Wednesday, June 22, 2011

What Does a Franchise Fee Buy You?

(Please note - this blog originally appeared in Franchise Business Review.)

Franchising is a great option for folks who dream of owning a business but don't have a great idea and/or want to mitigate the risk as much as possible.  When you invest in a franchise, the question really is - what am I paying for?

The answer, in a word, is “opportunity. “  Described in the dictionary as:

1. A situation or condition favorable for attainment of a goal.
2. A good position, chance, or prospect, as for advancement or success.

I’m the COO of a franchise organization called TGA Premier Junior Golf that filed its first UFDD in 2006 and currently has 47 franchises in 21 states.   We’ve been named to numerous rankings/lists as a top “franchise value” and “low cost franchise” in the U.S. with an average franchise fee of $17k and change.

I recently had one of those unfortunate conversations with a franchisee who wasn’t executing well and he wanted to know his exit options.  Thankfully I’ve only had a few of these conversations in my TGA career and this one was unlike the others because the franchisee pointed the finger at me.  “You sold me a bad territory.”  “This isn’t a viable business here.”  “Etc. Etc.”

Never mind that the franchisee down the road is one of our best in the country.

The conversation turned into a discussion of the central relationship between a franchisor and franchisee.  The franchisee believed his investment in a TGA franchise would guarantee success (even though the disclaimers clearly state otherwise).  “Build it and they will come.”  I’ve heard this sentiment from others as well.  And it is wrong.

The franchise fee buys an opportunity.  A “favorable (situation) for attainment of a goal.”  A “good … chance … for advancement or success.”

I remember the first few years at TGA when we were losing money.  We made several mistakes.  We asked questions of our customers.  We learned.  We pivoted.  We took three steps forward and two steps back.  We launched the business in 2003 and first said hello to the black in 2006.  By then, we had figured it out.  And we grew – quickly.  Profitably.

When a franchisee invests in TGA, they get two things:

A)   An express pass through those initial 3-4 years when a new business typically loses money, makes mistakes and constantly walks the survival line.  This “pass” comes in the form of TGA’s proven product, IP, strong brand, training, support, inclusion in partnerships and so forth.  As a result, most of our franchisees are profitable in their first year.

B)   Tangible goods that, in our case, would cost more than $17k if purchased/developed on their own - $2,000 worth of supplies, a website with backend CMS, a robust CRM system, national and local PR, cost-savings due to favorable agreements with suppliers among other things. 

Franchisors provide a model/framework for success.  You want to build a castle and we provide a proven blueprint and the necessary tools.  That’s what your franchise fee buys you.  The first thing I learned in my MBA program was that entrepreneurship is about execution.  A franchisor provides a great opportunity.  If you're exploring the franchise path to entrepreneurship, understand that it'll ultimately be up to you to capitalize on this opportunity by picking up the tools, following the blueprint and building.

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