March 31, 2010

Franchising in a Recession

Opening Franchise Cuts Risk in Recession
By Carmen Nobel 03/31/10 – 05:00 AM EDT Loading Comments… Add Comment
Stock quotes in this article: PWC , MCD

BOSTON (TheStreet) — The Great Recession has made some would-be entrepreneurs skittish about starting a business from scratch.
More on PWC Sell Starbucks!: Against the GrainCramer’s ‘Mad Money’ Follow-Up: March 22The Week Ahead For them, it may make sense to buy a business franchise. While franchises have taken a hit, PricewaterhouseCoopers(PWC) forecasts that the number of franchises will expand 2% from 883,292 last year to 901,093 in 2010. “Franchising lets people get into business for themselves, but not by themselves,” says Alisa Harrison, vice president of communications and marketing at the International Franchise Association in Washington.
Here are a few things to keep in mind when considering becoming a franchisee.
Advantages over entrepreneurship: Unlike a typical startup, a franchise comes with automatic brand recognition, meaning the franchisee doesn’t have to invest in getting the word out. Franchisees also receive operational assistance and management support from headquarters.
“Becoming a franchisee is a natural for someone willing to let other people make mistakes on their behalf in advance,” says Jason Earle, founder of 1-800-GOT-MOLD begin_of_the_skype_highlighting 1-800-GOT-MOLD end_of_the_skype_highlighting, a mold-detection company best known for the mold-sniffing Labrador retrievers it employs. Founded in 2003, the company recently secured its first franchisee and is looking for more . (Earle, incidentally, holds a Guinness record for acquiring his stockbroker’s license at age 17.)
“We’ve really built something that’s turn-key,” Earle says. “You walk through the door, and you get a four-legged partner who becomes your calling card.”
Disadvantages compared with entrepreneurship: The difference between starting a business and buying a franchise is analogous to the difference between building a house and buying a condo. Much as condo owners must adhere to the rules of the condo board, franchisees are required to operate their franchises according to a franchisor’s preexisting restrictions and procedures. Thus, the franchise model doesn’t leave much room for creativity, which may rankle entrepreneurs who are used to making and breaking their own rules.
In the franchise model, they are required to play by the rules of the brand. “You don’t buy a McDonald’s and decide you want to sell hot dogs,” says Alisa Harrison, vice president of communications and marketing at the International Franchise Association in Washington. “You have to follow the system that has been laid out. Veterans make awesome franchisees because they’re very disciplined and are used to following a system.”

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