Franchising lets you expand fast using other people's money, but only if your original location is highly profitable and every operation is documented. You'll spend most of your time managing franchisees instead of running the business, and picking the wrong partners can tank the whole thing.
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Hi, I'm Evan Carmichael. Welcome to another edition of Ask Evan. Today I'm answering a question from one of my readers, Bashir, who wrote in with a question about franchising. So he said, "Your personal opinion in regards to franchising as a tool to grow, as well as franchising advantages and risks." So thanks for the question, Bashir. Franchising can be a great way to grow your business. It really depends on the the company that you're running. Franchising is a great way to grow quickly because you're not using your own money to expand. You're using your franchisees who have to invest capital to buy your franchise, and it's to be a, a quick way to rapidly grow your business. Some of the things to think about with franchising, first you have to have a really successful location yourself, and a lot of people try to franchise too early. They franchise with just an idea and they haven't really proven it themselves too much. And then if you haven't built a successful business yourself with your first location, it's going to be really hard to have other people be successful because they're going to be copying your model. And if your model isn't bulletproof and works amazingly well, then it's not going to work for somebody else. And you have to remember that the franchisees are probably not going to be as successful as you are. So whatever your first location is, that's going to be probably the most successful location in the system until you maybe move into bigger markets. But it has to work. And a lot of entrepreneurs just franchise too soon. So make sure you have one really successful location. You can bring people to it, you can show them how it works, and it's an easy way to give an incentive for somebody to want to look at that one location, say, hey, I can do this and I can make a lot of money as well. So it has to be highly profitable before you think about expansion. The next thing to think about is you have to really have everything documented. So it's a lot of work on your part. You gotta figure out for each new location, here's exactly what you have to do to be successful. And again, remember that the franchisees are not going to do everything exactly as you say unless you specifically lay it out. So they're not going to think the same way as you think. So you have to really be specific as to what they have to do and do that in every step. And so it's a lot of work creating the paperwork to have all that put together. And then the final thing to think about with franchising is a lot of entrepreneurs who go that route, you find that most of your time is spent no longer running the business but managing the franchisees. And you have to do a good job at the beginning to qualify your franchisees and make sure you're bringing the right people on board. So you're not just bringing somebody on because they have the money to do it. You want somebody who you've done interviews with and you feel they're in the right stage of life to do it, they have the right experience to do it, they're willing to listen to your advice on how to keep going. And if you get the wrong person, you're going to spend too much of your time just managing that person and they're not going to see success and you're not going to see success. You're both just going to have a miserable time. So you have to think, do you want to be in that business of just managing franchisees? Because that's what you're going to end up doing, right? So you have your one location and you might even open a few more yourself, but most of your time is going to be spent managing your franchisees. And a lot of entrepreneurs friends of mine didn't expect that and they ended up either closing down a lot of the franchisees or taking them over again so they could just be the entrepreneur and not have to worry about other people owning and operating it. So the biggest pro is that you are able to expand very quickly using other people's money. You don't need to go out and raise capital. You don't have the money yourself necessarily yet because you're trying to go through your profits originally. So using other people's money to quickly expand the business, you get more branding. The cons are You have to manage all these franchisees ongoing. Nobody's going to run it as good as you do, and you basically are running this organization that you don't have full control of anymore. So a lot of people don't like the franchising model. They think it's attractive from the beginning, but once they get into it, they thought they're into a kind of completely different world. I would suggest if you're still interested in doing it, going to talk to people who have done the franchises, and I talk to franchisees and I try to talk to the franchise owners as well. Don't go up and talk to somebody from McDonald's, but find a smaller franchise, somebody who might be in a similar type of business to what you're trying to do, and just get their experiences and thoughts and see if that's something that you still want to do or not. So hopefully that helped. Thanks for the question. It's always great to try to get as much knowledge as you can about something before you jump into it. If you guys like the video who are watching, please give it a thumbs up below. It makes me want to do more for you. And if you have a comment about this video or you have a question for your own business, I'd love to hear from you if you want to leave it in the comment section below. So thank you and I'll see you on the next episode.
