Here’s a proposal for you: raise a quarter of million dollars through withdrawing your life savings, borrowing from family members, and maxing out your credit cards. Pay that to a company that will “give you a business.” Operate that business precisely how they tell you– no exceptions are allowed. Every decision from whom you hire to what services you offer to where you locate your store is defined by the company.
They’ll even tell you what color shirt you are required to wear to work in “your own business.”
If the business works well, you’ll make an average of $47,000 a year after scraping by for three years working the same 50-hour work weeks you could spend at someone else’s company with a lot less stress. In this winning scenario, your ultimate success won’t be having started a business. You’ll have bought yourself a job.
If the business fails, which happens quite often, the company will take back the store from you and resell it another sucker… I mean client. When they do this, they won’t even count your failure as a store closure in their statistics, so when you hear that 95% of franchise locations stay open, you have no idea who is operating them and who owes their family $250,000 that they have no way to repay.
How does that proposal sound to you?
Probably not so great, but companies that franchise themselves are great at persuading people otherwise. These franchises make money by selling to franchisees. They spend that money on marketing to other would-be franchisees (just look at Entrepreneur magazine).
Think this doesn’t happen? Take a look around. Subway, Quizno’s, UPS Store, vending machines, etc. Pick up Entrepreneur magazine and flip to the back. You’ll find literally hundreds of franchise opportunities that promise exactly this scenario.
What’s the way out of this trap disguised as an opportunity? There are two options:
1) After the $250,000 investment and three years of hard work, your business is profitable and you can truly outsource its operation. You can then open multiple locations, which most franchise owners say is the only way to achieve long-term, six-figure profitability. It does work for some people; it’s just hard.
2) Start a real business. As in, your own business that belongs to you with your name on it. Success or failure is entirely up to you. Don’t go into debt if you can help it, but if you have no choice, at least your debt will go to your own venture instead of a corporate sandwich shop.
In the long term, this is the only way forward for most independently minded entrepreneurs. I’ve never been good at following directions, so unless you want a color-by-numbers business, you should stay away too.
If a business opportunity is a) high risk, b) high stress, c) high maintenance, and d) low on growth potential, why would you even consider it? Don’t believe the hype! Eat the sandwiches at Quizno’s, get a mailbox at the UPS Store, but leave the franchise brochures behind.