The
4 Rs of Success
* Realism
* Research
* Reserves
* Resolve
Realism
At the outset of your investigation, it is important
that you be realistic about your strengths and weaknesses,
your goals and your capabilities. I strongly recommend
that you take the time necessary to do a personal
inventory - possibly with the help of outside
professionals - before investing your life's savings
in a franchise.
Franchising is not a money machine. It involves hard
work, dedication, set-backs and long hours. Be realistic
about the nature of the business you are buying. What
traits will ultimately determine your success? Do you
have them? If it is a service-oriented business, will
you be able to keep smiling when you know the client
is a fool? If it is a fast-food business, will you be
able to properly manage a minimum-wage staff? How well
will you handle the uncertainties that will invariably
arise? Can you make day-to-day decisions based on imperfect
information? Can you count on your spouse's support
after you have gone through all of your working capital
reserves, and the future looks cloudy and uncertain?
Research
We have already walked you through various resources
available to you. Now use them! Research is a tedious,
boring process. But remember, you will probably be in
the business for at least five years, if not more. It
is a hefty, long-term investment.
Be rigorous in your research! A thorough analysis of
the literature you receive should allow you to reduce
the list of prime candidates down to 6-8 companies.
Aggressively evaluate each firm. Talking with current
and former franchisees is the single best source of
information you can get. Where possible, site visits
are invaluable. My experience is that franchisees tend
to be candid in their level of satisfaction with the
franchisor. However, since they don't know you, they
may be less candid about their sales, expenses and income.
Go to the library and get studies that forecast industry
growth, market saturation, industry problems, technical
break-throughs, etc. Don't find out a year after becoming
a franchisee of a coffee company that earlier reports
suggested that the coffee market was over-saturated
or that coffee was linked to some form of colon cancer.
Reserves
As a new business, franchising is full of uncertainty,
uneven cash flows and unforeseen problems. The financial
health of you franchise may not resemble any of the
forecasting you performed in developing your business
plan. Your cash reserves may be seriously drained as
numerous financial obligations must be met regardless
of sales: rent, employee salaries, insurance, etc. Adequate
back-up reserves may be in the form of savings, commitments
from relatives, bank loans, etc. Just make certain that
the funds are available when, and if, you need them.
To be absolutely safe, I suggest you double the level
of reserves recommended by the franchisor. Allow yourself
adequate breathing space and do not do anything you
are uncomfortable with, such as pledging your house
for a bank loan.
Resolve
Let's assume for the time being that you have demonstrated
exceptional levels of realism, research and reserves.
You have picked an optimal franchise that takes full
advantage of your strengths. You are in business and
bringing in enough money to achieve a positive cash
flow. The future looks bright. Now, as two obstacles
arise, resolve comes into play.
The first is the physical pain associated with writing
that monthly royalty check. Annual sales of $250,000
and a 6% royalty fee result in a monthly royalty check
of $1,250 that must be sent to the franchisor. Every
month. As a franchisee, you may look for any justification
to reduce this sizable monthly outflow, such as reporting
lower sales. Resist the temptation. Accept the fact
that royalty fees are simply another cost of doing business.
They are also a legal obligation that you willingly
agreed to pay when you signed the franchise agreement.
They are the dues you agreed to pay when you joined
the club. Honor your commitment.
The second obstacle is the desire to change the system.
What makes franchising successful as far as your customers
are concerned is uniformity and consistency of appearance,
product/service quality and corporate image. The most
damaging thing an individual franchisee can do is to
suddenly and unilaterally introduce changes to the proven
system. While these modifications may work in one market,
they only serve to diminish the value of the system
as a whole. Accordingly, any ideas you have on improving
the system should be submitted directly to the franchisor
for its evaluation. Accept the franchisor's decision
on whether or not to pursue an idea. If you cannot do
this, you may be a closet entrepreneur who should not
enter the world of franchising.
Next: Graduation Speech
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