My Feelings on Franchise Businesses
You are probably reading this blog because you have read my book Business Websites That Convert, and you want to see what I have to say about franchise businesses.
My Personal ExperienceBy now you probably realize that I do not like, nor do I advocate the franchise model, especially for service businesses. I wasn’t joking about what I have said. I did learn all the bad things that can happen in a franchise business the hard way. I have had an existing service based company since 2001. I had been approached by several companies over the years asking me to consider being part of their “team.” I use that word in quotations for a reason. In 2007, I was approached by a franchisor that had been around since 1995. They talked nice, and had all of the verbose flyers and franchise testimonials. Their system at the time would have me as an area developer and my employees would become franchisees. I found out later that the FTC frequently cracks down on these systems because they turn employees into glorified subcontractors in an effort to avoid payroll taxes. Each level as it goes down passes more liability onto the lowest level until the bottom ranked franchisees end up working for less than minimum wage. This is possible because they are paid with a 1099 instead of a W2. They had made an offer that I initially rejected. The franchisor asked what would it take to get me “onboard.” I gave some conditions, not even sure if they would respond back. They offered what looked like a generous compromise. I was getting tired of certain mundane tasks in my own business that were becoming tiresome. I did accept their offer. Then the Troubles Started:At first the struggle wasn’t that much different than being a solopreneur. I had decent years in 2008 and 2009. I had my best year ever in 2010, only to have it come crashing down in 2011. The franchisor sent out new contracts to me and my franchisees asking us to sign them and send them back. The contracts stated that we would waive our initial fee structure in favor of an increased fee structure. They raised the fees 2.5%. This doesn’t sound like much, but in the grand scheme of business, every percentage point counts. I refused to sign and told all of my franchisees not to sign. I was contacted by the corporate office and they asked why we hadn’t signed the contracts. I was told by the management that all of the other franchisees (over 100 then) and area developers (around 25 back then) had signed the agreement. I could not understand why anyone would sign a document that was giving more money (that rightfully belonged to the fanchisees) to corporate. I didn’t care who else had signed or hadn’t signed. I knew what was right, and I knew that this wasn’t right. Let me give you an example: the franchisees have to pay for their own gas to drive their cars to the job sites. If the price of gas goes down, let’s say gas drops 50 cents a gallon. Should I start charging the franchisees more to offset more of my costs? Absolutely not! This is the same thing they were asking me to do. When I asked the powers that be why the rates were being raised, they answered “This isn’t costing any more money. It’s an even exchange.” What? That wasn’t the question I asked. So, I asked the question again. The powers that be refused to answer and then babbled on about how this wasn’t costing any more money upfront, and they didn’t understand why I was being difficult. I wasn’t so much being difficult as I was being honest. Yes, I have been known to be difficult (not much… stop laughing), but this was just plain dishonest. In the end, the franchise corporate left my rate and my remaining franchisees’ rates the same. The main lesson about franchise businesses is this: Do not let anyone else have control over your business. If you feel that you do not have the knowledge to start your own company, get the knowledge you need. The reason why so many businesses fail is because of not planning everything out. from http://stevedavismarketing.com/my-feelings-on-franchise-businesses/
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