground work and hook pluming and electrical to it, maybe paint some walls and decorate, but you aren’t starting with a bunch of 2x4’s and pounding every last nail.

So, do you want a piece of that action? Don’t worry about not being able to find the right franchise for your budget and lifestyle. With 760,000 franchised businesses contributing 1,500,000,000,000 (1.5 trillion) to the US economy, you could spend the next 1,041 years deciding which opportunity is right for you, if you reviewed two franchises a day… every day… until the year 3047.

So how do you wade through the eternity of opportunities? There are great organizations like Fran Net and Fran Choice that act as a broker between you and the franchisor free of charge to you. They can put you through personality surveys, and a series of other tools that will help match you with the right franchise. They will then help introduce you to the franchisor and walk you through the process. They are free of charge to you because the franchisor pays them a commission for placing a franchisee with them. Essentially, it is outsourced marketing, so be aware the “broker” wants you to buy into a franchise, because they need groceries to feed their kids and their wife really wants to go on a cruise next February. However, if you keep that in perspective they can be those two oversized vehicles cruising down the highway, each carrying half of a house so you can finish the assembly. There will be some assembly required, but not as much as starting from scratch.