#9: Beat 'em or Join 'em

We kick around a lot of ideas in the group that don’t require “disruptive innovation” to work — simple, personal, high-touch businesses like landscaping, carpet cleaning, junk hauling, bin washing, etc.

These industries are attractive to many of our members because they’re hard for globocorps to monopolize and hyper-optimize, so it’s possible to run a local, human-scale operation that can compete with a national chain.

Still, there’s advantages to buying into a chain, and several of the guys have told me that they’re thinking about it in the last couple weeks, so I figured I would summarize what I’m hearing from business owners on all sides of the question.*

Franchisors expect you to color inside the lines.

A friend of mine owns the regional franchising rights for a major cleaning company; his franchisees are required to hew to the corporate business model very carefully, and the margin for innovation is slim.

Franchisees receive a required inventory of cleaning products from the corporate warehouse, at the corporate price, and can only offer corporate-approved discounts, so as not to undercut other local franchises. Most importantly, franchisees sign a lifetime non-compete prohibiting them from operating any similar service, anywhere in the country, ever — and according to him, the company pursues violators aggressively in court.

Some companies offer more latitude, but a franchisor’s most important asset is their brand and reputation, so they tend to be conservative about change. That works fine for many franchisees: if you’re comforted by the idea of executing a proven business model, and are satisfied with “making the business your own” through soft leadership techniques rather than process innovation, franchising might be a good move. Otherwise, you should probably go independent.

A franchise is a full-time commitment.

One of our guys ran a landscaping franchise for about a year, and had a great experience with the franchisor: strong lead-generation, quality startup guidance, and exquisite business software. His problem was that he didn’t want to quit his day job, and the franchise package was built around (and priced to fit) the revenues of a full-time operation. So he struggled through months of paying punishing franchise fees with very little profit, and eventually negotiated with the company to sell the business.

It’s rare that franchises are structured to accommodate a long-term side-hustle. If you can’t afford to quit the corporate job and spend a few months building, you’re better off going independent and building a business at your own pace.

Franchises claim your intellectual and social capital.

On episode 13 of the EXIT Podcast, we spoke to Jeff & Rita Ebberts about their seven-year legal battle over a cleaning solution that Jeff developed while he was a franchisee of a national carpet-cleaning chain. They won in the end, but it was a grueling fight. If you’ve got any interest in inventing something new, don’t do it as a franchisee.

Just as important, they spent years building personal goodwill and trust with customers - but all the five-star reviews and testimonials accrued to the brand. In most franchises, your customers won’t know or care that you’re an owner-operator: when you get a great sandwich with excellent service at Chick-Fil-A, you’re not impressed with the store owner, you’re impressed with Chick-Fil-A.

Franchisors provide their intellectual and social capital.

Franchisors perform market research and analytics that an independent owner can’t afford. They won’t sell you a location that can’t make money. Franchises also provide payroll, tax, CRM, and payment processing that would be expensive and time-consuming for a small shop. Most provide regular franchisee meetups, so you have a ready-made brain trust to help you solve problems.

And while it can be rewarding to build a personal brand and network, it also takes time. People who wouldn’t take a chance on an independent chicken restaurant will wait in line around the block to eat at a brand-new Chick-Fil-A. Franchise fees are expensive, but may not be as expensive as living off savings or credit cards for a year while you get a new business off the ground.

Franchising works best for people who like to execute and maintain.

What you’re buying with a franchise is the ability to fast-forward through a lot of the hardships (and rewards) of starting a business from the ground up. If you enjoy designing a new process from nothing, making sales calls, seeking out mentors, throwing new ideas at the wall and seeing what sticks — you will probably feel boxed in by a franchise. If you don’t like that process for its own sake, it may seem absurd to go through all those blind alleys, false starts, and inefficiencies when there’s a working business model there for the taking.

Ultimately, though, a franchise agreement does make you vulnerable to a messy termination if your political or religious speech is construed to damage the franchisor’s brand — which is an awkward fit for those interested in EXIT.

We are building mentoring and networking resources to make these kinds of entanglements unnecessary, so that individuals can express their beliefs without having their livelihood threatened. Check us out at exitgroup.us.

* Some details changed.