Sep
There sure is a lot of advice out there as to which franchised outlet you should buy. Often franchise buyers go to a store, and they see people waiting in line buying a product or service. If the line is really long, it looks as if the franchisee is making lots of money, and all of a suddenly a light bulb goes off in their head, and they think that might be a good franchise to buy. Of course, there’s a problem in all of that, especially if the franchised outlet is selling some sort of product which is part of a fad.
We all know that Fads and trendy products come and go, however, we also know that the franchise relationship is a little more permanent, and often the franchise term in the agreement is 10-years. What if you bought a franchise and the fad faded, and you were stuck with a franchised outlet that wasn’t making any money because people were no longer waiting in line to buy your products and services? It happens and it happens all the time, and many franchisees have gone bankrupt due to such situations. You see, they thought they were getting in on the ground floor, and they got in at the height of the fad, and it was all downhill from there.
Still, what I’d like to talk to you about is not the franchisees-side of this equation. I’d like to talk about another topic. Yes, there are lots of articles, and lots of advice out there telling franchisees to stay away from trendy and fad type businesses. But there are not a lot of articles and advice telling franchisors which categories and industries make sense for franchising, or don’t. Many entrepreneurs believe that they can adapt quickly and change, and if the fad ends they will merely jump on the bandwagon of the next newest thing.
Indeed, a small business person can do this in their original outlet, but once a franchise organization gets big, it often cannot turn on a dime that quickly. Meanwhile the franchisees start having problems, start missing their royalty payments, and this hurts the franchisor’s cash flow. Meanwhile the franchisor cannot sell new franchises rapidly enough to keep the game going, and a cash flow crunch ensues. If your franchise system sells a trendy product, you better make sure that it is agile and can adapt very quickly as that fad fades into the future. Indeed I hope you will please consider all this and think on it