I get calls from prospective franchisees that say to me “Jim, I’m interested in this franchise because I love the product. I think its great” I guess that is as good as any reason to investigate the franchise opportunity but not a good enough reason to invest even on Valentines day. For franchising to be successful it needs to have a mutually beneficial relationship for all parties involved. This is much easier said than done. Just because they have a good product or service doesn’t mean the franchise will succeed. If the franchise is set-up in a way that favors one of the parties more than the other than the franchise system is setting itself up to languish or fail. While there are many examples of successful franchises, buying a franchise business is no guarantee of success. Each year there are failures, both on the part of franchisors and franchisees. Before you invest in a franchise, important questions need to be carefully and thoughtfully answered: Are you willing and able to take on the responsibilities of managing your own business? You must be willing to work harder than you have perhaps ever worked before. Will you enjoy the franchise? Determine your interests and types of business activities you might really enjoy. Are you willing to completely follow the franchisor’s system? People who are extremely entrepreneurial in the sense that they do not like to conform to a predetermined formula should be very careful about buying a franchise. If you have a tough time following direction than you will have a tough time as a franchisee. Can you afford the franchise? One of the major causes of business failure is under capitalization. Remember, it is better to start out with more money than you think you will need rather than …

This article takes a look at the competing independents and franchise eBay dropoffs. With a couple of employees, Rodriguez estimated that his little store needs to make $12,000 to $13,000 a month just to break even. Helping him out is the fact that he is selling a lot of his own merchandise, tools and imported electronics, using the SpeedeSale log-on name to eBay. Also, he is an authorized UPS and FedEx shipper. …this is exactly what we mentioned before at Franchise Pundit – this business should be coupled with other offerings that can bring traffic in the door. now onto mortality rates… The mortality rate in general is high, as the trading assistants struggle to pay rent on a storefront while trying to find the right balance: what business should they go after, what should they refuse and how much should they charge? One of Sarasota’s first drop-off stores, 1StopAuctions, has closed its doors. Its Web site, which still shows up high on search engines, is up for sale on the Net. Its owners did not return a call for comment. In South Florida, where more auction drop-off stores have existed for a longer time, Rodriguez guesstimates that the failure rate is 80 percent or more. “Of the 20 stores that used to be around two three years ago, only five are still in business,” he said. An 80% failure rate is higher than I would have guessed. But there is NO WAY a town can sustain more than a couple of eBay drop-offs, let alone 20+. All those involved in the drop-off game now realize that to succeed, they must do more than sit in their shops and wait for valuable objects to arrive. “The reason we are on Main Street is to go after business-to-business deals,” said …

You have probably seen their big orange ads screaming “We buy UGLY homes!”. HomeVestors purchases homes at below market value, targeting homeowners that need to sell quickly, rehabilitates the properties and sells at a higher price. . This interview with the CEO walks through a few aspects of the franchise. This was an interesting Q&A: What do you think of TV shows like “Flip This House”? In one episode of one of those shows, an investor goes up to a house, and the house is locked, but he wants to look at it. He says, “We’ll have to take matters into our own hands,” and kicks in the door and smiles at the camera. He just violated the law—that’s trespassing, and our franchisees aren’t able to do that. That’s the wrong image to give lawmakers, consumers and consumer lobbying groups about this business. I get agitated about what I see on these shows. People get the wrong idea—that you can buy a house, flip it and make $50,000 on it. So I don’t watch those programs too often. A disciplined, systematized, ethical approach to flipping homes is the way to go in this business, whether that be on your own or with a franchise.  Homevestors’ system does things in a legitimate manner, unlike some home flippers. The erratic real estate market of late makes profits unpredictable, and sometimes finding homes 30% below market value difficult.  New government regulations could blind-sided franchisees as politicians try to buffer the profits from aggressive flippers.

KFC is shifting its design strategy to more upscale. Here is the experience from one franchisee: The restaurateur has spent more than $3 million renovating all the restaurants, but only a location in Claremore and now the southeast Tulsa store boast the new image. “The idea was to bring KFC up to casual dining,” Schoenhofer said. “We’ve gotten away from the fast-food look.” KFC and its parent company, Louisville, Ky.-based Yum! Brands Inc., are in step with an evolution inside the quick-casual food industry — new images for many longtime chains, including fast-food giant McDonald’s. “It’s a trend and, obviously, it’s working,” Schoenhofer said. At KFC, hard plastic seating, bright primary colors,and old menu boards and lighting have been replaced with high, open ceilings, glazed tile floors, padded booth seating, upscale tables and chairs, and improved restrooms and lighting — all in a Tuscan color scheme of gold, rust, blue and brick red. The restaurant also features a colorful, revamped menu board above the service counter. With inflation, “We’re asking people to spend more money on food, and we want to give them the environment they want,” Schoenhofer said. “We want it to be a nice experience for them.” KFC is also making its menu healthier. …And after the renovations, business soared, he added. “Since we took the stores over, our sales went up 150 percent.” Most of the fast-food chicken brands such as Popeye’s, Church’s, Boston Market, El Pollo Loco, Pollo Tropical, Bojangle’s Chicken, Chick-Fil-A, and Chicken Kitchen, have relatively common cheap chair/booth style look. Improving the quality of the food and restaurant design is a smart, and very likely to be successful strategy. One strategy to capitalize on this new initiative is to buy an existing KFC franchise from an owner who does not have the cash …

While some claim any free PR is good PR, that doesn’t hold true in the franchise world. I would wager that the vast majority of people before they become franchisees do some searches on the Internet (or their loved ones will do it for them) about the franchise. Blogs come up high in search engines because, in part, to frequent postings and incoming links. They serve as a powerful self-disinfecting spotlight. But, this spotlight can be abused by franchisees who failed because of their own fault. Nevertheless, franchisees will flood towards franchisors that are committed to ethically maximizing both for themselves and franchisees. The Java Jo’z / Cuppy’s Coffee story There has been a lot of negative blogger buzz with shark ferocity surrounding Cuppy’s Coffee and Java Jo’z. Apparently, Cuppy’s Coffee (formed in May 2006) purchased the assets of Java Jo’z Coffee & More, LLC. Allegedly, Java Jo’z orally promised a return of the $20-30,000 franchisee fee if the franchisee did not build out. However, things turned bleak – the CEO was sent to the pokey for tax issue, the assets were sold to Cuppy’s Coffee, and now there is supposedly no money to return the franchise fees. The Franchise Agreement does not provide for a refund of franchise fee, but allegedly oral promises were made to franchisees by Java Jo’z and its CEO, Roy Snowden. The asset sale under impending bankruptcy is suspiciously ill-timed and no one has released dollar amounts to determine whether fair value was paid. And if it was, where is the money? Should people be concerned about the ethics of Cuppy’s? Probably not at this point. Many details are unknown and just because people lose money does not mean anything unscrupulous occured. I have a few questions: 1) Why did Aaron Weinstock from a …

Line-of-sight visibility of your store from the road and commuted routes can make the difference. “You have to be open to doing anything,” says Dan Hamari, co-owner with his wife, Janis, of an EmbroidMe shop in Appleton, Wisc. Hamari just relocated from the back corner to the front end of a local shopping mall. “We moved to get better visibility, and it’s working,” he says. “I’ve already had two new customers come in who saw us while they were tied up in traffic.” The mall location is ideal in several ways, Hamari says. It draws walk-in customers who don’t expect to find an embroidery shop there. “But everybody knows somebody who is in business, and they spread the word,” he says. The venue also appeals aesthetically to shoppers. “You have to treat your store as a retail establishment in terms of appearance, hours and customer service,” he says. “Shoppers who are exposed to Macy’s and Nordstrom have expectations.” The larger, 2,000-square-foot space, with 900 square feet dedicated to retail, includes a large window allowing people to look into the workrooms. “We want to show people that we are local, that we do the work here,” Hamari says.

The Crain’s Chicago publication profiled several pet “waste management” businesses, where the business owner will visit yards and scoop up the pet waste. It’s generally a profitable, flexible services business, and can grow rapidly by word of mouth. The $25,000 franchisee fee and 6-8% in total royalty and fees each year most often do not seem worth the payoff. Spending the $25,000 on smart, targeted advertising is more than enough to build a client base, and spending 10% of sales on advertising ongoing should be more than enough to grow the business each year by twice the investment. If there was a franchise brand that most dog owners recognized, than the franchise fees would be a fair exchange. But that is just not the case. Here is a glimpse from the article: To start, the couple spent $20 on two scoopers and $1,500 on an ad in Save on Everything — a coupon book mailed to 150,000 people in Chicago. Within two weeks, they had their first 25 customers. Now they have 120 weekly clients and are expecting to bring in around $80,000 this year. Another article in the same issues touches on the broader pet services industry.

Here is an article discussing 10 tips on making it in the PC repair business. Most important tips (#2 and #5)… #2. Determine who your ideal customer is. If you’re looking to sell and service computers within your local community and remain a one-person operation, residential clients may suit you best….If you decide to target the non-residential market, think small. “Niching is one way to go,” says Reaves. My comment: If you are going to put any serious time into this business, you need to understand what strategy will give you the most return on your time. Are you going to offer an innovative service in a growing market segment that meets an otherwise unmet need? You better! Do you have the people skills to sell your consulting services through networking and intelligent promotions? If not, either take in a partner who can sell or stick with your day job. #5. Market your business everyday…. “I easily put in five to 10 hours a week of promotion,” says Jason Kaufman, owner of Computer Troubleshooters of Mamaroneck, New York. “This doesn’t mean just sitting at a desk, punching out press releases. You’ve got to get your face out there, go door to door if you have to, to let people know you exist. If you’re bashful–not comfortable putting yourself out there or handling rejection–you might find this business isn’t for you.” My comment: Contrary to popular belief, a franchisee has to work just about as hard to make a their franchise profitable as an entrepreneur going the non-franchise route.  Generating (1) sufficient free cash flow and (2) within a few years generating a 12%+ return on invested capital are two metrics partly dependent upon sales.  Inability to generate enough sales to justify continued investment in a business is the leading …

Another good article in Inc. describing one restaurateur journey to discovering how to successfully manage his ever-changing restuarant staff.  The startegy is illustrated by the conversation of two restaurant owners.  One restaurant owner is teaching the other about human behavior and tendancies, and he does this by asking the other owner to place the salt shaker in the exact center of the table…it takes several tries before he even comes close to the center.  The point? Until you understand that [people’s perception of the where the center of the table is located is different], you’re going to get pissed off every time someone moves the saltshaker off center. It is not your job to get upset. You just need to understand: That’s what they do. Your job is just to move the shaker back each time and let them know exactly what you stand for. Let them know what excellence looks like. And if you’re ever willing to let them decide where the center is, then I want you to give them the keys to the store. Just give away the f—in’ restaurant!”  …Leave any one element out-constant, gentle, or pressure-and you are far less effective… It’s my job, and consequently the job of every other leader in my company, to teach everyone who works for us to distinguish center from off center and always to set things right. I send my managers an unequivocal message: I’m going to be extremely specific as to where every component on that tabletop belongs. I anticipate that outside forces, including you, will conspire to change the table setting. Every time that happens, I’m going to move everything back to the way it should be. That’s the constant aspect. I’ll never recenter the saltshaker in a way that denies you your dignity. That’s the …

Life is Good has another simpler method of selling its t-shirts to the public instead of using corporate owned or franchised storefronts (Inc. magazine): The ubiquity of its products notwithstanding, Life Is Good doesn’t want to be Starbucks. The Jacobses detest the homogenization of retail that is turning downtowns into Stepford zones and possess an abiding affection for the mom-and-pops that have always been their backbone. Rather than Gap-ify, they plan to open no more than five to 10 corporate stores in total. But without a glut of company stores, Life Is Good had no widespread physical showcase for its eclectic product line, which fills a 136-page catalog and includes tire covers, picture frames, and dog toys. Franchising would send the iconoclastic Jacobses down cookie-cutter lane and entail the assumption of legal liabilities; in addition franchisees couldn’t benefit from corporate advertising, given that Life Is Good doesn’t do any. So the brothers hit upon an intriguing alternative: Genuine Neighborhood Shoppes. A GNS is an independently owned and operated business that sells Life Is Good products and nothing else. GNS owners get some signage, a 10 percent discount on merchandise, a few exclusive products, and as much or as little help setting up stores as they desire. They pay no franchise fees, but they do agree to propagate the Life Is Good philanthropy model (more on that later) in their communities. The company expects to eventually have 300 such stores; there are now 40, most run by retailers who have a history with the company or by former or current Life Is Good employees. So, for example, Shannon and Michael Bourassa and Shannon’s brother Sean Patel recently opened Blue Monkey Trading Co., a GNS in Tucson. The Bourassas are steeped in Life Is Good culture–Michael has worked there for five …

Should you take the buyout? This NY Times article profiles several middle-aged (50ish) people who left the employ of large public companies. What do you do next? I always enjoyed reading articles about how people evolved into becoming franchisees.  The article starts – THEY were all on different career paths, but they had one thing in common. In midlife, well before they were ready to retire, they decided to take buyout packages. The first person profiled is a former attorney and senior executive from JP Morgan Chase who earned a “six figure” income. She is now happier in her role as a not-for-profit director helping women over 50 network. Her friend’s advice was, “All the truly interesting jobs pay under $75,000/year.” I’m sure that is true for many high paying occupations that are not entrepeneurial in nature. The second profile is that of a former Delta pilot and current owner of an office supply franchise in Las Vegas. “My wife has a good job as an administrator for the school district.” He hopes to pay himself a salary at the franchise soon. “There’s a phenomenon called the ‘wealth illusion’ when people get a lump sum in a buyout,” he added. “Have they really assessed, ‘Can I do my own business?’ If they’re going to open a franchise, is there really a need? You end up in a posture where the actual economic status of most people is way, way off what you would assume from all that retirement advertising.” For Mr. Vance, the risks of starting a business seemed lower than the near-certain disaster of staying at Delta. For now, as he tries to expand his franchise, he is also flying for a company that provides jets to executive travelers. It is not the life he envisioned when he …

I’ve spent most of past year working full time for a private equity and asset management firm. I thought I knew a lot about the private investment world before I started (I’ve been part of several business that received venture capital funding), but what I learned has been a tremendous eye-opener, particularly in seeing the naivity of investors. My job involves handling and fixing issues (legal, financial, complaints, compliance, etc) that involve hundreds of investors. I often speak to investors when they have concerns or complaints. I have a lot to say on this topic because I slap my head almost daily at the mistakes, misconceptions, and wholly amateur approach investors make when deciding whether to invest in my company’s real estate related investments and funds. This will be a multi-part series of postings that will be equally relevant to those looking at investing in private placement offerings and those looking to be a franchisee. The no-bologne, no excuse due diligence an investor in a private partnership should go through before locking themselves into an investment is nearly the same a potential franchisee should go through before locking themselves into a franchise. Venture capitalist often repeat that they do not invest in “ideas”, but rather they invest in the “people”. I always hear that them say they’d much rather have a “C” idea ran by an “A” team, than an “A” idea ran by a “C” team. Focusing on the “people”, the franchisors or general partners, is indeed key from what I’ve seen. How well do you really know the people and managers you’ll be investing with? Have you done a background check on the managers? Have you asked for audited financials this deal and other deals? If they aren’t audited by a reputable firm, walk away…don’t believe the …

Here is a laser skin care franchise that is pitching itself as a viable part-time business. Sounds good, eh? The franchisor is implying that you can work part-time hours and earn full-time profits. How then does the franchisor make money? By upcharging you on the equipment you must buy and subsequently rent, earning a % on each rental deal you source, charging a $30,000 franchise fee, and charging a flat-monthly royalty that is highest when you first start. The franchisor seems to be in a great position to profit in the first two-years regardless of whether you ultimately succeed. After becoming a LaserShare franchisee, you will purchase the equipment from a specific vendor that we refer you to. The next step is to identify medical practices or other potential business to enter into, what we consider, is a unique long term “revenue sharing lease” and marketing arrangement with. Once, the “revenue sharing lease agreement” is entered into with the medical practice or other business, the practice or business will provide the space for the laser equipment as well as providing the operators of the equipment, most of whom will usually be members of their staffs already. As the LaserShare franchisee, you will provide the laser equipment, marketing/advertising assistance, and initial guidance in launching or expanding the laser skin care component of their practice or business. And, you may set up as many relationships as you like, thereby increasing the utilization and the number of revenue sharing relationships. Does this sound like a casual, part-time opportunity? We have tried to keep it simple. You pay a one time fee upfront of $30,000 and a FLAT monthly royalty, not tied into sales or other revenue volume that declines substantially over the first 24 months to a small one time annual fee …

I’m embarassed to admit that I’m a fan of drive-thrus, and I’ve perfected eating while driving with my knees since I drove to high school. When you think of drive-thru, however, you normally don’t think of healthy meals, unless you want to go low-carb and just slop down the burger meat. QSR mag released a survery of consumer preferences related to drive through. Here are some highlights: 56% eat quick-serve food at least once each week, while 39% use the drive-thru at least once a week. Another 25% said they use the drive-thru once or twice per month. 63% of consumers we surveyed agreed or strongly agreed with the statement, “I want food that is easy to consume in a car.” And 15% said, “I only shop at restaurants with a drive-thru.” 57% said an acceptable wait time was no more than five minutes….23% indicated they would wait up to ten minutes, while 11% said they would wait for one or two minutes. 46% indicated that their food choices differ when they are ordering at a drive-thru, compared to when eating inside the restaurant The survery makes a good case to favor restaurant franchises with drive-thrus, especially when 39% of the people surveyed eat at the drive-thru weekly. This always puzzled me – why isn’t their more drive-thru pizza by the slice restaurants? Sbarro’s drive thru, perhaps?

I frequently use online ordering for food delivery purchases, and so do many other people I know. I know my purchases are signifcantly more than it would be if walked in and I order online from restaurants I wouldn’t otherwise visit. Regardless of my positive personal experience with online ordering, it is a cheap way to increase sales and introduce your product to new customers. I would favor a restaurant franchisor who offers an online ordering system. Take this recent example from Pizza Pan: Pizza Pan launched eOrderManager, a new software package that lets customers place food orders online. The ordering system, which was created by Cleveland-based O-Web Technologies, is designed specifically for the quick-service and casual dine-in restaurant industry. Without yet promoting the online ordering option in-store, Pizza Pan has already attracted 327 new members within the first month. The average online ticket is $22.32, which is significantly more than the average in-store check. The system runs off the franchisor’s Web site, yet it was designed for individual franchise owners. “Our online ordering system increases order accuracy and improves productivity by keeping our employees off the phone,” said Mike DeGirolamo, director of franchise development and a franchisee. Pizza Pan currently uses eOrderManager in 15 of its 96 locations and plans to expand online ordering to the majority of its locations by the end of the year.

One company has about $8 million in sales with 10 employees in the franchise industry, and was just acquired for $21 million. No, it’s not PostNet, Great Wraps, or American Male, it’s the franchisor-advertising web site – Franchise Gator. Most of their money is earned with listing fees and click throughs to the franchisors’ web site, I’ve heard earnings of $30 per click among other arrangements. On a related note, potential franchisees should always be aware how people are getting paid. A “consultant” or “independent rep”, for example, are generally paid by the franchisors essentially on 100% finder’s fee. When the consultant or rep only gets paid after you buy pay a franchise fee, do you think they have the franchisees’ best interests in mind or are they biased toward their own commission? What about the good franchises that refuse to pay the fee or those franchisors who pay the highest fees, do you think that influences their recommendations? Do you think sites like franchisegator.com who highlight franchisors with “Franchise of the Month” and “Franchise Spotlight” do it because those spots are paid for by franchisors? Don’t kid yourself, follow the money.