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Franchise, Go It Alone or Keep My Lousy Job?
Original letter from Sam B:
I'm working long hours (60 - 80 hours per week) at a sales job that right now seems to be going nowhere. Ditto at my last job. If I'm going to be putting in these kind of hours, I'm thinking I may as well start a business and be my own boss.
I've heard that franchises have the least chance of failure because of all the help they receive from the parent company. I've also heard that people don't make enough to live on the first few years.
What do you think? Is franchising the way to go, rather than starting a business from scratch? Would I have to be prepared to live on almost nothing at first, and for how long? Is the work schedule a killer?
--
Comment from Les Stewart, Forum Moderator
Let's raise the level of discussion by trying to adhere to the following indicators of quality discussion. Maybe we can look at:
- academic sources (peer reviewed papers),
- known longterm experts (Kezios, Purvin, Hadfield, Steinberg, Brown, etc.)
- quantifiable measures,
- the difference between luck and skill,
- the difference between belief and proof,
- obstacles to information flows, and
- forces that prevent opportunism [self-interest with deceit].
Whether You Leave The Corporate World Into Franchising Depends
You asked, "Is franchising the way to go, rather than starting a business from scratch?" Here's my two cents worth.
The answer is yes and also no. It really depends on the franchise system that you buy a franchise in. Some franchise networks succeed better than others while other franchise systems might be worse than independents in their industry.
Intuitively, it makes sense that franchise systems have higher success rates than an independent business. An independent pizzaria most likely will learn the hard way that coupons are more cost effective if given door to door rather than placing full page ads in the newspaper. Franchisees benefit from already knowing that because someone made that mistake long ago. If you own a business then you have to re-invent the wheel. learn the hard way. In a franchise system, you have the benefit of being given an operational manual which has learned from the successes and failures of other franchises. However, you also have royalties to be paid that independents do not.
Studies on the failure rate of small businesses or the success rate of franchises vary widely. So, it is difficult to say categorically that franchising is more successful than independents. Some studies show that this is not the case. And of course, it is even harder to say that any one particular franchise will succeed more than an independent. That's not necessarily so. After all, any one particular franchise could fail while an independent succeed.
If you ever attend a franchise show, most likely you will hear franchise sellers quoting from old IFA figures of high success rates compared to independent operations. I've heard sales people pitch to me that 95% of franchisees are still in business after 5 years compared to 5% for independents. The IFA has asked franchise developers not to use those figures because they are faulty but the numbers are so attractive that sales staff have a hard time not putting it into their sales kit.
I still haven't answered all of your questions and only part of this one question. Let me do this. I'll answer your questions a little later in the week in a more lengthy article in the "general franchise" blog section.
Don't quit your day job,
Don't quit your day job, young'n. At least until you get going with something steady.
Smoking Warnings and Franchise Laws
Huh?? I'm having difficulty following you. What is the mortal sin that the "smoking may kill you" warnings cover up? Do you think tobacco should be banned by the government?
Frankman
Franchised v Independent Business
Les,
It's done. I've changed the description of the forum "Franchise, Go It Alone or Keep My Lousy Job?" to include your guidelines of discussion. The forum is yours. Most readers will probably want to know which one pays off better - franchising, going it alone or keeping their 9 to 5 job. But you are the moderator. If you want to focus on seeing if franchisees face any additional challenges than do independent businesspeople. As moderator, you now have the ability to change the description of this forum. Try it.
Mr. Blue MauMau
Or Trade my Lousy Job for Another Lousy Job
Let the buyer beware! In these new times of huge corporations and global interests where mergers and acquisitions are in the business news on a daily basis -----and jobs disappear on a daily basis, be aware that you might not even have a lousy job and might have to Go It Alone after your unemployment runs out.
Remember that "franchising" really picks up in bad economic times and your country needs you and the corporate brands need you to enter the new job market of franchising with your own savings to keep the home fires burning ----on and on ----up the road and over the hill into prosperity? The franchisors even have special programs to take care of the veterans; to give them discounts that permit them to share the American dream that they put a uniform on to protect. Even old folks can invest in franchising -----there is no discrimination. If your money is green and legal, you are in! Franchising is as American as apple pie and who doesn't like apple pie? Franchise jobs are the new jobs that the government has been talking about since the government allowed the corporations to ship many good jobs out of the country. The SBA helps to create these new jobs for American citizens but these new jobs are low paying jobs with no employment benefits.
We have no clothing industry, we have no hardware industry, we have no shoe industry; we have lost our industrial base ----robots are going to take over retail but Thank God! we have franchising and we still have the American Dream.
Good & bad f'zors
Jim Coen wrote: I've been involved in franchising for over 25 years, I believe it is one of the most powerful forces at work. The reality is I've seen that power used negatively as well as positively. You are seeing some of the the results of those negative forces at work here. The resentment many feel towards franchising is visceral.
So true. There is a power imbalance in franchising, and that does encourage abuse of the weaker party (normally the f'zee). It is because of that, together with the (erroneous) belief that franchising is a "partnership" or "marriage", coupled with the work history of new f'zees (many coming from a background as an employee, which has a quite different regulatory structure) which leads to the visceral resentment.
BUT... let's not forget that there are many people who have had positive experiences as franchisees, and who perceive their franchisor to be worth every penny of the royalty and ad fund monies. As others have pointed out, franchising has enabled many people to make a living and even become wealthy as franchisees.
This board does tend to focus on the exceptions-- f'zors like Quiznos and Cuppys make for good copy and do serve as a warning lesson to prospective franchisees. But they are not the norm, and we should remember that.
Anyone know about ShapeXpress?????
Mr. Blue Maumau,
I recently had purchased franchisee licenses from ShapeXpress out of Tulsa. In the last 6 months the corporate office and it's so called support team have become non-existent. My experience has been ugly since my facility is now closed and I have joined the ranks of people dupped out of their life savings. We do not seem to have any legal recourse due to a mediation clause but someone needs to look into these guys for what they are. My last intell about them says they are generating cash through sales of sandwich shop and motorcycle shop franchises. The vendor community is not happy with them as they supposedly are not paying some of their vendors.
Does anyone know anything about these guys or have any idea how we get justice??????
The Best Answer...
The question of keeping a job versus going into business is a decision that really depends on your personal ability to sucessfully own a small business. Not everyone is cut out for small business ownership. It has its pros and cons. You have to decide what is a pro or con.
The best answer to the question of franchise versus non-franchise business that I've ever read is by Richard Soloman on his web site www.franchiseremedies.com.
One of the articles have this paragraph:
"The first and best way to prevent yourself from being scammed is for you to keep your investment money in your pocket and get a job with a franchisee of the franchise system you like for a year and learn it from the inside. Even if you spend a year with a small salary, you do not lose your life savings and you are not bound to very one sided contracts. After that year, you will know every problem in that franchise system. In almost every instance, you will be really happy you did that, and in almost every instance you will decide that you do not want to be a franchisee of that franchisor. The reason for that is that franchises are simply not as good as the franchise sales brochures and sales pitches represent them to be. The secondary reason for that is that you will, at the end of that year, know enough about the business that you can do it as an independent and save yourself hundreds of thousands of dollars over the life of what would have been the length of a franchise contract you might have signed. The universal representation that franchised start-up businesses have a better chance to succeed than independent start-ups is and always was false. The odds on success or failure are exactly the same whether one is franchised or not."
This is great advice. I wish would have found this advise sooner...
No Time for a Franchise or Startup with a Corp Job
Most start-up business and franchises require 60 - 70 hours a week. Starting it is hard. You have to take the plunge. Can't do it the safe way of keeping a full-time job and doing this in your "spare" time, whenever that is..
Like Site
I'm matatronikk, i just want to say i really like this web
Frankman wrote: I've heard
Frankman wrote:
I've heard sales people pitch to me that 95% of franchisees are still in business after 5 years compared to 5% for independents.
Reply:
The other problem with this statement is what is the churn rate? If you have 1000 stores in a system and 995 are still in business that sounds great.
If 700 of those sold, and many of those sold at below their investment, then that also does now show the true picture.
Smoking Warning and Franchise Laws
Come on Frankman! I think you know exactly what Les Stewart is saying. Government isn't banning tobacco use but the private sector corporations are banning tobacco use in the interests of their bottom lines. They know tobacco is a killer and they aren't going to pay employees to kill themselves while covered under company health care plans.
Government has to be pragmatic and alcohol and tobacco are legal drugs that people can use at their own risk. These legal drugs produce lots of revenue for business and government and if people are going to be self-destructive, that's their constitutional right! The government has only the duty to warn its citizens about the dangers of tobacco and alcohol -----out of one side of their mouth ----and to license and support the sale of tobacco and alcohol out of the other side of their mouth. That's the way of things in free societies. The government knows however that once that package of cigarettes is in the hands of the smoker, the warning means nothing.
You might say the same thing about the federal warning in the front of the UFOC.
Proof of Success: Franchised v. Independent Business
There is process that has proven to advance man's understanding of various fields. It is called the Scientific Method .
This is what defines logic, rationality and civilized discourse in an advanced, free market society. Please note some of the hallmarks of the scientific method:
Search for Truth
But truth can change over time as new evidence is found. No thing is cast in concrete; they are all working hypotheses.
Gibberish
Citing any other source (ie. intuition, common sense, my experience) is fine but it is non-rational, undisciplined and ineffective in building new knowledge about franchising.
It's like two-year olds wanting the same toy: curious for a time but in the end child's play
Success: Quality of Information criteria
The highest. [commissioned by the U.S. federal government, published in academic papers, peer-reviewed by other scholars]
1. Bates, 1996
Franchised business fail quicker, are less profitable, and require more capital to start when compared to a similar group of independent businesses.
2. Shane 1995
Over 75% of the franchise systems that were started in 1983, were dead by 1993.
Why No One has REFUTED these Studies?
No study of similar quality has appeared since Bates & Shane to refute their findings.
That seems odd because the industry is usually very assertive in their defense of franchising. These findings made a very big splash in the 1999 U.S. Congressional Hearings on the Franchising Relationship. They embarrassed a lot of franchisor executives.
Lot of Money but No Data
Franchisors have a much great higher capacity to fund research to use as an antidote to Bates & Shane. But none has appeared. It is much harder to buy an academic's reputation than it is to commission studies from management consultants.
The reason there is no study showing a clear higher profitability and survivability of franchised businesses is, simply, IT DOES NOT EXIST.
Just asking for Evidence
If there was any proof, you'd think the Big Boys would tell us, wouldn't you? It would be good for selling, selling, and selling: wouldn't it?
I'd be happy to believe it, honestly I would.
But not just on their word, or blind faith or because someone's cash flow requires it.
Sorry, that would be illogical.
Details on Bates & Shane Studies
Les Stewart, MBA
Industry Investment Analyst
FranchiseFool.com:: the wise learn to say No
Check with the Attorney General of Oklahoma
If these people have disappeared -----maybe your Attorney General can find them -----you can't mediate with ghosts -----and these people have obligations under State and Federal Laws -----Just hope you can find them before all the money is gone, and/or they have declared bankruptcy.
ShapeXpress Growing Pains
On the franchise page of ShapeXpress, the following on the surface sounds wonderful for the franchisor but based on previous discussions here, it is a red flag - a huge growth spurt.
That's a huge jolt to a franchiser and their capability of supporting the system. Can you tell us where specifically you see a problem? What sandwich shops are keeping them afloat? And how do you know this?
As you know, in the healthiest of franchise systems, some franchisees make it and some do not.
Mr. Blue Maumau,
Sorry to here about your loss.
I know first hand how it feels to lose everything over a franchise.
I too purchased a franchise. I am pursuing mine in the Toronto Court.
Are you in Ontario you must go to the police about your issue this does not seem to be legal.
It is tough to pursue through the Courts but please don't give up.
Did you invest more than $50,000.00 in this company ShapeXpress?
If so file material under Ordinary Procedure.
Keep on posting to protect other's your not alone.
God Bless, Don't Give Up Till You Get Justice.
Do you fall under the Arthur Wishart Act 2000?
Sorry to hear
What avenues have you attempted to resolve the issue? Are you in Oklahoma or are you in another state that has franchise laws? Have you tried going to mediation? Have you contacted the attorney general? Were they any help? What happened to the support team? Are they actively selling new franchises? I am sorry to hear about your closing.
Shapexpress
I purchased a Shapexpress in 2003.The only reason I am still in buisness is because I can not get out of my lease.I am not sure what has been worse Shapexpress corporate or my landlords.I have recieved very little support in almost 4 years form Shapexpress.At this point they are running a bare bones operation.They do not even return phone calls.I am suprised they are still selling Shapexpress licenses.At one time there were over ten Shapexpresses in this area.One by one they all closed for the same reasons.Too much money invested,no corporate support,no national advertising,a marketing plan that does not work,too much overhead.When I purchased a Shapexpress I was told it would cost no more than 75,000 and two months to break even.It has cost me over 200,000.It took me one year to break even and that was short lived.I have not made a profit.I work most of the hours and can not pay myself.I left a good paying job with benefits that I was at for 28 years to pursue a venture that I felt passionate about .Womens Health and fitness.Myself like many others I know personally or have come to know via phone conversations all have similar stories.My investment is on the low end,some have put in as much as 400,000-500,000.Shapexpresses are not sellable,so most owners are forced to close there doors.some are now being sued by landlords for lease obligations.I can not risk that.i spent two years in litigations with my landlords over buildout issues.this has cost me over 15,000. This experience has caused family problems ,financial problems and more stress than you can imagine. Shapexpress is now selling another Womens Health club called Sedona Fitness.How does this help the existing Shapexpresses?Over thirty Shapexpresses have closed in the last year and a half.I have also heard they have brached off into selling deli's.When you go on a Shapexpress websie the information about how many have sold or exist is not accurate.To my knowledge there were never more than seventy five open at one time.Yet the websites staes over tree hundred sold.they are selling multiple licenses to people and promising huge savings.Most have never gone beyond opening one.They are now out additinal money for licenses which just become pieces of paper.They do not give accurate information to new prospective franchiseees about how many have closed, how many are actually open and thier ridiculous version of corporate support which is basically nonexistent.I know that I am not alone in what has become an unbearable sisutaion.I believe there are many former and current Shapexpress Franchisees including myself that would like to do something about this ,but don't know what to do or who to turn to.If any of you are out there please respond maybe we can all rally together.Lets do something about this NIGHTMARE!!!
Franchising is not the American Dream but an American Tragedy!!
There are too many franchises out there that are not good. If you are in a good franchise I am happy for you!! Unfortunately there are too many greedy zors that only want your cheap labor and your hard earned savings and assets. Haven't you read of all the people in the franchise industry who have been robbed. Many people do not pay attention to anything negative when they start a franchise. Until there are more laws to protect the zee's I wouldn't recommend a franchise. Take it from someone who learned the hard way. Someone who was well to do and now is trying to get out of this mess. Take it from someone who got screwed from an evil zor.
I hope what you say is true!!
I do believe most are bad. I wish I could believe you. Our zor is by the same people Quiznos. But I am hearing so many bad stories from other zee's besides Quiznos. Name a few good ones. Has anyone have information about Jumba Juice? So far I have looked their name up on the interenet. I haven't heard anything about them that is bad.
This makes sense to me- great advice!
Even if you work part-time you will see what's really going on. You will see if people really like the product and keep coming back. Or you will see if the picture the zor painted was only a great picture. Reality can be a harsh thing to face after putting hundreds of thousands into an investment.
Forum Meeting
I really think you guys need to get together sometime and sort this out. I vote for a forum meeting, who's with me?
Kind Words
"I'm matatronikk, i just want to say i really like this web."
Thank you. Those are kind words. This website is meant as a tool for anyone interested in franchising or franchise owners so that they can question, expound, blog, discuss, write down community events, share franchise links and tools and also have a lot of fun with others involved in franchising.
Sounds Dumb
"Most start-up business and franchises require 60 - 70 hours a week. Starting it is hard. You have to take the plunge. Can't do it the safe way of keeping a full-time job and doing this in your "spare" time, whenever that is.."
Thank you for that litle gem of knowlage. I understand the "leap" required in starting up, I was mearly spouting a cliched term for "sounds dumb."
Much Higher Business Risk: Fran v. Indep. Bus.
I agree: it's a little like being pregnant
My Scientific Method (search for patterns)
In 2000, I was told to establish a reputation registry.
Not knowing exactly what that was, I started collecting newpaper articles. I then started analyzing them: picking out specific actions which repeated.
I defined almost 1,000 different behaviors I saw and thought were important.
Special 337 Increased Risks [Franchised v. Independent Business]
However the thing that got me was that some of these situations met the following 3 criteria:
One Example: Tied Buying
Almost all franchisees have to buy from the franchisor. There is absolutely nothing to prevent the franchisor from charging a sky-high amount or scapegoating a specific franchisee (different deals for different dealers). I have examples where:
Anyone else have any examples of above-market gouging in tied buying arrangements?
Les Stewart, MBA
Industry Investment Analyst
FranchiseFool.com:: the wise learn to say No
Specific problem
The problem as I see it is the business model they use does not work. Over 24 franchises have closed in the last six months and that is way over normal obsolescence. There are several more that I know of that are close to closing. I do not know the name of the sandwich franchise or the motorcycle franchise but the corporate office will tell you they are selling them. They did have a hugh growth spurt but even the franchise broker, FRANNET, dropped them for undisclosed reasons. I have sources I can not to divulge but something is wrong in Tulsa!
Atty Genereal
Excellent suggestion. Thank you!
Though I would guess that
Though I would guess that the Bates & Shane studies are correct, I'm sorry, your faith in academic studies is rather touching. There is much ideological claptrap published that is not only wrong, it is breathtakingly wrong (I noticed you listed something by Noam Chomsky in your "bookshelf", for example). There is much more that might be right, but is so lacking in evidence and/or rigor that it is useless.
As for studies of franchises, while any (correct) information is helpful, those which you tout are not especially useful. First, I should point out that the population of people who choose to become a franchisee is likely quite different than those who choose to start up their own business. How much does this self-selection bias account for the differences in results?
For another example of problems, let's play with the conclusions you reached using data from the Bates study by substituting other data at least as true:
Blacks - on average - are more likely to be a convicted criminal, poor, and uneducated than are whites. Does it follow that all blacks are therefore less honest, poorer, and more ignorant than all whites? Of course not. However, by your "logic", such an inference is clearly justifiable.
There are unscrupulous franchisors out there which are going to going to take advantage of franchisees. There are also people who might be able to run their own business just fine, but are failures as franchisors, and they take their franchisees down with them. Or their success is dependent on factors that they either can't duplicate or don't realize are important (and so don't even try to do so). These are all difficult situations for the franchisee, to put it mildly, but it doesn't follow that these issues are going to come up for all franchisees.
Do your own research and don't rely just on all the pretty graphs the nice salesman showed you. This is why it is so important to know what you are getting yourself into ahead of time. Think of the old analogy of which plane to fly over the ocean in: Plane A with only one engine or Plane B with two engines (both of which must function for it to stay airborn). Which plane should you choose?
Did you pick A? Don't pat yourself on the back so quickly. You didn't have enough information to make an informed decision. What if Plane A's engine is 90% reliable while Plane B's engines are each 98% reliable?
PS As for why the "Big Boys" don't come up with contrary academic studies on how successful franchises are in general, why should they? McDonalds, for example. Do they need an academic study to convince someone to purchase a franchise? Or do they perhaps have a little bit better evidence for persuasion already in their pocket?
Franchises, like people, need to be evaluated on their own merits.
Franchise Legal
I recommend you contact Dady and Garner www.dadygarner.com/ and ask to speak with Ron Gardner 612-359-3501.
Additionally, it would be a great service to put a list of both franchisee and franchisor attorneys on Blue Maumau.
TIF
Responses
Did you get any advice or responses? We are in the same position as you, but we just opened a month ago and have to make a go of it.
Corporate is non-existent; they have misled and misinformed our suppliers and leasing companies causing us financial difficulties.
They even disabled the franchise support link on their website. So much for the unprecedented support.
We know of more than a dozen clubs that are still open and are not receiving support either, including Sedona owners.
Any info would be helpful.
Thanks,
Jeff
This sounds like 123 fit!!
This story is just about the same story as mine. People stay away from fitness franchises please. I could feel your feelings because I currently closed and I am $300,000 in debt. People if you have a good job with benefits please stay. The fitness business can be fun but not worth your life savings or retirement. Listen to this story above. I know of over 30 stores that closed in 123 fit. Get out as soon as possible. Remember you can be on the top of list one month and next month in default. The fitness business on the average looses 50% of their business every year. People are not dedicated to excercise. Just a small percentage. This is a worst investment than a Quiznos. (And they are plain evil!) Franchises are in the business of selling franchises. They could care less about you. Please listen and don't think things will be better for you. If you do succeed it is a rarity. It's like playing the lottery. But the UFOC is stacked agaisnt you. Listen and be saved, please!!!!
Did 123 Fitness encourage the use of exclamation points?
just wondering.
The Trick Is Knowing the Ins & Outs
"Thank you for that litle gem of knowlage. I understand the "leap" required in starting up, I was mearly spouting a cliched term for "sounds dumb."
I know what you mean. Some of these jobs sound pretty easy -- cleaning up, mowing lawns, picking up dog poo. Although they might know how to pick up dog pooh or mow a lawn, most people won't know the ins and outs of running such a business.
Academic contempt denies the basis of Western society
Dear Guest,
We in North America enjoy a standard of living based on the advancement of science and knowledge. The cornerstone of what most people call progress is a realistic understanding of the Scientific Method [observable behavior, empirically verifiable, measurable: based in Reason not dogma].
No one study alone holds a monopoly on truth.
But there is a huge difference between your opinions and statistically valid scientific studies such as Bates and Shane's work.
Your "arguments" are logical gibberish. They show a defense of either
Speaking for myself, I prefer not to lead people into entering into an entirely non-reality based Franchiseland.
Do not engage in magical thinking when evaluating financial investment opportunities.
If it doesn't jingle, it doesn't countLes Stewart, MBA :: industry analyst
www.cafo.net :: FranchiseFool :: the Wise say No
Deli's Name
The deli's name is Soranno's Italian Cafe. Here is their website:
http://www.sorannos.com/
Notice that on the bottom they are associating themselves with Wave3 and Sedona, but not ShapeXpress.
I am told that ShapeXpress had almost 90 opened and now there is 28 still open. I guess the question is what we do about it? Corporate told me specifially that they designed the arbitration clause the way it is so that the franchisee would have to spend $40k-$50k to go to arbitration. I would guess that if you found a really, really, really good lawyer, he could argue that this clause be thrown out because ShapeXpress but it in there with bad faith for the sole purpose of not having anybody be able to sue them.
Contact Info
Corporate has not disappeared. Here is some contact info:
Main Number: 918-732-1852
Allie Salah (c): 918-606-2771
Tracy Wood (c): 918-645-6470
Mark Stephens (c): 918-688-4709
Eric Long (c): 918-640-5432
Allison (c): 918-850-7699 (Was the sales manger of the corporate club. They closed the corporate club down and she is now a new franchise support executive.)
No!!!!!!!!!!!!!!!!!
What a stupid comment!!!!!!!!
Maybe if you could respond
Maybe if you could respond logically, instead of waving your own magic wand of the "scientific method" around. Maybe some reading comprehension skills might help - I didn't dispute the findings of your "statistically valid scientific studies". I simply disputed their relevance in deciding between which particular investment option to choose.
There are many, many, many "statistically valid scientific studies" which establish pretty conclusively that owning stocks has - in general - provided an annualized ROI in excess of 10% for decade after decade after decade. However, those studies are pretty much useless in helping you decide which SPECIFIC stocks to purchase. Those "scientifically valid" studies don't provide much comfort to holders of Enron stock, for example.
Your own inability to engage in a logical manner with someone who provides information which is contrary to your established beliefs makes your advice to avoid "magical thinking" rather amusing.
Big Picture: Purpose of Thread
Guest,
I was asked to moderate a very generalized discussion on the 3 options:
I set out the criteria above that I thought were useful [ie. observable, empirical, etc.].
You seem to want to know: How-to-Buy this or that system.
That is for other areas at Blue Mau Mau, not here.
Les Stewart, MBA :: industry analyst
www.cafo.net :: FranchiseFool :: the Wise say No