Do You Want Franchise With That?

What’s in a name?

DoYouWantFranchise

Each month hundreds of thousands of new businesses open nationwide in the US. A third of them will go out of business within two years, and only half will last five years. Owning a business is risky, and what you don’t know will hurt you. Many small business fail because the owner failed to take into account some vital piece of information which would have shown that their brilliant plan wasn’t so brilliant after all. It could be anything from foot traffic, to utility costs, to labor utilization. What you don’t know will hurt you, often in the most painful way, at the worst possible of times. Trust me, I know. I’ve been trying to start my own coffee shop now for going on five years, and I have faced setback after setback. Although I have lost thousands of dollars in the process, I have gained valuable insight and protected myself from some truly significant financial pitfalls which would have occurred had I not been as diligent in my research, and hired qualified consultants, and legal and financial advisers first. I’d rather invest a few thousand dollars than suffer a million dollar bankruptcy.  No business is ‘risk free’.  

There are really only three ways to have your own business.

  • Start it from scratch – very risky
  • Buy out an existing business –  risky
  • Buy into a franchise – not AS risky, but still has risk.

“The two most important requirements for major success are: first, being in the right place at the right time, and second, doing something about it.” – Ray Kroc

What is a franchise?

A franchise is a business which pays a licensing fee to a parent company in order to sell products under that company’s brand. Usually there are strict guidelines and corporate policies which must be adhered to, which failure to follow will cause the loss of the license, and a possible expensive lawsuit. By franchising, YOU are representing that brand, even though you own the business, the brand and all its intellectual properties belong to the licensing corporation.

There are pros and cons to this.

The pros include selling a known brand, and operating under a proven business model. Everyone knows what the coffee at Starbucks and Dunkin’ Donuts is supposed to taste like, and they are drawn to the familiar industry standard product they know and love. 

The cons are that those same industry standards and products are forced upon you. If you are barely scraping by, and the parent corporation implements a national sales campaign, more often than not you are required to participate. Likewise when chains like McDonald’s offer their McCafé®™ drinks at only $2.00 for any size, every McDonald’s franchise in that geographic area  has to offer that product at that price, even if they are losing money to do so.

When an industry leader announces a new product or sale, other chains scramble to offer a comparable offering. Prior to Starbucks offering cold brew coffee, that was something that you could only get at third wave coffee shops. Now cold brew coffee is everywhere, even at convenience stores.   When Starbucks began selling Pumpkin Spice Lattes earlier than normal this year starting on Labor Day Weekend, Dunkin’ Donuts and other chains quickly followed suit. This meant that the owners of every franchise suddenly had to purchase additional supplies needed for the drinks.

Franchises are not cheap. In most cases you have to pay to build the store to company specs, and buy all of their required equipment as well as pay an upfront fee.  Dunkin’ Donuts franchise fee is $40,000, minimum initial cash required is $250,000 with a net worth at least $500,000. Starbucks doesn’t do franchises, but they will sell you a license to sell their coffees at your cafe for just over $300,000. McDonald’s charges $45,000, requires you to have liquid assets of $750,000 and start-up costs  run  $1-2 Million. One of the cheapest franchises to start is SubWay, which begins at $15,000 with start-up costs ranging from $100,000 to $400,000.

Once you pay to start the franchise, you still have franchise fees on every product you sell for as long as you own the franchise, and IF you decide to sell the franchise, in some cases you will need to pay a franchise transfer fee.   

Can you make money owning a franchise?

Yes, and no. According to a report on food franchising by Franchise Business Review, 51.5 percent of food franchises earn profits of less than $50,000 a year; roughly 7 percent top $250,000, with the average profit for all restaurants coming in at $82,033. That doesn’t sound too bad, until you factor in the initial investment.

Business is business? What a Kroc!

Ray Kroc was a traveling salesman.  He had been a paper cup salesman for Lilly Cup.  After fifteen years, he switched companies and  started selling a 30lb, five-spindle milk shake mixer, The Multimixer for Prince Castle.  There wasn’t a great demand in the food service industry for this device, he was lucky if he could sell one to a restaurant. That was until he received an order in 1954 for eight of the machines placed by a single restaurant in San Bernardino CA. After confirming that the order was not a mistake,  he made a trip out west to see with his own eyes this business that needed eight Multimixers.   The place was a tiny burger joint owned by two brothers, Dick and Mac McDonald. Ray Kroc was so blown away by the way the brothers had re-invented drive-in burger joints that he mortgaged his house and pulled every string he could pull to get the brothers to agree to not only allow him to buy his own franchise, but sell future franchises to perspective buyers.

Ray Kroc was 52 years old when he opened his first McDonald’s franchise. For each future franchise he sold for the brothers, a franchise fee would be charged of 1.9% of sales, .4% would go to the brothers and 1.5% was for Ray. Needless to say Ray Kroc was struggling to keep his head above water before long, and tried to re-negotiate his deal. Dick and Mac refused. Ray had signed a contract and he was legally bound to it. Unfortunately for the two brothers, Ray was a salesman, and they were not. A salesman’s number one job is to convince someone to buy. Ray managed to find a work-around by creating a land acquisition company.  He bought and leased the land that McDonald’s franchisees would need to  build on and charged them rent. As a condition of their lease agreement they had to maintain quality control in their restaurants, or lose their franchise.

He began mass selling franchises, and the money from the land lease agreements made him wealthy. He then paid a hefty fee to the McDonald’s brothers of $2.7 million dollars to break the 1954 contract he had signed, and take ownership of all holdings and intellectual property, including the brand name. The McDonald brothers couldn’t even have their name on their own restaurant. He then opened his 100th store right across the road from the brother’s original store, and drove them out.

History is written by the winners.

The first time I read the Ray Kroc story, it was in his auto-biography GRINDING IT OUT The Making of McDonald’s. From Ray Kroc’s point of view, he was the victim, fighting his way out of a bad deal. I had found the book to be inspirational until I saw the 2016 film THE FOUNDER starring Michael Keaton. This version of the story made Ray Kroc look like the Serpent  in the McDonald brother’s Paradise. He was the epitome of every sleazy, used-car salesman stereotype you can imagine.  There are two sides to every story, your side, their side, and the truth. The point is once you sign a contract for a franchise or a lease agreement, be prepared to stick to the agreement, because unless you have more money and lawyers than the opposition, you will be in hot water quickly. It’s probably best to avoid the situation altogether. As always, I wish you success and happiness.  

Say Cheese!

Don’t Lose Those ‘Kodak’ Moments!

saycheese

Louis Daguerre produced the first daguerreotype (an early photo process) when he shot an image of the Boulevard du Temple, Paris in 1838. Film cameras didn’t develop until 1888 when Kodak invented his film process. In 1900, the $1.00  Kodak Brownie camera was introduced, and modern photography was born.  For most of the twentieth century, photography was pretty much the same. Cameras may have varied from company to company, some boasting better optics, wider shutter length settings, or built in eclectic flashes, but they all used film. Eastman Kodak pretty much dominated the market, but some swore Fuji Film was more vivid. The drawback of film is that you had to send it out to be developed at a film lab, and  then wait for the prints to arrive in the mail, or at the FotoMat booth, or the drugstore.  If you were willing to invent in a home dark room, and the chemicals needed, you could do it yourself, but most folks were content to leave it to the professionals. The only other alternative was the Polaroid instant camera. Like the early daguerreotype, the Polaroid process produced an instant print that was one of a kind, it had no negative, the print WAS the print, the only existing copy. If you wanted to copy a Polaroid photo, you needed to have the original photographed with a film camera, and of course there was slight loss of quality as this was a copy of a copy.

Today, more pictures are shot in a single year than in all of the last century. Each year over a trillion pictures are taken thanks to smart phones with built-in cameras.

Back in My day…

I have maybe five photographs of my father. My mother didn’t take pictures, she was never a photo bug. There were a few years when she arranged for a professional photographer to come to the house for baby pictures to be taken, or family portraits, but she couldn’t be bothered to buy a simple camera. The few pictures she horded were given her by family and friends, but most of those were lost as we moved like gypsies after she lost her second husband, my stepfather.

After my stepfather Alfred died, my mother had a boyfriend named Bill. In reality, this was a teenage crush that she bumped into many years down the road. He was a shutter bug, and owned a Polaroid Instamatic Camera.  That was the first camera I ever used.

Years later, when I was about 12, my aunt Arleen gave me a Kodak Instamatic. Essentially Kodak had copied the Polaroid Instant Camera and were sued into dropping the new clone from their production line. You were able to buy the film for it for a little while, but eventually it was totally obsolete after the film stock expired and new film wasn’t manufactured.

My second job was working for Olden Camera in NYC, in their computer department. It was then that I purchased my first real 35mm camera, a Nikkon automatic. This point and shot camera was pretty simple to use and lasted many years. Eventually I did get a ‘real’ camera, a Minolta SLR with various lenses and accessories.  It was a lot of weight lugging about that loaded camera bag of accessories, and it was annoying trying to explain all the settings and how to use the camera when I passed it to someone to shoot if the self-timer function was impractical and I wanted to be in the picture. Then disposable cameras came about, and I started using those as everyone knew how to work them.  The point is, from the time I brought my Nikkon in the 80’s, for  nearly twenty years I shot 35mm film.  I have boxes of negative files, and envelopes of prints, as well as photo albums.

For almost the first thirty years of my life, you were limited to film cameras, and the most you could shoot on a roll was 36 exposures. So when you went somewhere and saw something that you wanted to remember forever, you selectively shot one or two photos of it at most, because you had limited shots, and buying film, and getting it processed and printed was expensive.

Nowadays,  most of what we shoot is digital, and we send the pictures we want to share in e-mail or texts.

The sizes of the digital storage media has even changed, with most of the early media obsolete.  Yet, because the photos are digital we are taking more pictures than ever because smart phones  have built in cameras that are getting better with each new model. You still take better pictures with a dedicated digital camera than you do with a smart phone, but  even I will use my phone to take pictures if it’s all I have on me.

Pictures have value. We prize them and treasure them.

A couple of years ago, I lost a SD card with pictures that were not yet copied to my hard drive.  I was packing to return from a trip to the shore, and I think I left it on a table at the hotel. It was never recovered.  If you use a digital camera like I do, back it up frequently if not after every photo shoot. Even if you use your phone to take pictures, copy the data.  Theoretically, smart phones back-up their data to the cloud, but I still don’t trust that. This is why it is vitally important to frequently back-up and copy all your image files. If your electronics suffer a catastrophe, you don’t want to compound the blow by losing your precious ‘Kodak’ moments.  

Pictures, or it ‘never happened’!

Organize your old prints and negatives. A few weeks ago, I was searching for some old vacation photos from 16 years ago, I needed an image, and I could not find either the prints or the negatives. It was very frustrating. It’s probably packed away in a box somewhere in the bottom of the walk-in, but damned if I know where.

  • Frequently copy your media cards.
  • If you have obsolete media, copy the data off the cards while you still have an appropriate reader. Media is useless if you can’t access it.
  • if you have old Polaroid’s or prints, scan them into a digital file.
  • If you have old negatives, invest in a good quality negative scanner and digitize them.

The time, money, and effort you put into preserving your treasured photos will be returned when you can locate and share your Kodak moments. As Always I wish you success and happiness!