The profit margin of 15-20% is also good, but not exciting. The exciting part is that, with a cost to open of $500,000, the return on investment is roughly 40% per year. That’s exciting to me and to prospective investors and franchisees.
We know that a lot of businesses fail. But why do so many people who try to sell franchises for their concept fail?
The answer to that is pretty straightforward. It’s because too many people who create a new business think that just because they came up with a new idea or clever concept, that other people will pay for it. The truth is, in most cases, other people just copy it. Why? Because the creator forgets that prospective franchisees (or licensees in the case of trademarks) always ask the same question: “If I pay you a fee, what do I get for my money?” And the creators make the mistake of saying, “You get to use everything you see here.” The problem is that many people asking the question will think, “I can use everything I see here, except the specific name, just by taking some pictures.”
There may, in fact, be some special programming or recipes or something else proprietary,
but if the franchisor doesn’t communicate all of that, the perception may very well be that it’s easier and more profitable to just copy. The trick is to create added value that someone can’t easily copy OR that will cost too much to copy. That’s what I do – I create added-value and give people a reason to pay … and, hopefully, to be happy to do it.
Back to a more general question, what are your Top 5 must do’s of an entrepreneur before starting any business?
1. Be realistic about your own abilities. This opens the door to letting others help you where you need the help.
2. Run your idea and plan by people who are not friends or family, and who couldn’t care less about you. Friends and family want to be supportive and don’t want to hurt your feelings. Think of all the people who go on the talent shows on TV who are terrible, and they argue with the judges saying things like, “I’m a great singer. My family tells me that all the time.” Same thing. This takes the emotion out of it so you can be more logical about your decisions.