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Re-evaluate Your Interest in New Franchises

Analysing new franchise opportunities

Analysing new franchise opportunities

New franchises – especially those offering new and in-trend concepts – are always interesting and will likely to attract fans and enthusiasts into franchisees.

New franchises play an important role in franchising: New franchises breathe fresh air to the franchising world, adding value to the wealth of opportunities in franchising worldwide.

Full of potential, new franchises will likely to attract adventurous franchisee candidates to invest in a franchise unit and join the band wagon of ‘the next big thing’ – Some of the new franchises do become the next big thing, indeed.

However, anything that bears the word ‘new’ in the description will always present challenges that is unique to the new franchises alone.

One of the most common challenges is track record.

Track record validates a franchise opportunity

Obviously, newly launched franchises don’t have all the shiny track record, yet. Even though the franchise companies are previously successful businesses, they haven’t yet set ground (and credibility) in franchising.

Some do implement the franchise system to their own units (as pilot units – to test the whole system’s integrity, including procedures and policies), but still, own units are different in nature to franchisee-owned units.

Unfortunately, the above are the better cases. There are new franchises that only have a single own unit (some don’t even have any! In some countries, these companies are somehow allowed to franchise their business.)

I do know (from direct sources) that many new franchises’ business strategy is to seek as many franchisees as possible (and as fast as possible) to support franchise business expansion (some of these franchises are even more blatant – to get more money from fees and royalties, to speed up wealth creation for the stockholders.)

The main caveat of the above strategy will result in what I called “franchising osteoporosis” – ‘porous’ franchise business that grows quickly – so quick that they don’t have the resource to support and sustain the growth rate. When things go bad (e.g. the economic downturn,) the end results are commonly the same: ‘Shedding’ some ‘non-performing’ (and ‘non-cooperative’) franchise units at the expense of franchisees.

What – No lawsuit?!

In some cases, franchisees can take the franchisors to the court, but in most cases, the franchisors are smart enough in forming the franchise agreement (and in convincing the franchisees to sign the agreement without proper analysis,) in such a way that it gives the franchisors all the right to close down under-performing (and resource-sucking) franchisee-owned franchise units.

How to avoid investing in the wrong new franchises?

The best thing you can do is to re-evaluate your interest in new franchises before investing in one.

Consider these questions need answering: Will their business concepts sustain the test of time? Will they be able stay focused on their business growth plan? Will they work with the franchisees, instead of having the franchisees work for them? Can they justify the franchise fees and royalties? Can they justify their plan for rapid expansion?

I understand that franchising a business is not easy. It takes a lot of resources to create a sustainable franchise system – Some don’t even make it. However, to expand with the ‘porous’ franchise system, packaged and marketed as “exciting new franchise opportunity with sky-high potential” is simply wrong.

Again, I urge you to re-evaluate your interest in new franchises – If you are not sure of what you are doing, you better walk away and find franchise opportunities that have credible track records. The best bet for you is to consult with experienced and trusted franchise consultant.

Ivan Widjaya
New franchise opportunities
Image by somegeekintn.

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