The former basketball superstar turned mega-entrepreneur Earvin “Magic” Johnson is a firm believer of franchising. In fact, he runs various franchises from Burger King to Starbucks. Yes, Starbucks — where the franchising option is closed to mere mortals but open to someone like Magic (Magic Johnson is its only partner, actually)
In his book “32 Ways to be a Champion in Business,” Magic Johnson lists down the advantages and disadvantages of owning a franchise. His tips are a first hand look at how it is to buy into a franchise and what can you really expect when you become a franchisee
Advantages:
- Your risk is reduced as you are buying into a proven system for operating the business and generating profits.
- Though there are substantial fees for buying in to an established major brand franchise such as McDonald’s or Subway, a newer and smaller franchise operation might cost you less initially than doing your own independent startup.
- The business support system is built in (e.g. training, financing, money management).
- The psychological support system is in place … you plug into a network of business owners facing the same daily challenges and problems.
- The marketing support system is established.
- The brand is already built – you plug in to its customer base.
- You get a group rate – to reduce the costs of supplies, inventory, equipment and even medical, dental and eye care.
- It’s easier to recruit good help
- Your opportunities for growth are better – successful brand franchises generate steady cash flow and banks are more willing to provide loans
Disadvantages
- It’s their company = your name will not be on the door or the signs
- It’s their product or service = you are selling a product or service that is created and controlled by the franchisor.
- It’s their system = you will have to do things the way the franchisor wants them done
- It’s not always cheaper = For a well established and successful brand, your startup costs might be considerably higher
- If you have low credit rating, it can be tought to get financing for even a small home based franchise
- You may have to pay up front and annually, too.
- You may not get all you want from the corporate office
- You will have to learn to go along to get along = there may be times when you feel more like an employee of the franchisor than a co-owner
- Cannibalization (profit eaters) = franchisors sometimes get so eager to keep growing that they allow franchisees to locate so close to one another that they cut into one another’s profits
- Success is not guaranteed in a franchise or any other business
- You will still need a lawyer and an accountant
- If things go bad for one franchisee in your group, it can hurt all the others
We are currently adding to our list of home-based franchises, so if you think that franchising is for you and you want one that you can run from your home, check out our Directory of Home-Based Franchises
good work…
thanks for sharing this information and post.
Thank you for posting this! magic does a great job of explaining BOTH sides of franchising.
The Franchise King
Joel Libava