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Why Owning Franchise Units Will Not Make You Filthy Rich

A precious gem

A precious gem

Some enter franchising with a bit too much hope – They dream of cutting their way into entrepreneurship and, since they buy a proven system, success is guaranteed and being filthy rich is on the surest path. The story ends happily ever after.

Unfortunately, if you were one of those people, I have to slap you to wake you from your day dream.

I have mentioned in my previous article that if you are not ready, you better postpone your intention to enter the world of franchising.

Being not ready includes a misconception about franchising and a false hope in becoming rich easily through franchising.

Why owning franchise units will not make you filthy rich

Owning one or multiple franchise units can lead you to financial independence that all entrepreneurs are dreaming of. However, if you aim to be very rich through franchising, think again.

Those who are filthy rich most probably include your franchisor, not you.

You see, franchising is pretty much resembles the gold rush era – An era where people are traveling the distance to look for gold. They bought picks and shovels and start digging with a hope to strike gold and become filthy rich.

Some pioneers do become rich, and some followers do become rich also. But did you know who are the richest of all? There are none others than the pick-and-shovel store owners.

Why the pick-and-shovel store owners are the ones who are filthy rich?

Pick-and-shovel store owners – In franchising world, the franchisors – are filthy rich because they provide you with the tools to dig for gold. In similar sense, your franchisor is the one who own the “tool” – in the form of a proven system – that is sold to you for a certain amount of money to help you “dig for gold.” – a.k.a. becoming filthy rich.

You could actually become very, very rich, but your changes are, to be honest with you, slim. Again, as a franchisee, you can be rich and financially independent. But unless you can start your own successful business and franchise your business in the future, financial independence is the most realistic goal you could attain.

A reality check to prepare you for franchising

Here is a reality check for you to prepare yourself for franchising: You must understand that you “borrow” the brand name and the system of your franchisor. You will never, ever, own the brand name, unless you are a shareholder of the franchise business.

By “borrowing” the brand name and the system, you are obliged to pay a certain amount of fee, both one-time (franchise fee) and recurring (royalty and/or marketing fee) – not to mention the marked-up supplier purchasing prices. Those fees are the main reasons why you can be financially independence, but can not be a very rich franchise owner.

Saying the above is not meant to undermine franchises and franchising – I fave franchising and will always be. The economy of scale made lower-cost product acquisitions possible and the viral/exponential factors in franchise business’ growth intrigue me.

What I am trying to do is to help you get on franchising bandwagon the right way, with the right mindset. If you are entering franchising with the right way, both you and your franchisor will be benefited from your partnership.

Ivan Widjaya
Wanna get rich in franchising? Be a franchisor πŸ™‚
Image by LittleMan.

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6 Responses to “Why Owning Franchise Units Will Not Make You Filthy Rich”

  • Daniel Collins:

    I have seen many multi unit franchisees become very successful, building and operating over one hundred units. “Filthy Rich” is not a specific measurement.

    Your comment of “not to mention the marked-up supplier purchasing prices” shows that you tend to generalize and do not know that many franchisors have the understanding that they become successful by making their franchisees successful.

    While some franchisors do take advantage and are greedy, there are many franchisors that still have high integrity, and the best interests of their franchisees in mind.

  • Ivan Widjaya:

    Hi Daniel,

    First of all, I thank you for your insightful comment. I do agree that “filthy rich” is not a specific measurement.

    All in all, my article highlights that in order to be the “filthy rich” person/entity, you need to start your own business and/or be the franchisor. Of course, there are some exceptions, such as the one you explained. My argument is that your most valuable asset is your brand name (e.g. Google brand is valued at $100 billion – Mr. Brin and Mr. Page are, indeed, filthy rich) and not owning the brand name won’t push you through the rooftop that limit your potential.

    About the “marked-up supplier purchasing prices” – I believe this is a common practice (in other words, I do, again, generalize…). I owned several franchise units and I’ve been involved with some franchises that do mark-up supplies price tags, and I totally agree they need to do that, in exchange for their relentless effort in suppliers selection, dealing with “bad” suppliers and supplies, etc. – And this is not to mention that a franchisor needs to create a strategic partnership with its suppliers for a win-win situation, non only with the suppliers but also with the franchisees – Better suppliers mean better products for the franchisees.

    I also agree that some franchisors are greedy, and many others are not – But as long as franchise businesses are not non-profits, taking benefits while preserving integrity and prioritising the franchisees are simply natural to franchising. Franchisors need considerable investments to maintain the whole systems, after all.

    So, again, to clarify, I’m not (in a position to) giving an impression that I “hate” franchisors. I do enjoy franchising and would like to become a franchisor myself in the (near) future.

    My 2 cents – Thanks for sharing your thoughts πŸ™‚

  • Ivan,

    To continue Daniel’s thoughts I agree that you are guilty of not only generalizing about franchising but also for generalizing about franchisees, themselves.

    What motivates you, obviously being “filthy rich”, is not necessarily what motivates others. In fact, I can prove it.

    We have profiled over 13,000 existing and potential franchise owners using a behavioral profiling and modeling process called Franchise Navigator, which we created and launched 13 years ago. This profiling and modeling system identifies and quantifies an individual’s skills, values and behavior. The values of each of the profiles is very different and, consequently, so are their motivations for buying into a franchise or becoming associated with someone’s brand, system, formula and processes.

    Some people are motivated by doing a good job, some are motivated by their contribution while others are motivated and measure success by their income, status and prestige. All are very different. All are right, in their own right.

    Additionally, a franchisee can be a single-unit operator, a multi-unit operator, an area developer or a sub-franchisor. So, alas, your generalization not only confuses things for your readers but places franchising in the worst possible outlook – that being a “one size fits all” arena, which it clearly is not.

    What is one of the major differences between a very successful franchisor and one that is not so successful, given they both have validated business models? One understand the people or Human Capital part of growing the business.

    I do believe, after 35 years in franchising, that the very thing that affects success or failure of a franchisor is the people part. Not who wrote the agreements, or FDD or the manuals but whether the franchisor understands what it takes to execute the business model and how to recruit more candidates that resemble their high performing franchisees.

    Craig Slavin
    President/Founder
    Franchise Central
    Franchise Navigator
    Franchise Architects
    ConnectMe

  • Ivan Widjaya:

    Hi Craig,

    I’m glad you drop by, and I’m glad that this article attract reactions from well-respected franchising people πŸ™‚

    Thanks for your thoughts – Please allow me to share my thought in response to your comment…

    “What motivates you, obviously being β€œfilthy rich”, is not necessarily what motivates others. In fact, I can prove it. ” – I’m not sure that being filthy rich is what motivate me – That’s an assumption, and assumption is what looms us in today’s recession. What’s more, I can’t help the feeling that being success financially as a franchisee seems wrong (perhaps it’s only me…)

    A franchise can have motives other than money-related, but still, money plays an important role (e.g. if the franchise unit is financially troubled, the motives a franchisee have wouldn’t be fulfilled.)

    All I wrote in the article was that franchising will not make you filthy rich – That’s it. If being “filthy rich” not what most franchisees are motivated of, then we have no case here, since they are not the ones I am addressing in my article πŸ™‚

    In fact, what I’m writing is aimed to those that aim to be “filthy rich” through franchising. Again, if most franchisees are not motivated by the money-side, the we have no issue here…

    “So, alas, your generalization not only confuses things for your readers but places franchising in the worst possible outlook – that being a β€œone size fits all” arena, which it clearly is not.”

    Everyone is welcomed to share his/her thoughts… If there are any confusions, yours (and Daniel’s) are helpful in clarify things. I am a franchisee myself, and know other franchisees that are not all motivated by the state of “filthy rich.” They all do motivated by many things, like you mentioned in your comment. However, they all agree that being a franchisee won’t make you very rich.

    So, we are all have our very own opinions about this…

    “I do believe, after 35 years in franchising, that the very thing that affects success or failure of a franchisor is the people part” – I couldn’t agree more. This is the main reason I wrote this article – Many franchisees have wrong mindset, thinking franchising as a shortcut into entrepreneurship and becoming “filthy rich.” All I want to try to do with this article is to set things straight about franchising (unfortunately, my message is not ‘transmitted’ as intended… my bad.)

    Nevertheless, again, thanks for sharing your thoughts!

    P.S.: Franchisors – I would like to invite you to share your thought of this… We have an interesting discussion going on here πŸ™‚

  • Ivan,
    If you are going to have a franchise blog, and write a post with a title like this, please be careful of who you allow to advertise on it.

    One one hand, you are saying that a franchise business won’t make one filthy rich.

    One the other hand, you have an advertiser that in his “How To Research A Franchise” eBook pitch, tells his prospective eBook buyers that the book will “Help you make millions.”

    Which one is ti?

    The Franchise King
    Joel Libava

  • Ivan Widjaya:

    Joel,

    Thanks for dropping by.

    This article seems controversial enough to attract authoritative voices – It worked πŸ˜‰

    But I meant every word of it, although it raises eyebrows as it is not your regular blog post.

    Thanks for your opinion – Again, “filthy rich” seems to be the out-of-the-ordinary term to most πŸ˜€

    As Mr. Collins explained above, “filthy rich” is not a specific measurement. I agree. I would explain “filthy rich” as a measurement a franchisee (who has a vision of being “filthy rich” – clarifed by Mr. Slavin) would have.

    So, I promote a book that “help you make millions” (which I agree a superlative and misleading pitch) because I don’t really inclined to a side (to be “filthy rich” or not to be one).

    Franchise Note is not a blog about not being able to be “filthy rich” – This is a franchise blog that cover everything franchising from any point of views (some controversial ones…)

    If you ask “which one is it?” – My answer is, still, owning franchise units won’t make you “filthy rich” – Be a franchisor could help you being one. But again, it’s not a specific measurement.

    Thanks πŸ™‚

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