International Law

5 Myths About Franchising

Here is quite an amusing list:Business - 5 franchising myths

Four of the "myths" are true and the "facts" false. It takes real work to be so wrong.

Here are the five myths.

Myth #1: Bigger is better. Sure, bigger companies have stronger marketing and more sophisticated systems. But there are smaller franchisers in the market who provide more “tender loving care” to their franchisees.

This is nonsense, the availability of scale, network effects and brand buying power doesn't kick in until you reach at least 400- 500 locations. Anything else is not going to be a national brand.

Myth #2: Cheaper is better. You might get tempted to buy the first franchise you can afford. But be wary of little-known franchisers. “Ilan na ba `yung tindahan nila? Mayroon na ba silang commissary? Ilan na ba `yung franchisees nila? And be wary of scam artists. Many try to sell you concepts that are too good to be true,” Rommel (also the PRO of the Association of Filipino Franchisers, Inc. [AFFI]) cautions. To make sure you don’t get scammed by fly-by-night operators, check the members of organizations like AFFI (caters mainly to local businesses) and the Philippine Franchise Association (addresses both homegrown and foreign businesses).

This is true - cheaper is not better. But don't rely on the Franchisor Trade Association to tell you anything bad about the local franchisors.

Myth #3: Waiting is better. Dare to be the first franchisee in a system – that is, after your thorough research shows your prospective franchiser is established and reputable enough. There are quite a number of companies with a long track record of success in the market but have just started to open their business to franchising. Consider them.

Dare to be first? How about gathering some evidence on this proven system first?

Myth #4: A franchise makes it easy to get financing. Generally, lenders are more likely to finance franchises than unknown startups, but they won’t necessarily believe in you or the franchise you choose. With that, Rommel suggests that if you have minimal capital, tap your family and friends, or approach institutions known to help small businesses like Small Business Corporation and Planters Development Bank. “If you’re starting with a small fund, better prepare to lose it. There are many ways to tap funds basta, babayaran mo sila pagkatapos,” Rommel ends.

In the US and Canada, both the governments have made it their business to guarantees for Small Business Loans.

Myth #5: A franchise always spells success. A franchise’s success rate goes up to 95%, according to the US Department of Commerce, but a franchise alone will not instantly ring your cash register. Any venture involves risks, so work together with your franchiser to increase your chances of success. “We really screen our applicants. “Hindi dahil may pera ka, puwede ka na mag-franchise. You should have the passion. Gauging the success rate of franchises, as expected, those who are more focused are more successful,” Rommel cites.

Uh, there is no such study about franchising success. Most of the studies show that franchise systems are no better or worse than independent start-ups, but a lot more costly to walk away from.

Full post as published by Misleading Advertising Law on January 17, 2008 (boomark / email).