To Buy or not to Buy
To buy or not to buy a franchise in Australia is one of the toughest decisions you’ll ever make, and one of the most crucial. It can be the passport to independence and comfort or even wealth, and it can be a really bad decision.
The important thing is to decide whether you have what it takes. In this respect I’m going to give you some of the same advice I give my franchisors on how to choose suitable franchisees.
An important key is emotional stamina. Do you have the determination to drive through the hard times? There will be some! A certain maturity, a mortgage and a family are good, because you have responsibilities and can’t simply chuck it in when things get tough. Advanced age is much less of a problem, even in jobs requiring physical work. We have franchisees going strong in their 60s.
A responsible job and a steady work history is good, without too much changing around. If you’re the kind of person who gets bored and restless every six months, then your own business is not usually a good idea. The more responsibility you enjoyed in your previous work, and the more you were paid, the better.
Don’t even consider a business without the full support of your partner, and make sure the relationship is solid. A new business can bring considerable strains, and relationship breakdown is a notorious business wrecker. Do you really care about doing the job well? Good business operators take pride in their work for its own sake, and not just to make money. At Jim’s we monitor this very carefully. Franchisees who give poor service are many times more likely to report poor income and to fail than those who do not.
Franchise versus independent
Buying a franchise is, for most people, a good way into business. I don’t need to bore you with statistics, but it’s well known that most independent service businesses fail within their first year. With us it’s less than 10 per cent, and I’m sure many of our competitors would do as well.
However, and this is important, a franchise is not for everyone. Franchisees need to toe the line in all kinds of areas, including what may seem petty details such as the exact placement of signage. At Jim’s we’re especially rigorous about customer service issues and we get quite a bit of flack from franchisees at times. I tell them it goes with the territory, and I also warned them about it quite emphatically at induction training (which with us usually happens before they sign).
It’s not a coincidence that people from organisations that require both discipline and initiative do well as franchisees. These include such people as Army NCO’s and bank managers.
But if you want to run your own business in exactly the way you want to, go it alone.
Mobile versus fixed
I probably shouldn’t even answer this because I’m biased! Mobile franchises, for me, have huge advantages. Investment is limited but the upside can be unlimited. Provided customer service is good it’s normally remarkably easy to build a business. Fixed businesses rely on foot traffic, or if they’re in shopping centres incur huge rents and you can be kicked out if the centre decides you’re not part of their required mix. We hear plenty of horror stories like this.
However, I’m sure there are many who would disagree with me, and certainly many people have been successful with fixed franchise businesses. The important thing is to find the right business for you.
There is one piece of advice worth more than everything else put together: Do your homework.
I am utterly astonished that people can spend tens of thousands of hard earned dollars on a business without spending even a few hours properly checking it out. One thing I didn’t mention earlier when discussing our selection system is that we look for people who have completed a proper investigation. If they haven’t then they’re idiots, and a franchise system doesn’t need idiots.
The first and best way to check is to talk to existing franchisees. One major benefit of the Franchise Code is that it requires prospects to be given a list of current franchisees. Make sure you get that list at a very early stage, and if you don’t get it then walk away. I’ve actually seen such a list where the phone number given for each franchisee was the office number, so no-one could check!
With the list in hand, start phoning. Ask how much work they get, what’s the support like, the positives and negatives. Knowing what they know now, would they do the same thing again? A single bad answer need not be fatal. Sometimes even the best franchisors can make a mistake in selection. But more than one or two, watch out. And phone as many as possible to make sure you get a reasonable sample. It’s also worth stopping franchisees in the street to ask them.
Even if you’re interested in a specific franchise system, check out the competitors and see what they have to say. Good franchisors shouldn’t bag the competition, but they will give advice on the specific advantages that they have. This helps you to understand better what you’re getting into. Plus, of course, talk to their franchisees as well.
When talking to a prospective franchisor, prepare yourself and ask as many tough questions as you can. If they don’t like this then they’re not the place for you. I love it when people bring out a pad full of difficult questions. They’re often apologetic, but in fact it’s a sign of people worth having. And here’s another test that will really sort the sheep from the goats. Are they selecting you? Are they trying to find out everything they can about you, letting you know you’ll have to pass their selection system, telling you about the negatives as well as the positives? There’s a widespread saying in our industry that many franchise systems choose their franchisees through a ‘mirror test’. You hold a mirror up to their face and if it fogs, you sign them. Or, as one man said to me when I asked him what he looked for in choosing franchisees for his previous employer: “$50,000 and a pulse”.
If you’re not being selected then they really don’t care whether you succeed, and it’s a system with poor standards that is likely to have a poor reputation with the public. We try very hard to choose good people, but even so the great majority of our complaints come from a small minority of franchisees. As mentioned earlier, not everyone should be in business for themselves.
You might object from this that surely with a business like Jim’s which is well-known and well established, such careful checking is not necessary. Checking is necessary.
I have around 300 regional franchisors in 40 odd divisions and most do a pretty good job, but some do not. In the past year alone we have ‘persuaded’ several franchisors to sell out because the support they gave their franchisees was not up to par. There are some really good systems out there, and some utterly appalling ones. It’s up to you to work out which is which.
You’ve made your choice and got started. Here is some general advice about how to succeed.
Care about your customers. As discussed earlier, the best business owners are those who love what they do, take pride in their work, and would be horrified to let customers down. Do the right thing and be sensible about your decisions, and the money will come. I’ve made many and terrible mistakes in my business career but I have always been passionate about my clients.
Follow the system. There’s no point joining a franchise if you constantly buck against it. Some aspects you may object to, but it’s been worked out over time as an effective way to run a business.
Every day, work to improve what you do.
Never give up.
Founded in 1989, Jim’s Group is Australia’s largest franchise system, with 3420 franchisees in 40 different divisions. It also operates in New Zealand, Canada and the UK.
Dr Jim Penman is the founder and CEO of Jim’s Group Pty Ltd. He is the author of ‘Selling by not Selling’, a business autobiography which can be downloaded from Amazon, or for free as a pdf from www.jims.net. He also funds a research program into epigenetics and behaviour through RMIT University and the Florey Institute, has ten academic publications to his name and has published two books on the biology of history (details at www.biohistory.org).