Do risk takers buy franchises?

Dr. John Hayes, who teaches The A to Zs of Buying a Franchise at the International Franchise Expos, said he thought franchisees were risk takers until he interviewed franchisees for a book.

“When I asked franchisees how they felt about taking risks, I got an education,” he explains. “I thought franchisees were entrepreneurs and that entrepreneurs were risk takers. Turns out that’s not exactly how it works.”

Franchisees may be (and they may think of themselves as) entrepreneurs, but they do not see themselves as risk takers, Hayes discovered. 

“Risk takers put everything on the line with little or no assurance of a safety net. When they buy or develop a business they invest their life savings and more (money borrowed from banks, family and friends). For the risk taker, it’s do or die.”

But that’s not so for franchisees.

Hayes continues, “If a franchisee selected a franchise company with a good track record, one in which most of the franchisees have succeeded historically, the franchisee’s safety net is the franchisor, or the corporate office. The franchisor is responsible for providing the franchisee with a plan for operating the business, plus training and ongoing support. If a franchisee has a problem, he contacts the franchisor for help, and a good franchisor is responsive and effective.”

Franchisees also serve as a safety net for challenged franchisees.

“A franchisee who can’t figure out how to solve a business issue can always contact other franchisees within the network,” explains Hayes. Since franchisees of the same brand, i.e. McDonald’s or Kwik Kopy, or Signarama, etc.) do not compete with each other, they willingly help each other.

“Risk takers do not get the advantage of a safety net,” says Hayes. Of course, risk takers may not want a safety net – the thrill is not in buying or building a business, but in the risk. When risk takers encounter problems, they don’t think about calling a friend in the same business because they are competitors. Instead, risk takers try to figure it out on their own, and that often leads to failure.

In spite of all this, Hayes reminds us that there’s still some risk in franchising.

"As one prominent franchisee told me, ‘I am a calculated risk taker’," reports Hayes. There’s always risk in business, but you don’t have to be foolish about it, or throw caution to the wind."

People who buy franchises seem to know there's a downside to any business opportunity. So they invest cautiously. They do their homework, and franchise laws provide that opportunity. Good franchise candidates kick the tires (two or three times), they ask all the necessary questions, they visit the franchisor as well as franchisees who are already in business, and they make sure their personality is compatible with a franchise. For those reasons,” Hayes concludes, “franchisees are not risk takers. They take calculated risks.”

So whether you think you’re a risk taker or not, if you’re interested in buying a franchise opportunity you may be able to control some of the risk by thoroughly investigating the franchise before you make an investment decision.