Years ago and out of the blue, Fred said, “I think we should buy a business.” After my thoughtful response of What?! we discussed it. We’d both spent years in management and then sales, and he believed we had the experience to make it work. A co-worker who heard we were looking said we should buy a print shop. Fred sold presses, I sold paper, we knew the industry, so it was perfect, and I said, “Ew. Ick. No no no,” as if he’d suggested that I save my bathwater and re-use it for the rest of my career.
But of course that’s the route we took. Once customers heard we were looking, they approached us about buying their companies. The most attractive one was in Seattle on 4th Avenue South, right size and price, but there was a problem: It was a franchise. We told them that our plan was to grow the company, but our plan did not include paying a franchisor 8% of the growth that would come from our efforts, not theirs. They shocked us by hiring a lawyer and getting out of their agreement. It cost them a tidy sum to do it, a sum they could never share with anyone because of the NDA they signed.
Our beginnings come to mind as franchising comes under scrutiny. The headlines are numerous, with this recent one from the New York Times: Entry to Middle Class or False Promise? Franchises Face Scrutiny. And according to the book “The Franchise Fraud: How to Protect Yourself Before and After You Invest,” the greatest fraud is the oft cited 90+ percent of franchise units that are still in business after 5 years versus 15% of businesses that started from the ground up. But there are caveats: The business units themselves may exist long-term, but the owners might not. If an owner fails, they put a new franchisee in that location.
It was not a good route for us to take, but some buyers might consider it their best option, especially those who know little about business ownership and feel they need help and direction. But here’s a better option if you’re considering business ownership: Buy an existing and successful one. There are already customers, a brand, a physical space, and employees, and you can hire business consultants to help you. In fact, we have a nice group of them on the market right now.
May 31, 2023