Why You SHOULDN'T Franchise Your Company

Sure, franchising is a great way for a business to grow. That doesn’t mean it’s right for every business.

1851 Franchise spoke to several experts in the field of franchising to get their honest opinions as to why a business should skip the franchising route — or at least postpone it. 

Franchising Is Expensive — Really Expensive

“No one really understands how much money it takes to franchise,” said Houston-based franchise consultant Adam Goldman. “In my opinion, it’s going to cost you at least $200,000 to franchise a business. And that’s a minimum.” 

Goldman said it takes someone with deep pockets to be able to go the distance with all the expenses — from regulatory paperwork to franchise consultants, the fees add up.

“In my experience, the only people who succeed as franchisors are people who have deep pockets to last through the startup phase,” said Goldman. “I’ve never heard of a franchisor who was able to do well, or even break-even for at least a couple of years after they started franchising.” 

Not All Businesses Work as Franchises

Just because your business is doing great in one region doesn’t mean it will be able to scale effectively. “Certain businesses aren’t franchisable, especially ones that cannot be easily replicated, or if there are regulatory concerns,” said Goldman. 

Goldman uses the example of medical franchises that may have to meet different state-based laws and regulations. Goldman said it’s not impossible, but it makes it hard. “What might work in one state that has less regulation might not work in another. Then you have a problem because it’s a business model that’s not easily replicable. Why do you have a system in place?

Not All Business People Are Meant To Be Franchisors

You might have the next McDonald’s, but it takes people with a special skill set to run a franchise. Just because you’re able to run a business does not mean you’re able to manage a franchise or franchisees.

“The brands that seem to have difficulty scaling are ones that have difficulty transferring their intellectual property to others,” said Christopher Conner, president of Franchise Marketing Systems, a company that helps businesses grow through franchising. “If an owner cannot figure out how to train others in the organization and build a team, the odds are they will struggle with working franchisees,” he said.

Goldman agreed. He said the ability to communicate the ins and outs of your business so someone else can replicate it is crucial. “In Houston, there was a one-unit burger place that had an amazing burger, but then they started franchising. Sure enough, they had quality control issues. They had stores in Dallas and in Austin. It was the same brand name, but it wasn’t the same experience.”

What it all comes down to is that franchising a business takes a different skill than running one. The skill sets that are a top asset are communication and people skills.

“Great franchisors are awesome at managing relationships and building people,” said Conner. “Poor franchisors are tough to be in the room with for too long. They tend to manage people with yelling and screaming.”