What are the alternatives to franchising?
I have owned several different types of businesses and one of them was a franchise. Today we are going to first talk about, “why franchises are so popular right now.” Second we will dive into “what” will dictate your success regardless of the business model. Finally I want to share a more affordable way that works very similar to franchising that may be a better option for you.
Why are franchises so popular?
Well to be honest…most people don’t want to figure out everything. With any business there’s a lot to figure out. You have to figure out a marketing plan, sourcing the materials (if materials are involved), dealing with supply chain issues….can I sell it across the state….across the country, how does that work? What’s the legalese around this? How do I handle the bookkeeping and taxes? There’s a lot to business. There’s a lot of different areas in a business where people have to either learn it or they are going to struggle to run their business.
The idea of a business in a box (like the pitch for franchises) is very attractive. You’re going to give me everything that I need in one little box? I’m going to be able to connect the dots, follow the instructions, use the system and by doing that I’ll be successful? That’s the concept and that’s why it’s so popular. It means I have to figure out less, I just run these systems and this thing works, but that’s not the case in all franchises. The promises is definitely there and that is the promise of a franchise….but sometimes there’s a lot of misunderstandings.
My favorite author who talks about this (I just had the pleasure of spending an hour with him last week) is Michael Gerber. I highly suggest if you’re considering buying a franchise, get his book The E-myth or The E-myth Revisit It. It is fantastic and he describes some of the struggles that people have with businesses.
The reason most struggle is because of “how” most business owners are created? What births a business owner? This is from his information. It looks like someone who is very good at technical or tactical skills, they get tired of working for someone not as smart as them, they want their own freedom so they think “hey, I’m doing the hard stuff….I’m just going to start my own business.” They go into that business not understanding how to be an entrepreneur or what being a manager means or doing any of the other business functions, other than the technical/tactical. So, what usually happens? They usually excel at doing that and instead of working 40 hours a week they’re working 80 hours a week. They don’t understand expenses, profit, loss, etc and so it usually ends in failure.
A franchise model will help with that aspect. It will help you understand that it’s not just knowing the technical. In fact sometimes not knowing the technical at all will prevent you from doing the work you don’t want to do. That answers the popularity around franchises.
What makes any business plan successful?
Let me dive into what makes any business plan successful. At the end of the day, it comes down to your pipeline.
How many customers are coming through the door, how many leads are you generating, how many prospects are you generating and how are you managing your personal time around that business and the accumulation of all of those different things?
Most business owners will live for their business which is the exact opposite of what should be happening. Your business should be for you, not you for your business. Too many people don’t understand that concept. The business should help you provide things in your life that you really want, not demand everything from you. This is where you get burnout business owners that really don’t like it and look at the franchise model. In that franchise model you’re still going to have to have prospects, generate leads, have marketing and a way to communicate with your customers etc.
Embrace the concept of having a pipeline for whatever business that you have…how many people you’re reaching out to and if you have sales people, what’s their pipeline, what does that look like? If you have a sales organization and you’re not doing the sales, what’s their pipeline, how many people are they reaching out to, how many people they following up with, how many presentations are they doing (if that’s applicable to what it is that you sell)? You need to take a look at that and know it. Know your numbers and know anyone that works for your business around sales, know their numbers as well.
Before I get to my last point, I would love to hear from you. What’s some research that you’ve done around franchises? I would love to know what franchise you’ve looked into and what is the initial cost? How much does it cost to start that franchise and if you’ve done any research around this, drop a comment, let me know and this will also help our audience and the community as well. Bring your knowledge to the table…..let’s see what you know. If you know the cost of different franchises, drop them in the comments, I’d love to see it.
What is this more affordable model that works similar to a franchise?
Before we get there, I want to share something with you. If you look at a Domino’s franchise it is $250,000 for one location. That doesn’t include the mozzarella and the pepperoni or any of that but it’s $250,000 for you to start that franchise. They tell you in their franchise agreement to expect a 10-year return on investment.
Now, do you understand what that means? That means that in 10 years, you should make your money back…… Your investment of 250,000. I’m just throwing that out there. I learned this from a gentleman who owned 76 of them. Clearly he liked the model and it was profitable or he wouldn’t have bought that many of them. It’s $250,000 per installation, per location and again 10-year return on investment. Are there some people who are wizards and they get it back in seven or eight years? Probably. Are there others that are a little slower on the track and take 11 or 12 years….I want you to hold on to that. $250,000 that you have to come up with and in 10 years you start making a profit.
What’s an alternative?
An alternative that works very similar to franchising is actually network marketing. Think about this: a network marketing company, they’ve done the research, they’ve done the labeling, they’ve created the shampoo or the cream or the whatever it is, right? They’ve created that product, they’re incentivizing average ordinary people that if they sell that product, they will be compensated.
What’s the average startup for a network marketer? Usually a couple hundred dollars, maybe a thousand. There are ones where you can buy more and get a cheaper price? Sure, but for most network marketing companies, you can usually start for less than 500 dollars.
Just to compare. If you went to people and said “hey it’s $500 but don’t worry, in 10 years you’ll make your money back”, that’s actually a better deal because it’s less risk. It’s less money I have to pay out of pocket. I don’t think anyone would ever lead with the “it’s 500 bucks and you’ll get it back in 10 years,” but if they did…that’s a better mathematical equation than the franchise model that I explained earlier.
Less risk,, less overhead, less I’m going to sink my life savings into this thing. Now because of the low barrier to risk, some people don’t take it seriously. You know some people blow 500 dollars on a dinner. There are people that get in so easily with a few hundred dollars and then they don’t take it very seriously.
I took it very seriously. Let me share my two examples.
I bought an advertising franchise (it was a lower cost one) for thirty eight thousand dollars and a couple thousand dollars to use their name, which no one had ever heard of them. Thirty eight thousand dollars and what did I get for thirty eight thousand dollars? I got ten empty ad frames. They were plastic, black, very boring, no art, that’s extra. I would have to pay to get a graphic artist to do some kind of ad, but 10 empty plastic ad frames and a big franchise manual that every other page said “you’ll probably never make it, probably not going to work out,” very discouraging. That was $38,000 and $2,000 a month whether I made a sale or not.
In network marketing, I joined a company and it was 300 dollars to join and $110 a month to receive something every month. Well in that little model, I didn’t have to ship anything, I didn’t have to discover anything, I didn’t have any patents, I didn’t have any copyrights, I didn’t have any trademarks, I didn’t have to learn supply chain, human resources. I didn’t have to learn anything, about anything except “how” to get people to take a look at what I’m doing.
How do I get people to look at my product, how do I get people to look at my opportunity, that was my job. I understood that job and so I got to work and it took me about five months. In five months, I was at ten thousand dollars a month. In seven months, I was at 40,000 a month and I think about 10 months, I became the number one income earner in that company and went on to make millions of dollars. Now…even at millions of dollars, what was my overhead? 110 dollars a month.
Your big problem there is actually taxes. You have to manage your taxes, you need to create more expenses or else you’re going to be paying a lot of money in taxes, that is not typically a problem in the franchise model because you don’t typically have at least in the beginning, especially in 5 months 10 months of some huge amount of money with very, very little expenses, it’s usually the other way around. It’s usually a whole bunch of expenses.
Now you may say, “hey with a franchise, you can sell the business, right?”
It’s an actual business. I sold my business, I sold it for a multiplier. When you decide to leave network marketing. I took my business center and I shopped it around and I had a guy purchase it from me and I exited that business. I owned that business center, I was able to sell it which is the same thing that you can do in a franchise as well.
What are the differences? One is usually a high cost and one is a low cost.
What are there similarities? They both have systems, right? I followed a system, getting people in front of the presentation, prospecting, marketing, I followed a system, used that system very well, it worked out for me. You can you sell them. So network marking may be an alternative for you.
Now…..if your goals are a hundred million dollars a year, can you make a hundred million dollars a year as a network marketer? Probably not. I know people that have made 10 to 20 million dollars a year, probably 20 million a year is the highest I personally know. I do know my friend Jeff out of Sarasota, he’s made over 100 million dollars a lifetime in network marketing but if your goals are to build a 100 million a year business, that’s going to be difficult and might be impossible as a network marketer.
If your goal is to make a hundred thousand dollars a year profit or a couple hundred thousand a year or a couple million a year even, a lot of people have figured that one out. Much lower risk, much lower overhead, still have to do the work, still have to follow the systems.
We would love to help you. We have a free consultation if you’re looking to start a business whether it’s a franchise, network marketing or whatever, we would be more than happy to do a free consultation with you. Answer some questions, tell you how we have helped other people start their business.
If you would like to fill out that free consultation, just click the link, HigdonGrouptraining.com and we would be more than happy to help you get going.