This “Outside Consultant” column by Mike Porter, EdD, a faculty member in the Marketing Department at Opus College of Business, ran in the Star Tribune on Feb. 15, 2021.
Franchises offer entrepreneurs access to enter businesses with some traction and support from the franchisor, with the benefit of ownership and some independence.
That said, the impact of the pandemic still led to business failures, including franchise locations. According to John Francis (often called “Johnny Franchise”), “Bankruptcies mean movement in the market. It resets the environment.”
Rather than considering appraising a recently bankrupt business as “scavenging,” realize that these businesses may have value beyond the fixtures and leftover inventory. “After dust clears, look at used/resale franchises,” asserts Francis. “These may not be on the market due to bankruptcy, but after the last year, some owners may simply be scaling back. Running multiple franchises can be a challenge in the best of times.”
For the potential first-time franchisee, Francis expectedly recommends lots of homework, and personal assessment to assure a franchise category and specific opportunity represent a good fit. “Franchise relationships need to be complementary partnerships, so it’s good for both sides to really know the playing field and strengths on the bench.”
If an entrepreneur lacks contacts and perspective on available businesses, Francis recommends circulating with some business brokers and bankers for ideas.
Some individuals might see partnering with other entrepreneurs as attractive when starting out, especially with limited cash on hand. Francis tends to lean toward borrowing in those circumstances, because partnerships can bring additional complications. The exception for him comes in the form of “Smart Money.” “If you’ve seen ‘Shark Tank,’ you know the people who want a shark to buy in who already has successful businesses in that space. That’s often worth more than the cash infusion and makes giving up equity potentially attractive.”
For a more seasoned owner, Francis suggests “buying into something big enough to scale – open one franchise, then two more over course of year. Both partners contribute and get benefits.” Another alternative in this vein is joining forces with a franchisee of the same business, but in another market.
Finally, Francis stresses that any time a partnership gets created it needs to have an exit strategy. “All partners benefit from knowing how to amicably move on, whether the reason has to do with tensions in the business, or simply an evolution of the goals of one partner or another.”
Mike Porter, EdD, is a faculty member in the Marketing Department at the University of St. Thomas Opus College of Business.