I unfortunately need to board my 2-year-old beagle while I leave on trip. I shopped around thinking I would find franchise dog hotels everywhere considering I’m in downtown Chicago. I’ve discussed pet franchises like Camp Bow Wow here and here. To my surprise, in Chicago all I found were all privately owned business started by practical entrepreneurs , some being very innovative such as Stay started by dog-lover architect who said, “Why do pet boarding facilities need to be small locations with chain-link cages. He charges between $45 and $75 for one night of dog boarding, and he easily get’s that fee.
Mobile pet grooming seems to be a franchise getting attention lately. I found this Chicago-based entrepreneur that could have purchased a pet service franchise, but decided to build it herself. After a few years she added a mobile pet grooming service to her existing two Chicago pet service (grooming, boarding, walking, training) locations.
She could have paid a $25,000 franchise fee plus 6% royalties and other mandatory marketing fees to a franchisor, which may have been worth it if the business had a strong competitive advantage and high brand recognition with the target market. But, that just wasn’t the case here in Chicago.
The moral of the story is - demand a lot from franchisors. As a franchisee, you are literally making a multi-million dollar bet, while the franchisor is not at much financial risk. You are taking on the risk that could result in bankruptcy if the franchise business projections don’t pan out or competitors can copy your poorly branded business, so require that as a franchisee you license a business model with a proven and sustainable business model, a business with high barriers to entry and difficult to duplicate business, and can provide a much higher return than your money in the market and your time working for an employer. Just being “new” or “unique” or “better looking” in a new or mature market is NOT enough. See the meal assembly industry for a perfect example of a good idea but bad business with no real protectable competitive advantage. You should choose your business and build out your projects with the assumption that competitors with a fresher twist or lower prices will move in next door. In the franchising industry, if a concept makes money, rest assured there will be improved copycats out within a year or two. Can you still be certain that you’ll earn a sufficient return on your investment? If not, keep looking for another franchise or start your own business…even if it’s a copycat.
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Ryan is an attorney and valuation specialist residing in Chicago. He chronicles his thoughts and research on FranchisePundit.com. You may reach him by email ryanknoll@gmail.com or mobile telephone 312-715-8115.
So true, so true. I would recommend people who want to Franchisees to write a business plan without regard to the franchise fee, marketing fees, and so forth. Then, once you have reasonable projects, add the fees in. Are you still profitable? Don’t massage the numbers and fool yourself, it’ll ruin your life for a decade if you are wrong.
The tough angle I see in franchising is that you can’t cut your losses. You are virtually forced to continue running your franchise unless you can find a buyer that can pass the fanchisor’s approval. If you just shut down the business, the franchisor will go after the personal guarantor’s in the franchise agreement and sue for lost profits over the term of the agreement. So while you can argue that there is an advantage to buying a franchise, the downside is your stuck with it.
Ryan,
Great post! The Pundit’s words reflect reality.
Personally I would not use the “degenerative” term “copycat” rather I would tend to think in terms of filling a similar market niche while preserving your ability to adapt rapidly to changing consumer preference.
FuwaFuwaUsagi
Good post, Ryan.
Many prospective franchisees turn away from self-employment because they are deluded that they will not have to sell if they buy a franchise. No such self-delusion is possible when contemplating self-employment.