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We can all name successful franchises like McDonald’s and Dunkin’, but would it surprise you to learn that these are probably not the opportunities potential franchise owners should be considering these days?
In this latest episode of Small Biz at :15, The Franchise King Joel Libava talks about the latest trends in franchising and provides advice on the best ways to evaluate franchise opportunities.
Here is an edited transcript of the show. You can watch the full interview above, or check out the SoundCloud player below to listen.
Franchise opportunities vs. business: which one to choose?
Shawn Hessinger: Joe, if you’re an entrepreneur looking for a business opportunity, why would you choose a franchise instead of starting a business from scratch, for example?
Joel Libava: Most people tell me they want to go into a franchise because they want to go into a business that is almost ready to go.
However, most people are not really suitable for the franchise because many of them don’t like the rules. They don’t like the idea of following a 350-page operations manual, not being able to sell anything other than what you’re supposed to sell, etc. Therefore, there is not a lot of creativity involved.
Shawn Hessinger: How do you basically decide when you ask this question about whether or not you should start a business? We talked about why people might choose, but how do you decide if franchising is the right choice for you? What questions should you ask yourself before you get to the point of saying, I want to buy a franchise?
Joel Libava: Well, the first one is the question of the rules. Are you going to follow the rules? And you need to look at your past history. In his career, did he follow the rules or did he like to make the rules? And this is something you have to be really black and white about. If you’re saying, “Well, I’ll be happy to follow the rules as long as I like them”,…uh…not so good.
You should also spend some time learning about the franchise business model itself, what it entails, and the pros and cons. And you have to tell yourself, “Yo, there’s some risk involved.” Just because it’s a franchise doesn’t mean it’s risk free.
You must also make your statement of net worth. You need to calculate a budget. You need to make sure you have enough money. I like to see a net worth of $450,000 to $500,000, with the ability to write a check for about $75,000 of your own money before you get an SBA loan, or whatever loan you want to get. So make a budget, make sure you follow the rules. Realize that there is risk involved. It is not risk free. And finally, be prepared to work harder than you have ever worked before. At first, at least.
Shawn Hessinger: If you’re going to do this, why not go for franchises and brands that have a really established history?
Joel Libava: Well, the first reason would be that there is no territory left in your area.
There may be a Dunkin Donuts that is half a mile down the road and another that is a mile and a half away and the area could be packed. So that would be one of the reasons why you might want to be open to more than just going for one brand.
The second reason is that many people like to be first. You want to be they want to be on the ground floor first in their local community.
Shawn Hessinger: Speaking of new franchises, what are some of the things that come to mind? Some new franchise opportunities that people might not even be aware of? Or even more broadly, what are perhaps some of the hottest franchise trends right now?
Joel Libava: Well, there’s a trend here in one word: delivery. Any business you buy, any franchise opportunity you decide you’re going to buy, make sure they’re compliant because of the pandemic. I mean, the delivery was already hot because of Amazon. But now, if you don’t deliver the product you’re selling, you’re pretty lost.
As for the brand, there are a couple of new opportunities that are great. A friend of mine, Greg George, who has launched several concepts, is now involved in a peach cobbler factory. There were like a hundred franchise deals signed in a couple of years. That’s huge! It is a dessert franchise, with a total investment of between $100,000 and $120,000. It started in the South, but they are starting to expand. You know, that’s a “hot” franchise.
There’s another one called Pure Green, which is actually in the healthy eating phase of fast food, and they’re starting to grow a little bit.
The question I always ask people when looking at food, you know, is, “Are you looking at something that’s going to last a long time, or are you looking at something that’s going to last two years?” You do not want that. So you have to make sure it’s not a fad. To make sure it’s sustainable, there’s market research data you can do. You can go to the Small Biz Trend website. There are things in food that are healthier, so watch the trends.
What to look for in a franchise opportunity
Shawn Hessinger: How do you see these trends and say that one franchise could be a lightning bolt and the others have staying power? What are some guidelines you would use?
Joel Libava: Let’s say I was looking at a franchise opportunity that excites me, I mean physically and psychologically excites me, the first thing I do is take a deep breath and get the emotion out of it. You focus on the business model itself.
A good source to gauge the franchise opportunity is to go to the Small Business Development Center near you. They have all kinds of statistics and data on trends. Ask them about the new concept you are looking at. They can discover things that you can’t because they’ve been doing it for a long time.
You can also do it on your own; do a search online using your favorite search engine for the type of concept it is, maybe the food it is, whatever, and trends. As simple as that, you are going to find things that you had not even thought about. Sometimes franchises get too hot and grow too fast. So be careful with that. Be careful with that because it could be a flash in the pan, or it could be a home run.
Anyone looking for a young franchise concept, where there are not many franchisees, should spend a few days at the headquarters to see if they can really get the true vision that the CEO has about the brand and its future and see if there is a system support instead. Questions to ask: Do they have technology? Do you have a technology department? How is your marketing? Spend a few days at their headquarters and you might get the answer.
Shawn Hessinger: How do you choose the franchises that have the best earning potential?
Joel Libava: Let’s say you’re looking for a food franchise and you have experience in the food industry, which is preferable. You know what margins are on food and you could easily find out.
Also, the CEO or founder knows what the margins are. So there are ways to find out what the margins are. You just have to be really good at asking questions.
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