Part 1: Not Exactly a Golden Ticket

Growing up as a young man in the Atlanta area, my first jobs included making biscuit batter, flipping burgers, and brewing coffee for all types of different people. My parents were multi-unit operators for brands such as Dunkin’ Donuts, Popeyes, and a couple of other others. Now you’d imagine that I grew up wealthy, and the only reason I had to work those jobs was that my parents wanted me to know what it was like to work hard, right?

Well, not really. Now while I grew up not having to worry about having food on my table, I watched my parents put in 80 to 90, sometimes up to 100 hours a week working – for themselves, while I helped and did whatever I could so some locations could keep their doors open.

While it is the American Dream to come to the United States as an immigrant and open a successful business, most people don’t realize how difficult it really is to be successful as an entrepreneur. Now while it may seem like there is nothing easier in the business world than purchasing a turn-key operation such as a franchise – that could not be further from the truth.

This is not an article discouraging you from seeking franchise ownership (in fact, I highly encourage people to learn about and dabble in the world of franchise ownership), rather this is a first-person perspective designed to inform readers on the occasion difficulties and pain points you will encounter as a franchise owner and some potential solutions. All of these issues are on a case-by-case basis, as no two businesses are the same (even of the same brand) – this isn’t a tell-all but an inside look at some day-to-day issues you may run into if you decide to go down this difficult yet potentially highly lucrative path.

When it comes to following the pain points, I am speaking based on my own experience. A UPS store operator will have different experiences than a floor installation company would have. As such, my experiences are based on a franchise experience in the QSR industry, which are the most common types of franchises. I have left a store past midnight only to come back in a few hours to help prep the food for the day. I have watched a busy store become dead in a matter of months due to expanding competition in the area. And worst of all, I have seen many locations crumble under the effects of COVID-19. If you are prepared for the worst, it is still possible to make the best out of all situations; we discuss this in more detail below.

Turnover

The biggest headache for franchise owners far and wide is turnover. It is difficult to keep employees motivated, especially in more competitive and tight labor markets such as the Southeast right until COVID-19. Turnover is natural in an industry with fewer benefits and generally lower pay – with this being said, franchisees have numerous potential solutions to this issue.

First and foremost, be prepared for turnover. In a cutthroat labor market, any business owner should expect a certain amount of turnover – it is unavoidable. However, a franchisee can reduce this issue. This can be done with more competitive salaries and wages, the most effective method.

Another is the work environment – franchise employees enjoy a stable work environment, so providing this as an employer should be a top priority as this can be tied directly to turnover.

Finally – providing smaller benefits like free meals and/or reduced sales prices on items goes a long way. For an hourly employee making $10 an hour, providing a $10 meal to them during their lunch break rather than them going out or paying their own employer for the meal makes them feel a lot more valued and lets them keep a few more dollars in their pocket. If your costs are well controlled, then small things like this are of no detriment to the business and can go a long way in terms of retaining loyal staff members (much like how 401(k) plans for their employees – the bigger the match the happier the employees).

As a young man, during pre-COVID times in the late 2010’s as the labor markets in Atlanta and many other cities began tightening up, I found myself at a Popeyes in 6 in the morning prepping the food, taking over cashier duties, and even working the drive-through – many times all at once, while still closing the restaurant and getting it ready for the next day. I have seen very busy units undermanned and watched people like my father work 15 hour days just to keep one restaurant afloat; imagine this issue amplified to an entire portfolio of 25, 30, 50+ restaurants or retail locations like a UPS store or GreatClips.

Competition

Imagine this – you own a Dunkin’ Donuts right on the busiest intersection in your local town. At the rate you’ve been going the past few years, your retirement and child’s education may be taken care of. All of that takes a hit one day when all of a sudden you spot a sign across the street that says “Krispy Kreme – Coming Soon”.

Situations like this happen all the time in the cutthroat retail industry – in fact, some experts have argued (pre-COVID) that there are too many restaurants and that the market may be saturated. This is something that is generally out of control for an operator, especially in a competitive industry like QSR.

The best thing that an entrepreneur can do to prepare themselves for events like these is to consider micro-economic factors such as how developed an area is and what effect the direct competition will have on the subject business.

Businesses can also create brand loyalty, potentially realizing some first-mover benefits in their area because many of their customers are loyal to them whether or not new competitors come into the picture. Another way to respond to competition is keeping up with the times. Services like DoorDash and Uber Eats have created new revenue streams for restaurants and other retail locations that do not have the capacity to support delivery services. A franchise owner would be smart to open themselves up to opportunities like this one and similar ideas for additional revenue streams (i.e. catering for local organizations – from first-hand experience I know this is an easy way to make large sales quickly).

Other Factors

COVID-19 wrecked the global economy and businesses are still reeling from the effects. There have been predictions that over 40% of restaurants and retail locations could permanently close their businesses in 2020 due to the pandemic, and recent research from the Yelp economic research team has shown that over 20,000 restaurants and over 25,000 shopping/retail locations have closed due to the COVID-19 – over 50% of these restaurants and 35% of other retail closures are permanent. COVID-19 was an unforeseen circumstance that obviously affected the whole world and not just those in the franchise industry, but the effects were felt nonetheless.

Luckily for franchisees and other small business owners around the country, hard times have pushed innovation to a level we haven’t seen before, with some people dubbing our current era as the “4th Industrial Revolution”. This innovation has ushered in a plethora of creative financing options for businesses, including a heavier focus on alternative lending and crowdfunding (the latter of which we at FundingFuel do for franchisees and franchisors – if you are a business owner who needs funding, please feel free to apply for funding here and we will see how we can help you out).

A franchisee should also be aware that it takes a few years to break even – one of the biggest reasons franchisees fail is because of poor cash management and projections, leading to a lack of working capital and, eventually, insolvency.

Another common, yet not well documented reason for franchisee failure is because they don’t get along very well with the franchisor. When you sign up to be a franchisee, you enter a working partnership with the franchisor. It is never a good sign when one can not get along with their business partners, and when you butt heads with your franchisor (“corporate”) on a regular basis, it just makes everyone’s lives more difficult in the long run. Usually, the disagreements are on operational or efficiency issues. Franchisors have set out tailored processes for the franchisee to follow, however, this does not always happen. Franchise owners have been notorious for taking “shortcuts” in the eyes of the franchisor (mostly from a safety or quality standpoint) when the franchisee considers the process change or removal of a step away to reduce costs, times, and increase overall efficiency.

Closing Thoughts

While there are challenges associated with franchise ownership – there are clearly innovative ways to find success and come out of difficult situations and times stronger than before. While it is hard work at times, franchises can be relatively passive as well; every situation is different. One fact that remains true however, is that one most definitely can still become a millionaire or multi-millionaire through franchising with a combination of hard work, organizational skills, and proper money management techniques.

However, if you would prefer to keep your investment more on the passive side, FundingFuel can help you with this. You can reserve your spot on our waitlist to get exclusive early access to fractional share franchise deals here.

 

 

 

Sources

1. My father’s 2 decades of experience as a multi-unit QSR operator and my childhood/young adulthood spent consulting franchise operations – nothing better than boots-in-the-ground experience
2. https://www.allbusiness.com/franchise-advice-franchisee-biggest-challenges-121616-1.html
3. https://totalfood.com/how-many-restaurants-are-enough/
4. https://www.yelpeconomicaverage.com/yelp-coronavirus-economic-impact-report.html
5. https://www.cnbc.com/2019/11/27/new-fed-report-says-us-economy-growing-modestly-labor-market-still-tight.html
6. https://saportareport.com/tariff-concerns-rise-in-georgia-southeast-as-tight-labor-market-draws-headlines/