If you’ve never run a business before, no matter how many blogs or books you read, or seminars or classes you attend, you have a lot to learn. There are just too many things to deal with to pick it all up without actually doing it. For that reason, the first business you own should be purchasing an already established franchise.
Until I owned a franchise business I never quite understood why this is so important. Firstly, I’m assuming you’re buying the business to rapidly build it (less than 2 years) and either sell it or keep it for cashflow with minimal input from you, the owner. If you prefer the hardwork and pride of building your own business from the ground up over 20,30, or 40 years, then by all means do that. Based on that assumption, let’s break up your “building” efforts into 2 basic categories: Front-End and Back-End
- Front-End – This simply means your sales and marketing. What are you doing to generate leads, convert those leads to customers, increase the amount each customer spends with you, increase the number of times those customers come back, and get those customers to tell their friends? That’s a quick summary of the front-end of any business.
- Back-End – This is talking about what you do once the sale is made. It includes inventory management, delivery of product, servicing customers, dealing with customer service issues, paying billings, billing customers, collecting payments, leading your service team and everything else that isn’t directly associated with your sales efforts.
So when looking for a business to buy, the ideal situation would be to find one with a strong “Back-end” system but weak “Front-End” system. That means when they make a sale they do so consistently, accurately, and predictably. Every customer knows what to expect. Their inventory is managed well, bills are paid on time, customers are billed accurately, and money is collected efficiently. However the business is not real good at creating or closing leads. It’s even worse at taking advantage of referrals and letting customers know all of the goods and services they offer. They have a great, well-maintained, database of current customers, however they fail to know how to utilize it. Why is this the ideal situation? Because if you’re developing guarantees, Unique Selling Propositions, and other direct and specific marketing to set you apart from your competition, you better be able to back it up. For that reason, if you have a weak back-end that MUST be addressed first. If however you have a strong back-end, the only thing left to do is grow the business through improvements in your front-end sales machine. You can put in less effort building the front-end then the back and reap 2-3 times the reward in less time. It’s very difficult to grow a business while improving the back-end, however the whole point of improving the front-end is to increase sales and profits.
Ok, so let’s get back to a franchise. Why is it helpful to cut your teeth on business with a franchise? Well the reality of business is that it’s impossible to only work on back-end or front-end alone. You’re constantly working on improving both and that’s where a franchise comes in. Generally a franchise, through much testing and measuring, will tell you how to run your back-end very precisely. They’ll tell you what to say, what to wear, how to produce, order, install, and/or service your product. You’ll have a large support system of people to help you address problems when they arise. In other words, most of your back-end is already setup.
Moreover, a good franchise, is also providing the necessary resources for the front-end. They provide marketing materials such as radio and TV ads along with direct mail pieces or newspaper ads. They’ll tell you what to put on sale when and while you’re too busy working on your business to come up with new ideas they’re producing new and exciting products for you to present to your customers. Sure you may pay 2%, 4%, 6%, 8% or more in gross revenue to your franchisor but in most instances that investment in learning is well worth it. And that’s exactly how I would view it – an investment in your education. Where else can you make good money and learn all the ins and outs of a well run organization? In fact, if I had the choice between attending business school or just using that money to buy a well-managed franchised business, I’d buy the business every day of the week. They’ll provide me with the tools and certainly the experiences I need to learn about business. After 4 years of running a business do you think you’d be more prepared for the “real-world” than your counterparts with a business degree?
Obviously, that was a rhetorical question. Their is one last important reason to make your first (and maybe second and third) business(es) franchises – Name Recognition. As Brad Sugars says, the most expensive thing in business is buying your customers. That’s right, your marketing dollars are simply you buying customers. If you’re buying a franchise, someone has already been marketing to your future customers for 10, 20, 40, or 60 years. They know and recognize the name. If you’re buying an established franchise in your area (versus bringing one in for the first time) that investment of someone else into your customers and area will ultimately make your cost for acquiring new customers less. Does that make sense? All well-established, professionaly run franchises will provide that benefit. Don’t underestimate it’s power. In my personal situation, without that name recognition my business would be a LOT smaller then it currently is.
To your success, Bryan