Buy a Franchise and Learn What Not To Do!

It’s counter-intuitive to buy a franchise to learn what not to do, but it may be exactly what many people need to do to justify buying a franchise. 

So often people say that franchising is too expensive, or that the franchisor’s monthly royalty fee makes it impossible for the franchisee to take home any money. Then these same people start their own business and fail! 

But before you start your own business, you better read a recent article by Gallup that says, “For the first time in 35 years, American business deaths now outnumber business births.”

The article goes on to explain that U.S. Census Bureau data shows that new business startups and business closures per year have crossed for the time since the measurement began. While 400,000 new businesses are started annually in the USA, 470,000 per year are shut down. That means successful new business startups in America are -70,000 annually!

And that means a bunch of people needed to know what not to do before they got into their own business. 

One of the great strengths of franchising is the franchisor’s operating system, or systems. Franchisors generally develop systems for day-to-day business operations, but also for marketing, employee training, customer relations, etc. Inside each system there’s a wealth of knowledge about what to do as a franchisee, and franchisees succeed by following the information. 

Good franchisors document their systems over a period of time, usually a number of years. Most of the time, franchisors don’t begin as franchisors. They start a business, it survives, then after a few tweaks, and maybe several hundred thousand (if not a million) dollars, they move the business to the next level. 

Over a period of time, especially as the business gains popularity, people start asking, “Hey, is this a franchise? I’d like to open one of these businesses.” 

It’s likely that the business owner never considered franchising. He or she launched the business for personal reasons and is flattered to hear that other people would like to own the same business. That’s when the owner contacts a franchise development expert, or an attorney, and asks, “How do I become a franchisor?”

In truth, it would have been better to start out as a franchisor because then the owner would have known to document everything from the first penny invested in the business. Franchisees live and die by doing the right or the wrong things. Most franchisees are not loaded with money and they need to invest their money wisely. One wrong mistake could wipe them out financially and end their dreams of business ownership. 

Of course, franchisors make costly mistakes, but franchisors are generally more entrepreneurial than franchisees, and they are bigger risk takers. They’ll refinance their home four times, or they’ll borrow money from banks, leasing companies, family and friends. 

Even when they don’t know what to do, a franchisor is likely to do whatever must be done – including not taking home any money for months at a time, or working without any support staff, and, of course, working nonstop for months on end without taking a break. 

Franchisors are willing to take themselves to the brink of bankruptcy to make an idea work, and many franchisors file bankruptcy and recover later. 

Most people who want to start or buy a business are not cut from the mold of franchisors. They want to play it safer. 

But because franchisors are willing to experiment, even gamble with ideas and money, they create fabulous opportunities for franchisees. And in the process they learn precisely what not to do by doing it! 

A good example occurred in Dallas, Texas in the 1980s when the business rage was real estate investing. Everyone wanted to buy and sell – or “flip” – real estate because it seemed to be an easy way to make huge sums of money with little risk. That same idea is still popular today, but not nearly as popular as it was before the Great Recession. 

In the 1980s and 1990s, Dallas was a hotbed for real estate investors because unlike other markets the Dallas housing market remained in a steady climb, but never a steep climb. You could make good money “flipping” a house, i.e. getting a house under a sales contract, but never buying the house yourself. Instead, you “flip” the house to another buyer who pays you more than the contracted price. 

You could make $5,000 to $10,000 at a time flipping houses, sometimes more, but to develop a business you needed a constant supply of leads. And everyone in Dallas, or so it seemed, was chasing the same leads. Even after you got a lead, it wasn’t unusual for six other investors to show up at the same house! 

This was pre-Internet, so if you wanted to get the attention of home sellers, you had to advertise. You could make your own signs and nail them to telephone poles at busy intersections – even though it was often against the law – or you could do what most people did, advertise in the local newspapers. 

One man did it all for a period of time, and while he often scored huge paydays flipping houses, he knew that everyone was doing the same thing, and right about the time he was nearly out of money, again, he decided to do what everyone else said not to do. 

He put up a billboard to announce that he was buying houses! 

No one used billboard advertising. It was too expensive. And then this guy had the audacity to put just a few words on his billboard – We Buy Houses! -- with a phone number. Everyone had a good laugh. What was this guy thinking? 

This guy was the late Ken D’Angelo, founder of HomeVestors of America, Inc., which eventually became the leading real estate investment franchise in the country. Just when people thought he was crazy for putting up billboards, he really gave them something to howl about when he added a fourth word to his message.

“We Buy Ugly Houses!”

Even D’Angelo’s family and closest advisors told him not to use the word ugly. It was offensive. People would not call his number because they would never want to admit to owning an ugly house. 

How wrong they were! HomeVestors’ billboards, scattered across the USA by the late 1990s, generated 250,000 calls a year from people who asked, “Will you buy my ugly house?” 

By doing what everyone said not to do, D’Angelo created a fabulous opportunity for franchisees. Fortunately for those franchisees, they did not have to experiment to generate leads, and by following D’Angelo, they knew exactly what to do to build a successful business.