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The Dangers, Benefits of Franchising the American Dream in the Midwest

Some entrepreneurs want to run their businesses in the worst way. This is part of their lifelong dream and passion. Many of them want to go into a business to pursue a hobby they love because it's what they think they know.

Very few people, though, can make a living from their hobby or a favorite interest. I cringe sometimes when I ask people why they started a particular business and they say: "Well, I love to eat out and I always wanted to own a restaurant."

I tell them that they can have a lot of fun (and keep more of their money) by staying with their day job and eating at restaurants instead of starting one. This is one reason why so many retail stores close within a year of opening. Liking an area of business and knowing how to run a business in that area are two different things.

This is why franchises aren't a bad alternative for some people since they give you a road map and other tools to run that business. There are more than 2,000 companies that franchise in the U.S., according to the International Franchise Association. People invest between $11,000 and $2 million to get started.

We all know about franchises like Subway (No. 1), Curves for Women (No. 2), McDonald's (No. 4), Jani-King (No. 5) and Super 8 Motels (No. 8). Are there technical businesses you can get started by buying a franchise? Sure.

WSI Internet owners "assess their clients' business needs using WSI Internet's patent-pending Lifecycle system," according to their Web site. They then take your client's Internet solution and build it at one of "WSI Internet's many global production centers, which are strategically located in low-cost, high-tech regions such as India and Australia."

All you need is $39,700 to get started.

Expetec Technology Services "offers on-site, high-level technology services to commercial and consumer customers." Their field technicians have the "latest testing and diagnostic equipment available." You need $75,000 to get going. I'm unsure whether the fancy van on their Web site with the Expectec logo is included.

Why not buy a Geeks-on-Call franchise? For $45,000, they will train you at Geek University in the computer services industry. They handle all the customer inquiries. All you have to do is generate the customers and do the work.

Franchises do have their advantages. You can skip the writing of the business plan. Franchisors give that to you. You can skip the product development and branding, too. They give you an operations manual.

Michael Waller is the president of The Entrepreneur's Source, which helps entrepreneurs identify sound franchise opportunities. He believes that "franchising offers an attractive alternative for an individual to become his or her own boss while at the same time significantly reducing the risk and ultimately the fear factor. Statistically, better than 90 percent of franchise points are still operating at the 10-year mark."

He added: "Franchising provides a brand that's backed up by a proven system, training, support and all of the benefits of being in business for yourself but not by yourself."

While buying a franchise does minimize some of the risk components, it doesn't totally mitigate the biggest one: customers. As I have repeatedly said: "Just because you build it does not mean they will come."

This is the same with a franchise. Just because you run a geeks on call or the newest WSI Internet company does not mean that customers will call you and buy your product. While the larger franchises do help the credibility gap inherent with new businesses, franchisees do go out of business like any other. There is no sure thing.

Waller doesn't believe that buying a franchise is for every person looking to start a business.

"Although you may have some flexibility in tactical execution of the day-to-day activities of the business, the risk is reduced when you follow the system," he said. "The business processes, procedures and tools that the franchisor provides are part of the value add that they bring to the table. For someone who prides him or herself in being a "maverick," they may have significant difficulty conforming to the standards of their franchise agreement."

This is why the best advice you can follow is what Michael Grove proposes. He was a senior consultant with Francorp, the world's largest franchise consulting firm. Grove now works with franchise companies at MarketingPilot Software.

He believes that before making any decision to buy a franchise, you should experience the work first hand by spending a few days on site with a franchisee. Working at a Kinko's or Dunkin' Donuts is a lot different than being a customer at their location. Working the long hours of a manager by getting your hands dirty as a clerk will be an eye opener.

Grove also suggests that despite a proven model and maybe some slick brochures, review "earnings claims" closely and discuss the details of several franchisee financial statements. Grove has seen many franchises get off to slow starts.

Also, as with any other business adventure, do your homework. Do not assume that just because you have a proven business model and a brand that you will automatically be successful.

Grove also says that you need to understand the type of support that you will receive from the franchisor. "Support is not cheap," he said. "You often pay as a percent of gross sales. It could also include a percentage of supplies and other materials. You are likely going to pay a percentage of sales for "system" marketing, too. How will you benefit from paying that amount?"

Finally, Grove says you will need a good lawyer.

"Become familiar with the legal documents that establish franchises," he said. "There are the two main documents: the franchise agreement and the offering circular. Obtain both and read them closely. Ask other franchisees if there have been any suits or in-depth discussions regarding problems toward them. An area often cited as problematic is the franchisor"s right to locate another franchisee down the street from you."

Besides, how many Starbucks do we really need? The north side of Chicago boasts 30 locations. I guess there's no limit to our demand for half-double decaffeinated coffees with a twist of lemon.