Entrepreneurship: Thinking of making money from a franchisee business model?

In the book ‘Beyond The MBA Hype’ I talk about alternative options to explore to reach some popular post-MBA goals. Launching an entrepreneurial venture is one of them. Probably that’s what prompted an MBA aspirant on one of the MBA discussion forums where MBA Crystal Ball has a presence, to wonder whether he should re-direct his tuition fees (roughly 60 lakh rupees) to being a franchise owner for a popular fast-food chain.

His situation was unique as he had already applied to several business schools and had got an offer from a good school. But he was unsure of what the two years in a classroom would give him that he couldn’t get directly.

He expressed his unveiled abhorrence for the senior managers he saw in his office delivering boring presentations filled with charts and graphs. He did not want to end up like them. Becoming a franchisee seemed to be a quick and easy way for him to own a business and get away from the inflexibilities of the corporate world.

For the uninitiated, Franchising is a business model where the primary owner of a well brand achieves scale by allowing other entrepreneurs to invest and share the profits. Sounds too technical? Think of McDonalds, one of the most successful franchises on this side of the post-ice age era.

Franchisors benefits because they don’t need to invest their own funds to grow. Franchisees benefit because they don’t need to re-invent the wheel when it comes to the basic processes related to managing the business. Time-tested techniques and approaches that have worked well and proven multiple times in various geographies can simply be replicated.

For our friend from the MBA discussion forum who was struggling with the MBA or Entrepreneurship dilemma, I’m not sure what the primary draw was. Maybe it was the glamour of owning a piece of a big, well-known brand. Maybe it was the assumption that the franchisor will provide everything that is needed to run a successful business. Maybe it was the belief that such ventures run on auto-pilot mode once the legal formalities have been taken care of.

But easier said than done. If you have been thinking on similar lines like our friend, step back and give it more thought.

Don’t assume that you can leave the day-to-day operations in the hands of a few low-skilled, low-paid employees, while you go back to your 9-to-5 job and make a monthly visit to collect the piled-up cash from your nice little shop in a prime location.

If that had been the case, anyone with a little cash to spare could’ve opened a franchisee business and made millions. At least for the initial few months, your involvement in it will have to be (close to) full-time. Before you invest in any business, you will need to understand the dynamics of the industry (food, retail, health etc), operational challenges, cash management etc. For instance, if you have been a techie all your life and know nothing about the food business, either learn about it or choose a different field where you’d be more comfortable. You will need to own the business and take the day-to-day decisions. Don’t depend on the franchisor to do it for you.

Franchising can be a lucrative and very satisfying option to pursue, as it provides the benefits of being an entrepreneur and having the support of a bigger stronger brother to watch over you. But big bro also has hundreds, maybe thousands of other siblings to look after as well. So you won’t be spoon fed, well maybe during the agreement drafting process you will, but not for long. So take it up after doing your homework, like you would for any independent venture.


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Sameer Kamat //
Sameer Kamat
Founder of MBA Crystal Ball. Author of Beyond The MBA Hype & Business Doctors. Here's more about me. Connect with me on Google+ | Twitter | Facebook | Linkedin

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