Everyone has their own reasons when it comes to making investment decisions for acquiring franchise rights. While there are no “right” reasons as it is a highly subjective matter, there are actually many “wrong” reasons for making such a commitment. And these erroneous thinking could be the first step towards quite the opposite of success.
“I Love The Brand Or Product/Service”
Getting swayed by emotions is one of the worst factors for any investment decisions. It could be exciting to own a franchise of a cool brand but will you still feel that same passion when you are required to be around and involved with it for 80% of the time you are awake?
“I Know Someone Who Knows A Guy Who Was Successful In That Franchise”
In most cases, this is when information gets distorted or perhaps even exaggerated. While there is no evidence that you will not be able to replicate that success, basing perceptions on hearsay instead of actual facts could set you up for unrealistic expectations. Besides, “that guy” could have experienced success because he was a good fit for the franchise (i.e. possess certain skill sets, experience, contacts, etc.). But it doesn’t necessarily mean it will be so for you too.
“The Franchise Doesn’t Have A Presence In My Location So I Have First Mover Advantage”
Firstly, it doesn’t really work that way. Furthermore, there could be a very good reason why the franchise doesn’t have a presence in your location. Maybe the market is too small to generate sustainable revenue or maybe their market offering just didn’t suit consumers in that particular area. Or it could just simply be because no one from your location had ever made an enquiry. Whatever the case, find out whether the franchise had previously entered your location and how it turned out if they did.
“Franchises Are A “Guaranteed” Opportunity”
While it is somewhat true that for a business to start franchising, it should have a successful revenue model in order to produce reasonable profits, but it should also be clear that there are no guarantees. Regardless of how established and successful a franchise is, franchisee failure is a very real prospect even when the franchisor does their part and fully prepares the franchisee and his/her business. In other words, the risk of failure (while could be decreased) doesn’t completely disappear just because you bought into a franchise system.
“The Franchise’s Product/Service Is Trending Now”
The franchise’s product/service could be the “in” thing now but how long will that sentiment among consumers last? Instead, rather than going after the latest fad, it could be far better to pursue a sustainable alternative that you will be comfortable with. Knowing the difference between a passing trend and a sustainable business model could save your retirement fund from a wipeout.