Franchise this

Franchises – you get the right to use a brand name, some training, and the obligation to pay the home office forever.

A good deal?

I don’t think so, and yet the price on these things just goes up and up…

Here are some current franchise prices taken from last week’s Wall Street Journal:

* Geeks-on-Call (a knock-off of Geek Squad): $250,000
They provide tech help to computer owners

* Intelligent Offices: $500,000 plus $1 million in net worth
They provide temporary office space

* Golden Corral: $2.5 million net worth and $500,000 in liquid assets Some kind of a family style restaurant

Keep in mind that these are just franchise fees or net worth requirements. None of the other costs involved in starting the business – real estate, staff, equipment, inventory – are included.

Franchises are usually touted as “proven” concepts with an ultra-high success rate.

In fact, it’s not unsual for franchise promoters to go out of business and leave their franchises holding the bag.

Not only that, the franchise industry likes to play fast and loose with the facts. For example, ask a franchise promoter about the odds of success as a franchise and invariably he’ll tell you that the failure rate for franchises is just 5%.


Dr. Timothy Bates, a professor at Wayne State University in Detroit,
actually studied the question and he’s what he found:

1. The franchise failure rate actually exceeds 30 percent. Fully six times what franchise promoters routinely state.

2. Franchises made lower profits than independent entrepreneurs.

3. The average capital investment of franchisees was $500,000, compared to just $100,000 for independent entrepreneurs.

So why do so many people go the franchise route when it seems to be such a bad idea all around?

It’s the price of ignorance, pure and simple. And as you can see, ignorance is very expensive indeed, especially when there are companies that stand to make six figure fees from people who don’t do their homework.

It works the same in the Interner marketing world. In recent years, I’ve seen programs appear on the scene that cost $10,000; $15,000; $25,000 and up.

Then there are the personal “coaching” programs sold and delivered by telephone that go for $7,000 and up.

Before you even dream of spending money like this on wild-eyed Internet gurus promises, go down to the bank and draw out $10,000 (or get it off a cash advance on your credit card and then put it right back) and actually see and feel how much money is at stake.

Wall Street scammers learned a long time ago that people who are normally prudent with their money, often are careless and overly trusting when the amounts of the table hit the stratosphere and the term “investment” is bandied about.

Here’s a way to protect yourself.

Throw the emotion-laden word “investment” out of your vocabulary. Any time money leaves your hands, it’s a PURCHASE plain and simple.

And when it comes to making a purchase, the only thing that matters – the ONLY thing that matters – is value.  To anwer that question “Is this a value?” you need to know EXACTLY what you’re getting for your money and be able to compare it to what else is offered in the market in the same category.

If you can’t do that, you’re not in a position to write a five figure check.

So what do you do?

Invest in research. (Or to use my new rule, purchase some research.) Set aside at least 5% of the proposed purchase price to make an objective study of the deal you’ve been offered.

Don’t know how to research the purchase? That’s a flashing sign you’re probablynot ready to make the purchase.

What you’ll often find when you dig is that the promoter is “fuzzy” on the details and has some kind of a time or quanity limit that compels you to act now or lose out forever.

When you see a deal like this – the price tag is serious, the available info is thin, and you’re being railroaded into acting now – run, don’t walk, to the nearest exit.

– Ken McCarthy

P.S. For over 25 years I’ve been sharing the simple but powerful things that matter in business with my clients.

If you’d like direction for your business that will work today, tomorrow and twenty years from now, visit us at the System Club.

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One Response to Franchise this

  1. Gilbert Mizrahi August 24, 2006 at 4:08 pm #


    I agree with your points. People buy franchises because they not feel confident enough on what they know to run a business. Thus, they prefer to take the “easy” way.

    But, guess what? There is no easy way, running a business -franchise or not requires that you know the business.

    I have seen the same in Internet marketing. People run to buy the latest “business in a box” (like ready-made membership sites where you sell subscriptions and all the other work is done for you, resell rights e-books, etc.) believing they will make millions without much work. And of course many entrepreneurs are developing more and more “businesses in a box” to serve this hungry (and maybe lazy) people.

    Thus, as you said, research, learn and understand the business, estimate the risk and make a go/no go decision to start it.


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