Advice to Those Considering Opening a Franchise Business
In my entrepreneurial career, I have experienced the franchise business from the perspective of both the franchisee and franchiser. Many people know me as the former president of the 3 for 1 Pizza & Wings franchise. Not as many people are aware that I am also a former franchise operator. I got into the pizza business in 1989, when I opened up a 2 for 1 Pizza location. Back then, a $30,000 dollar investment (split with a partner) was enough to get me started with my own pizza kitchen and storefront.
It wasn't long after we opened that I started losing money!
Considering getting into the franchise business? You may start losing money too, unless you make yourself aware of some hard realities of franchise operation – realities that I mostly had to learn the hard way.
I was one of them.
When I opened my first store in '89, I hired two managers to run it for me. Two young fellows who shared the same name: Masood and Masood.
For many weeks I left the store in operation, expecting sales to eventually pick up, but they never did. I went to the managers I had hired and asked them how things were going. “Things are bad boss.” they told me. “No one is coming in. We can’t sell any pizzas. The store is not making any money.” I was very worried.
After three months, I realized the business would soon go under if something wasn't done to save it. At any rate, I'd run out of money with which to pay Masood and Masood and so, sadly, I had to let them go. I took over direct management of the store myself. I started making pizzas.
Then something else happened, something rather unexpected. I started making money.
Overnight, business turned around. I had more customers than my limited pizza-making experience could handle. The phone was ringing off the hook with order after order and the front counter was rarely clear of customers waiting in line for pizza. What could explain it? Had I discovered some latent talent in myself for making the greatest tasting pizza in the city?
The mystery was soon solved when, a few weeks after I had reluctantly let them go, Masood and Masood opened their own Pizza franchise with a $125,000 investment.
The truth is, in every small business, money is going to be made. The only thing in question is; who takes it home. Is it going to be you? Or will it be Masood and Masood?
In 1989, I thought my $30,000 investment had brought an end to my life of hard work. I expected my new franchise outlet to operate by itself. I imagined it a wealth-generating engine that could be left to grind its gears while I got on with the serious business of enjoying my youth. I was shocked to discover that the motors wouldn't run without my hands constantly turning the crank.
What you can reasonably expect of your franchise operation is limited by the initial financial investment you can afford to make. Its moneymaking potential and the direct responsibility it will demand of you are largely determined by that up-front price tag that gets you started.
Unless you have a lot of money to invest, you should expect to do most of the work required to keep your business operating. With $100,000 or more on hand, you might be able to get yourself a turnkey establishment, requiring little direct supervision. With 20 to 30 thousand dollars, you're really just purchasing yourself a job. It may even be a job for your entire family.
The franchise business, regardless of industry, is typically a hands-on business. I had the opportunity to learn this same truth a second time…from the perspective of upper management. I had hundreds of franchisee partners over the years with 3 for 1, and invariably, the franchisees that made it were those who managed their own store directly.
Are you capable of managing your own store?
Being smart or being educated is no guarantee you've got what it takes. It takes a lot of work, a lot of hard work. Expect it.
Most franchise enterprises also make deals with suppliers and resell a standardized supply kit to franchisees. Supplies ranging from primary ingredients and soda pop, to straws and napkins, all must be purchased from home office to provide that consistent, franchise experience for the customer.
Adherence to these policies is not cost free. Placing fewer pickles on the hamburger saves a few pennies on each one. Not discarding the stale coffee at the rate required by company policy reduces the rate at which the bean supply is exhausted.
Sticking with the company plan can seem expensive, as the same supplies can sometimes be purchased locally for less than the price demanded by the franchiser.
All franchise operators are therefore exposed to a constant and pervasive temptation to cheat the system and a great many succumb to this temptation. It is obvious that doing so harms the entire franchise. It is less obvious that, in undermining the success of every other franchisee, the cheaters also harm themselves.
Your business is far larger than the four walls of your local establishment. As a franchisee, you are invested in the success of the entire corporate enterprise: Your business does better as the reputation of the company improves. Cheating may save you money in some immediate sense, but it will always bring down the overall value of the franchise in which you are a stock holder, and you will never get rich by depreciating the share price of your stake in the company's success.
The reverse is also true: Head office cannot succeed unless you do. The franchiser has no interest in exploiting you or robbing you of profit through overpriced supplies. Doing so only hurts you both.
Because the enterprise as a whole depends on individual success, the franchisee is actually quite powerful within the organization. Should you become a franchisee and find you have an issue with supply prices or any other corporate policy, bring your experience to head office. Most franchise businesses have systems in place for adapting to changes in the marketplace that only their front-line franchisees can detect. If you are having a problem, they are having it too, even if they don't yet know it.
There was no secret to my success. I owed it all to the most obvious of principles: Strict adherence to corporate policy.
The better the experience customers have of the franchise as a whole, the more likely are they to visit any specific location. And the better the experience customers have of one location, the more likely are they to visit other outlets participating in the franchise. This is obvious.
Less obvious is the fact that consistent quality, even at one location, builds ongoing customer loyalty that keeps people coming back, again and again. In fact, savvy customers will detect when one specific location affords them a better experience than another.
I found that many of the new customers I attracted over the course of the year in which I ran my 2 for 1 Pizza franchise came to me dissatisfied with their experience at another 2 for 1 location. Time and time again customers asked me why my pizza tasted so much better than the last they had bought from another 2 for 1. I told them only that I was following company policy. I didn't say that some of my franchise partners were obviously cheating: Cheating on quality and supplies.
If you do become a franchise owner, never drop out of the supply network. Doing so hurts the company's broad-based purchasing power. And if you cut corners on quality, it harms the customer experience for the organization as a whole. You will ultimately pay a price for that. Don't blame the franchiser when you do.
It wasn't long after we opened that I started losing money!
Considering getting into the franchise business? You may start losing money too, unless you make yourself aware of some hard realities of franchise operation – realities that I mostly had to learn the hard way.
In Small Business, Who Makes the Dough Makes the “Dough”
A surprising number of prospective franchisees get into the business expecting ownership to free them of the need to work for a living.I was one of them.
When I opened my first store in '89, I hired two managers to run it for me. Two young fellows who shared the same name: Masood and Masood.
For many weeks I left the store in operation, expecting sales to eventually pick up, but they never did. I went to the managers I had hired and asked them how things were going. “Things are bad boss.” they told me. “No one is coming in. We can’t sell any pizzas. The store is not making any money.” I was very worried.
After three months, I realized the business would soon go under if something wasn't done to save it. At any rate, I'd run out of money with which to pay Masood and Masood and so, sadly, I had to let them go. I took over direct management of the store myself. I started making pizzas.
Then something else happened, something rather unexpected. I started making money.
Overnight, business turned around. I had more customers than my limited pizza-making experience could handle. The phone was ringing off the hook with order after order and the front counter was rarely clear of customers waiting in line for pizza. What could explain it? Had I discovered some latent talent in myself for making the greatest tasting pizza in the city?
The mystery was soon solved when, a few weeks after I had reluctantly let them go, Masood and Masood opened their own Pizza franchise with a $125,000 investment.
The truth is, in every small business, money is going to be made. The only thing in question is; who takes it home. Is it going to be you? Or will it be Masood and Masood?
Congratulations. You Are Now the Proud Owner of a Job.
Managing a franchise is not complicated. If you are capable of balancing a checkbook and managing your family's personal finances, you are qualified to run a franchise operation. What you may lack, however, is the ability to manage your expectations. Manage this first, before you get started.In 1989, I thought my $30,000 investment had brought an end to my life of hard work. I expected my new franchise outlet to operate by itself. I imagined it a wealth-generating engine that could be left to grind its gears while I got on with the serious business of enjoying my youth. I was shocked to discover that the motors wouldn't run without my hands constantly turning the crank.
What you can reasonably expect of your franchise operation is limited by the initial financial investment you can afford to make. Its moneymaking potential and the direct responsibility it will demand of you are largely determined by that up-front price tag that gets you started.
Unless you have a lot of money to invest, you should expect to do most of the work required to keep your business operating. With $100,000 or more on hand, you might be able to get yourself a turnkey establishment, requiring little direct supervision. With 20 to 30 thousand dollars, you're really just purchasing yourself a job. It may even be a job for your entire family.
The franchise business, regardless of industry, is typically a hands-on business. I had the opportunity to learn this same truth a second time…from the perspective of upper management. I had hundreds of franchisee partners over the years with 3 for 1, and invariably, the franchisees that made it were those who managed their own store directly.
Are you capable of managing your own store?
Being smart or being educated is no guarantee you've got what it takes. It takes a lot of work, a lot of hard work. Expect it.
You Are Invested in The Success of the Franchise
All franchise businesses set standards of practice to ensure consistency between outlets. A Big Mac tastes the same at every McDonald's establishment the world over. The taste of a coffee from the Tim Horton's in St. John's Newfoundland is the same as that in Victoria, British Columbia. This level of consistency requires that every outlet cooperate with quality control policies determined by head office.Most franchise enterprises also make deals with suppliers and resell a standardized supply kit to franchisees. Supplies ranging from primary ingredients and soda pop, to straws and napkins, all must be purchased from home office to provide that consistent, franchise experience for the customer.
Adherence to these policies is not cost free. Placing fewer pickles on the hamburger saves a few pennies on each one. Not discarding the stale coffee at the rate required by company policy reduces the rate at which the bean supply is exhausted.
Sticking with the company plan can seem expensive, as the same supplies can sometimes be purchased locally for less than the price demanded by the franchiser.
All franchise operators are therefore exposed to a constant and pervasive temptation to cheat the system and a great many succumb to this temptation. It is obvious that doing so harms the entire franchise. It is less obvious that, in undermining the success of every other franchisee, the cheaters also harm themselves.
Your business is far larger than the four walls of your local establishment. As a franchisee, you are invested in the success of the entire corporate enterprise: Your business does better as the reputation of the company improves. Cheating may save you money in some immediate sense, but it will always bring down the overall value of the franchise in which you are a stock holder, and you will never get rich by depreciating the share price of your stake in the company's success.
The reverse is also true: Head office cannot succeed unless you do. The franchiser has no interest in exploiting you or robbing you of profit through overpriced supplies. Doing so only hurts you both.
Because the enterprise as a whole depends on individual success, the franchisee is actually quite powerful within the organization. Should you become a franchisee and find you have an issue with supply prices or any other corporate policy, bring your experience to head office. Most franchise businesses have systems in place for adapting to changes in the marketplace that only their front-line franchisees can detect. If you are having a problem, they are having it too, even if they don't yet know it.
Stick with the Franchiser's Plan
When I took over from Masood and Masood, my first pizza franchise was earning each week, the tidy sum of $6000. When I sold it, 12 to 13 months later, that same store's weekly earnings were more than $21,000.There was no secret to my success. I owed it all to the most obvious of principles: Strict adherence to corporate policy.
The better the experience customers have of the franchise as a whole, the more likely are they to visit any specific location. And the better the experience customers have of one location, the more likely are they to visit other outlets participating in the franchise. This is obvious.
Less obvious is the fact that consistent quality, even at one location, builds ongoing customer loyalty that keeps people coming back, again and again. In fact, savvy customers will detect when one specific location affords them a better experience than another.
I found that many of the new customers I attracted over the course of the year in which I ran my 2 for 1 Pizza franchise came to me dissatisfied with their experience at another 2 for 1 location. Time and time again customers asked me why my pizza tasted so much better than the last they had bought from another 2 for 1. I told them only that I was following company policy. I didn't say that some of my franchise partners were obviously cheating: Cheating on quality and supplies.
If you do become a franchise owner, never drop out of the supply network. Doing so hurts the company's broad-based purchasing power. And if you cut corners on quality, it harms the customer experience for the organization as a whole. You will ultimately pay a price for that. Don't blame the franchiser when you do.
Posted by Anthony Reza Solhi at 4/11/2009 12:46 PM 
Categories: Franchising
Tags: Pizza 3 for 1 Pizza and Wings Warning Franchise Information Franchiser Anthony's Franchise Information Franchisees Advice Franchises Anthony Reza Solhi
Categories: Franchising
Tags: Pizza 3 for 1 Pizza and Wings Warning Franchise Information Franchiser Anthony's Franchise Information Franchisees Advice Franchises Anthony Reza Solhi
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