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Author: Rich Ashe

Richard Ashe is the founder of Veteran Franchise Advisers. He served in the Marines from 1976-83 in the infantry and as lead technician on a joint services project. 
Rich’s career spans 30 years with Chase, Xerox, Compaq /HP, and includes two software startups and a computer training firm and a IT firm. Rich is a former franchisee and Certified Franchise Advisor and has been helping veterans discover franchising since 2011. He served on the IFA VetFran committee from 2011-13 and a member of the Franchise Brokers Association.

Investing In An Emerging Franchise Brand

The Emerging Franchise Brand

Every superstar franchise starts as a “new brand”. A big reason why emerging franchises and brands are created is due to market demand. Every business is born, it evolves and matures as the market evolves and changes or it reaches a point of diminishing returns and dies.  An emerging brand is not necessarily a new product or service. it may be an improved product or new service. or a new way of taking advantage of technology to better deliver a commodity product or service. 

If you’re not risk adverse, evaluating an emerging franchise may be to your benefit. Just like any new franchisee that is investing their life’s savings into a business, a new franchisor is likely doing the same. Emerging franchisors may be less adverse to negotiating some of the terms of their franchise agreement. Some of the areas where negotiations frequently take place are in the initial franchise fee, royalty, territorial rights, training, terms of the development agreement, personal guarantees, etc.

However, emerging brands are not for everyone. On one side of the equation the investment risk is higher, there still may be some kinks in the operational model that have to be worked out, harder to validate because there is little or no historical data, etc.

S Curve
Business S Curve

When to get in, When to get out, When to walk away.

There are lessons to be learned of franchisors that flew towards the sun and then quickly fell to earth. The story that has always been my tale of business Icarus is that of Blockbuster Entertainment.

Blockbuster as an emerging brand in 1987 was genius; at its peak in 2004 there were more than 9,100 locations across the US.  Lets’s imagine you invested in this emerging brand at its inception in 1987, by 2000 you were part of a $5 billion franchise.  Your friends and family hail your investment as pure genius and seek your advice and council.

By 2004 Blockbuster. perhaps blinded or over confident by its $5 billion IPO a few years earlier, failed to see the market shift and react to consumer demand to mail-order DVD, emerging broadband internet which would bring about VOD (video-on-demand) and streaming.

Blockbuster missed the turn-off and by 2004 were in skid from which they would never recover. Having passed on the acquisition of Netflix in 2000. By the time Blockbuster finally got into the mail DVD market in 2004, Netflix had already grown to $270 million in revenue and 1 million subscribers. Today, Blockbuster is just a cautionary tale of a franchisor not plugged into the market forces and customer demand and failing in reinventing its future.

Just Lucky

In 2001 I was ready to invest in a franchise in a video and music rental and trading franchise. The financial performance (Item 19) in the FDD looked great.  Loan approved, ready to go.  What happened next was just lucky.  During a lunch conversation with a colleague, I worked in technology back then, we were chatting about Napster and Limewire (you might remember these somewhat fringe music sharing websites) and where the market was going.  He talked about how the major players were really moving rather quickly on monetizing digital content for consumers and the rapid advance of broadband and longer term strategy to stream music and video directly to consumers. Lunch was over for me!

One call to the franchisor and I quickly realized the company had no strategy or contingency for the upcoming market shift.  I was lucky, had technology not been my profession I may not have had that conversation and I would have lost a significant investment in an emerging brand on the wrong end of the S- Curve.

Final Thought

There can be major benefits from joining an emerging brand, Just as investing in the stock market at the right time can produce exceptional gains. Did you buy Netflix at $15 per share? Netflix’s gains since from its IPO to 2016 are about 8,000%.

Here are some questions for investors to consider as part of their due diligence in selecting an emerging brand:

  • Is the business a fad, a trend or a paradigm shift
  • Is the franchise product or service truly “reinventing the future” or just adding a brand to a saturated market place?
  • What is the franchisor’s experience and how well have they mastered the challenge of opening, guiding, and managing additional units?
  • Does the management team have the foresight, strategy and ability to execute as the lifecycle of the market evolves?
  • What is your business plan and exit strategy?

Investing in an emerging brand provides an investor with a ground floor opportunity to help shape and grow the franchisor.  It requires a little more entrepreneurial spirit, a little more fortitude to deal with the financial risk, a little more research and preparation. When it comes to selecting an emerging brand you must do a little more research to understand the market forces and and the strategy of the franchisor and its ability to successfully reinvent itself as the market trajectory changes to successfully select and be part of a successful emerging brand.

Resources and Credits:
www.entrepreneur.com
www.encyclopedia.com
www.yahoo.com/movies/life-after-blockbuster
www.linkedin.com/pulse/blockbuster-busted-part-1-s-curve-analysis-dr-phil-samuel

If you’re ready to get started exploring franchise opportunities click “GET STARTED” complete the form and a Veteran Franchise Adviser will contact you.

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About Veteran Franchise Advisers

 

Veteran Franchise Advisers (VFA) provides free guidance, tools and resources to assist in exploring franchise investment opportunities. Our mission is to educate and help understand franchising, to help mitigate investment risk and assist you in making the right decision in selecting a franchise to own. Our process matches clients with high-quality, pre-screened franchises that best fit our clients personal and financial goals of business ownership.

How To Buy A Franchise

Investing in a franchise can be a great opportunity for military veterans. Military veterans have an excellent set of transferable skills that franchisors covet and are advantageous to successful franchise ownership. Because of these skills many franchise companies offer special incentives and discounts to veterans to help get them started in business. Learning how to buy a franchise will really matter after you have made the investment in your franchise; i.e. does the special attention and support you receive before you bought actually carry over now that you’re a franchisee?

There are two options when considering how to buy a franchise;

(1) You can go it alone.
(2) You can work with a franchise adviser.

Go it alone.

Finding the right business is all about compatibility and leveraging your skills. A business that is right for one person is not necessarily a good fit for you.

Begin with a self assessment, select opportunities that interest you, research the market, what problem are you trying to solve, who do you want to work with – consumers, other businesses, schools? Select a franchise that fits these characteristics. Contact the franchisor, validate the opportunity, perform your due diligence, form your business entity, arrange financing, negotiate your agreement and congratulations you’re in business. Having a good understanding of your personality, strengths and weaknesses, and business capabilities is essential in selecting a franchise

A franchise is a significant investment and you want to mitigate as much financial risk as possible. Here’s what you need to know before investing.

Introduction To Franchising.

  • What is franchising
  • Industries in franchising
  • Franchising vs. Independent Start Ups
  • How to research franchise opportunities
  • Is franchising for you? Self-Evaluation
  • Franchise financing – where to borrow money
  • Pros & Cons of franchising
  • Selecting the right franchise for your personal & financial goals

How To Investigate Your “Ideal” Franchise System.

  • Franchisor obligations
  • Key questions to ask the franchisor
  • Franchisee obligations
  • Key questions to ask the franchisees
  • Evaluating the franchisor’s operating system
  • Sources of information to evaluate opportunities
  • Understanding the fees involved in franchising
  • Selecting the right legal and accounting advice

Understanding the FDD and Franchise Agreement.

  • What is the Franchise Disclosure Document (FDD)
  • How to use the FDD to your advantage
  • Major topics covered by the FDD
  • Understanding the Franchise Agreement (FA)
  • How to quickly get to YES or NO when reviewing the FDD
  • Negotiating the FA with a franchisor
  • Evaluating the franchisor’s performance using the FDD
  • Federal State Guidelines for Franchises

Use a franchise advisor.

A franchise advisor or broker can help sort through the plethora of franchise opportunities available and assist in narrowing down the opportunities that best match your specific skills and capabilities. A good and properly trained franchise broker is knowledgeable in all of the subjects listed above and for that reason can make your franchise research and selection a much easier and more enjoyable.

When working with a well trained, professional broker here’s what you should expect :

  • Shorter Research Time – Search Google for “franchises opportunities” and you’ll get about 5,120,000 results. A good franchise broker knows how to narrow the search based on individual skills, financial capabilities, demographic information and other key information. This process can shave weeks off of the research process.
  • Insider Information – Brokers meet and talk with franchisors every day. They know their history and culture and the profile of a ideal candidate for a particular franchise. This insider knowledge of the brand and the characteristics of a successful franchisee mitigates some of the financial risk for the potential franchisee.
  • Ensure Proper Validation – Asking the right questions of the franchisor and franchisees is critical to successful due diligence and selecting the right franchise. You don’t know what you don’t know so working with someone who knows what questions to ask in validating a specific franchise opportunity is key in helping you go in with your eyes open.
  • Access to Legal and Business experts – The Franchise Disclosure Document and Franchise Agreement are legal contracts that define both the franchisees and franchisor obligations and govern the partnership between the two. While the documents are standardized they are written by lawyers to protect the franchisor. Ensuring you understand all the legal aspects and clearing up any ambiguity before executing a contract ensures there are no misunderstandings prior to making a significant financial investment.
  • Help With Negotiating Your Agreement – What’s negotiable and what’s not? A broker can help you understand what terms in a Franchise Agreement you may be able to successfully negotiate and act as an agent (middle man) to get considerations on your behalf. Knowing when to negotiate is also key in getting the deal you want.

As in all occupations, there are good, not so good and unfortunately just plain bad franchise brokers in the business.

3 warning signs of a bad broker.

  • The broker will not consider franchises outside their portfolio. It’s impossible for a broker to represent all franchises available. A lazy franchise broker may speak negatively of franchises not in his portfolio or will sometimes try to force fit you into a franchise that they represent or receive a bigger commission.
  • The franchise broker is trying to pressures you into making a quick decision. Buying a franchise is a very big and very important decision and good franchise brokers respect this.
  • You know more about franchising then your franchise broker. Anyone can be a franchise broker. You can spend a few thousand and join an organization, start calling franchises and ask to work as a broker for them.

The bottom line.

There is no right or wrong way how to buy a franchise. When giving seminars on franchising I’m often am asked; “Why should I use your company?” and I like to refer to the old adage that says, “A lawyer who represents himself has a fool for a client.”

A franchise is a significant personal and financial investment. It carries with it legal obligations for a significant period of time. If things don’t go the way you expect, you can’t just walk away. It makes good sense and you would be well served to engage an expert. A franchise advisor knows the franchise market, can save you time, will provide you a wealth of information and make your path to franchise ownership a much more enjoyable experience.

Advisors are here to help with professional guidance and advice.
There are THOUSANDS of franchise opportunities available and we are here to help you find the right business for you.

If you want to learn more about franchising and options that are available to you click “GET STARTED” and a Veteran Franchise Adviser will contact you to assist you in finding a business that’s right for you.

Talk to you again  soon!