Monday, March 12, 2007/
Hype may have its place, but not in franchising. In fact, the less excited potential franchisees are, the better.
Who needs the hype!
A couple of weeks ago I was talking to the owner of a successful fast-growing franchise in retail food. She told me she was worried because she had noticed there were fewer people showing interest in buying a franchise in her chain.
She said the market was nowhere near where it was a year ago. People are less excited about franchising; very hesitant to buy. They are taking longer to commit and being much more conservative.
In short, for franchising, the hype is over.
For franchisors trying to recruit new franchisees, this may seem like a bad thing. But it isn’t.
Hype is dangerous. People overcome by hype make poor decisions, take risks they can’t afford. In franchising a little caution is a good thing: for the franchisee and the franchisor.
The industry is still to completely shrug off the reputation it earned in the bad-old-days before the mandatory franchising code came into force in 1998 — when fly-by-nighter franchise cowboys sold franchise rights to unsuspecting mums and dads and then disappeared, leaving the inexperienced franchisee without the support they needed to make their business profitable.
The fact that the mandatory code underwent a review last year (with the Federal Government accepting some of those recommendations, beefing up franchisees’ right to pre-purchase information) is testament to the fact that some people are still being fleeced. Or at least they feel that they are being fleeced.
In fact, that is a key point. If you feel you have been dealt with less than honestly, your expectations of franchising clearly have not been met. This could be because your franchisor is a crook, negligent or plain lazy. Or it could be because your expectations going in were unrealistic.
Franchising is often seen to offer an unfulfillable promise. The sales pitch in these cases is as follows: “We will take ye of little business experience, and within weeks you will be owning and running your own profitable business. You will be your own boss, in control of your own destiny and making lots of money.”
The glossy brochures and the gym-fit sales people don’t mention that you will probably have to put your family home up as collateral for the loan to buy the franchise and pay establishment costs.
Nor do they mention that if you buy a retail operation, you will probably be working 24/7. And although you no longer have an employer, you are accountable to your franchisor, your suppliers, your staff and your customers.
Proper due diligence reveals all of these issues — plus a whole lot more — but people buying a franchise on the strength of the hype and a dream may be disappointed.
Disappointed franchisees are trouble for franchisors; they are demanding and disruptive. They end up in disputes and bring bad publicity to the franchisor and the industry as a whole.
So the end of hype is good. It means it is more likely that franchisees will understand the risks they are taking and will be disappointed. Less disputes, more harmony and — eventually — less regulation.