We can all name successful franchises like McDonald’s and Dunkin’, but would it surprise you to learn these probably aren’t the opportunities potential franchise owners should be looking at these days?
In this latest episode of Small Biz in :15, The Franchise King Joel Libava tells us about the latest franchise trends and gives tips about the best ways of evaluating franchise opportunities.
Here’s an edited transcript from the show. You can watch the full interview above or check out the SoundCloud player below to have a listen.
Franchise vs. Business Opportunities: Which Should You Choose?
Shawn Hessinger: Joe, if you’re an entrepreneur and you’re looking for a business opportunity, why might you choose a franchise rather than starting a business from scratch, for example?
Joel Libava: Most people tell me that they want to get into a franchise because they want to get into a business that’s almost ready to go.
However, most people really are not a good fit for franchising because many of them don’t like rules. They don’t like the idea of following a 350-page operations manual, being unable to sell anything besides what you’re supposed to be selling, etc. So, there’s not a lot of creativity involved.
Small Business Deals
Shawn Hessinger: How do you decide basically when you’re asking this question about whether you should start a business or not? We talked about why people might choose, but how do you decide whether franchising is the right option for you? What questions should you ask yourself before you even get to the point of saying, I want to buy a franchise?
Joel Libava: Well, the first one is the rules question. Are you going to follow the rules? And you need to look at your past history. In your career, were you a rule follower or did you like making the rules? And this is something that you need to be really black and white about. If you’re saying, “Well, I’ll be happy to follow the rules as long as I like them,”…eh…not so good.
You also need to spend some time learning about the franchise business model itself, what it entails, and the advantages, and disadvantages. And you must say to yourself, “Self, there is some risk involved.” Just because it’s a franchise doesn’t mean it’s risk-free.
You also need to do your net worth statement. You need to figure out a budget. You need to make sure you have enough money. I like to see a $450K-$500K net worth, with the ability to write a check for about $75K of your own money before you get an SBA loan, or whatever loan you want to get. So budget, make sure you’re going to follow the rules. Realize that there is risk involved. It’s not risk-free. And finally, be prepared to work harder than you ever worked before. In the beginning, at least.
Shawn Hessinger: If you’re going to do this, why not go with franchises and brands that have a really established history
Joel Libava: Well, the first reason would be that no territory is left in your area.
There might be a Dunkin Donuts that’s half a mile down the road and another one that’s a mile and a half and the area might be sold out. So that would be one reason why you may want to be open to more than going just for a brand name.
The second reason is that many people like to be first. You want to be they want to be ground floor first in their local community.
Shawn Hessinger: Speaking of new franchises, what are some you can things off the top of your head…some new franchise opportunities that people might not even be aware of? Or even more broadly, what are maybe some of the hottest franchise trends right now?
Joel Libava: Well, here’s a trend in one word: delivery. Whatever business you buy, whatever franchise opportunity you decide you will buy, make sure they deliver because of the pandemic. I mean, delivery was already hot because of Amazon. But now if you don’t deliver the product you sell, you’re pretty much lost.
Brand-wise, there are a couple of new opportunities that are pretty cool. A friend of mine, Greg George, who has launched several concepts, is now involved in a peach cobbler factory. There were like a hundred franchise agreements signed within a couple of years. That’s huge! It’s a dessert franchise, about $100K-$120K total investment. It started in the South, but they’re starting to expand. You know, that’s a “hot” franchise.
There’s another one called Pure Green, which is actually in the healthy, fast-food eating phase, and they’re starting to grow a little bit.
The question that I always ask people when they’re looking at food, you know, is, “Are you looking at something that’s going to last a long time or are you looking at something that’s going to be two years in and out?” You don’t want that. So you have to make sure it’s not a fad. To make sure it’s sustainable, there’s market research data you can do. You can go on the Small Biz Trend’s website. There’s stuff on food that is healthier, so look at the trends.
What to Look for in a Franchise Opportunity
Shawn Hessinger: How do you look at these trends and say that one franchise might be a flash in the pan and the others got staying power? What are some guidelines you’d use?
Joel Libava: Say I was looking at a franchise opportunity that I’m excited about, I mean physically and psychologically excited about, my first thing is to take a deep breath and get the emotion out of it. You focus on the business model itself.
One good source to gauge the franchise opportunity is to go to the Small Business Development Center near you. They have all sorts of stats and data on trends. Ask them about the newer concept you’re looking at. They can find out stuff that you can’t because they’ve been doing it for a long time.
You can also do it on your own; do an online search using your favorite search engine of the type of concept it is, maybe the food it is, whatever, and trends. As simple as that, you’re going to find stuff that you never even thought of. Sometimes franchises get really hot and they grow too fast. So be careful of that. Be careful of that because that could be a flash in the pan–or it could be a home run.
For anyone looking at a young franchise concept, where there aren’t many franchisees, you need to spend a few days at headquarters to see if you can really get the true vision the CEO has about the brand and its future and see if there is a support system in place. Questions to ask: Do they have technology? Do they have a technology department? How is their marketing? Spend a few days at their headquarters and you could get the answer.
Shawn Hessinger: How do you choose the franchises that have the best profit potential?
Joel Libava: Let’s say you’re looking at a food franchise and you have some food industry background, which is preferable. You know what the margins are in food and you could figure it out easily.
Also, the CEO or the founder knows what the margins are. So there are ways to find out what the margins are. You just have to be really good at asking questions.
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