How would you like to spend the day making Big Macs or perhaps cooking up the Colonel's crispy wings? Franchises. Yep, the dream of long hours and low returns on investment. Sounds good, eh?
Believe it or not (and actually, it's the truth), one out of 16 workers in the U.S. is employed at a franchise. In fact, one-third of this country's gross domestic product flows through franchises. Money wise, franchising accounts for $1 trillion in retail spending. Yes, that's with a "T."
I bring this up because lately, with all the problems in the stock market, and people losing jobs, there seems to be a heady rush now to get involved in franchising. That's usually what happens anyway. When the economy is going off the charts, the demand for franchise units drops but when the economy heads South, well, that's when franchising simply becomes more attractive. Most people think it's easy to put together a Chalupa.
According to Peter Birkeland, who has a book on the market called "Franchising Dreams" (University of Chicago Press), many people have a theory that when they buy from certain chains the right to sell products under a particular retail name in a specific area, that all the products and marketing emanating from this proven source will translate into a roaring commercial success.
Unfortunately, we're talking theory here and Mr. Birkeland doesn’t believe that always pans out. In his book, he doesn't rely on examples of McDonald's franchises but rather a chain of muffler and brake shops, a cleaning service, and a business peddling computerized signs, among others.
He raises the specter that many people buy into these kinds of business out of ignorance. They think they will get rich and want to own their own business and truly believe what they have been hearing all these years: franchises have a lower rate of failure than independent businesses.
Apparently, it doesn't always work out like this. In one interesting passage, he talks about a turnkey operation. The franchisee says of his chain, "They turn the key and walk away…I had to learn the [expletive deleted] business from a competitor down the street."
In short, says Mr. Birkeland, it is quite difficult to be successful.
So, the next time you head into one of those franchise places, take a good look at the guy behind the counter. Is this a paid manager who generally has a devil-may care attitude or is it the person who has invested body and soul in the business? If it's a worried-looking middle-aged guy, it's the latter.
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