Investigating a Young Franchise: One Sneaky Thing to Watch Out For
Partnering up with a young franchise has is own set of risks and rewards. On the one hand, the franchisor isn't experienced in dealing with franchisees and the support systems might not be perfected just yet. There are relatively few franchise owners so formulating expected profits can be difficult, if not impossible. On the other hand, you'll likely buy in at a lower franchise fee and also receive more personalized support. Just because a franchise is young, doesn't mean the business can't be successful and fruitful. But before signing up with a relatively new franchisor, there's one important thing to find out: Who are the first franchise owners?
It's hard to convince a relative stranger to purchase into a new franchise concept, so with that in mind, find out exactly how the first franchise owners came to buy in. Were they family friends? This isn't necessarily a bad thing, but it might help explain why or how the first franchise owner came into being. Were they managers of a company-owned store? This is actually a very common scenario, where the franchisor selects well-performing managers to be the first franchise owners. If this is indeed the case, it's possible that this person had a lower franchise fee (or none at all). While the franchisor is not obligated to disclose the franchise fees paid by other franchise owners, keep in mind that little-to-no franchise fee scenarios often result in a less-loyal franchise owner. If the first franchisees had no prior relationship with the franchisor, then be sure to find out how they came to find out about the franchise and why they selected it. Their answer could be very telling as to the advertising and sales methods of the franchisor.
No matter how the relationship with the first franchisees came to be, the franchisor should be candid and honest, even though the answer might not be particularly what you want to hear. Understand that finding the first franchise owners isn't easy, but an honest franchisor should have no qualms discussing any difficulties in growing the business.
For more ideas on how to investigate a franchise, reach out and ask!