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Some people assume that franchises are “can’t fail” plug-and-play businesses. But as Nick Bibby, founder of The Bibby Group, a consultancy for franchisors and franchisees, will tell you, it’s not that simple. As with any business, both parties need to do their homework first.
We caught up with Bibby to find out what franchisors and franchisees should know before jumping in. The following conversation has been edited for clarity and brevity.
StartupNation: What do you think separates a successful franchise from one that doesn’t stand the test of time?
Nick Bibby: Two things: quality of management and systems. The best franchises have quality systems that are repeatable and can be used under a variety of ownership management. No franchise can succeed without proven quality systems. And then the management, of course. There has to be a tremendous relationship between ownership and that system because, without that love of the system, they’re not going to be motivated to do two primary things.
The two primary jobs of the franchisor are one: continue to groom the system to keep it updated and fresh; and two: find appropriate franchisees to implement the system.
StartupNation: What are some indicators that you should or shouldn’t franchise your business?
Nick Bibby: Personality, concept and finance are the three areas that we look at in assessing feasibility. If the franchisor is not a suitable mentor or teacher, they should not be in the world of franchising. They must teach their franchisees how to run that business. If they don’t enjoy teaching and mentoring, they can’t be successful.
The concept side of it is very straightforward. Does a particular concept have legs, and can it be operated in a variety of geographic areas under a variety of managers and owners?
Then with finances, does it make sense for a franchisee to buy that concept? Are franchisers going to make money? Is the franchisor going to make money with its royalties and franchise fees?
StartupNation: On the other side of the transaction, what should the franchisee be looking at before they buy into a franchise?
Nick Bibby: Besides doing financial due diligence and understanding if the franchise has been successful with other operators, besides proving the financial feasibility of the model, the most critical element is whether or not a person should buy that franchise. An independent person is going to be unhappy with a franchise because they’re limited.
To buy a franchise means that you are willing to follow someone else’s system, and those contracts or franchise agreements are very tightly written, always in favor of the franchisor.
StartupNation: Is there anything else big-picture that you think readers should know about franchising?
Nick Bibby: I think the primary thing is something we’ve already talked about. Let’s be sure that the system itself is proven. Let’s be assured that you can have a personal relationship with the franchisor and its management team. If you don’t care for those people, you’re not going to be successful because they’re going to be dictating your world. It’s personal interaction. Do you like the people and can you prove that the system works to your benefit as a franchisee? It’s really that simple.
Now, unfortunately, I’m guessing that an easily 75 percent of franchise purchases are made without proper due diligence. It took me many years to get my mind around why. We offer due diligence services here for buyers, but almost nobody wants them. It took me many years to finally conclude, and that is that the dream is almost always more important than reality. The dream of owning this particular franchise is more powerful than research. People really don’t want to know because once they fall in love with the franchise and they see themselves in that role, the last thing they want to do is upset that dream, so they tend to be blind to reality.