Is a Franchise Your Best Route to Entrepreneurial Success? (Part I)

An interview with Trump University's Professor Richard Parker

Today we bring our readers the first installment of a two-part, in-depth interview with Trump University Professor Richard Parker, developer of Trump University'sThe Art of Buying a Businesscourse

Should you buy a franchise? Does owning one offer a viable way to achieve entrepreneurial riches and independence?

In this recent conversation Trump University's Barry Lenson, Professor Richard Parker brings the issue into sharp focus.

Barry Lenson: Many people believe that owning a franchise minimizes the risks of owning a business - that there are systems, policies, and procedures in place that will minimize the hazards. So is it really smarter to buy a franchise than a non-franchised business?

Richard Parker: When you buy a franchise, you may have some better data to predict your profits and the overall success versus a brand-new startup business. That is because franchises, unlike other startups, follow a mass recipe that has proven successful in other locales. And yes, those systems, policies, and procedures are already in place.

However, any good non-franchise business has the same ingredients too. The difference is that franchises might have more credibility with consumers than other businesses do. That credibility is built on a recognizable brand name, advertising, familiar products and other factors. But the bottom line is, any good business needs a recipe to succeed. Most franchises really only give you the ingredients.

BL: Many people buy franchises to avoid the cost of marketing, advertising, image-building and the rest. That seems like sound thinking, right?

RP: Those are major benefits, but they come at substantial cost. And you are never going to avoid those costs altogether. You will be paying a franchise fee right off the top line for them. Some of the strategies about how to handle advertising and marketing are laid out for you when you acquire a franchise. The question is, can you do a more effective job of reaching those same goals on your own? You may be able to do it for less money than the cost of a franchise.

BL: Are there any individuals who should avoid franchises altogether?

RP: Franchise ownership is not for everyone. It is best for people who don't mind following orders, who are comfortable embarking on a middle-of-the-road venture with no major upside and (hopefully) no major downside.

Many people buy franchises because they lack confidence in their ability to run their first business. That makes you wonder whether those people couldn't learn the skills they need at an institution like Trump University and quickly know how to run a business and make more money.

So to summarize, a franchise is not for you if you have an ultra-strong entrepreneurial drive, a burning desire to break new ground or challenge the status quo. Nor is it for you if you are unwilling to put the needs of the parent company before your own.

BL: I recently heard about a franchise owner whose business failed after his parent company allowed someone else to open another branch of the same franchise right down the street. How often does that happen?

RP: It happens all the time. When you stop to think about it, the franchisor's ultimate agenda is to have locations everywhere. Unless you have a protected territory, it will happen. And most established franchise brands either don't allow protected territories, or the territories they offer are tiny. So will another franchise open near the one you buy? Yes, it will happen. It's just a question of time.

BL: Some franchise owners complain that they work very long hours for very little compensation. But most small business owners work long hours too. What's the difference?

RP: Whether it's a franchise or not, long hours will be required, at least initially. If you want a relatively short workweek with no pressure, get a job packing bags at a grocery store. If you plan on being successful in business, long hours are just part of the job description.

What you're really asking here I believe, is which platform, franchise or not, will give a business buyer the greatest --bang for the buck.-- If that's the question, a non-franchised, ongoing, existing business with a proven track record will be better than a franchise nearly every time.

BL: I've heard you say that you're a big fan of franchises in some cases, for certain people, but not of buying a new location. What do you mean

RP: Franchises may make sense for some people, based upon the goals, skills and criteria I mentioned earlier. However, buying a new franchise is, to me, just a glorified start-up - and we all know the failure rate of start-ups. A new franchised location increases the risks. If you buy an established franchise store however - one that is established in its location - you can study the books and see how it is doing.

Again let me say that any franchise is simply a formula that has, in some cases, succeeded. That's it. That's all. But the fact remains that the concept itself can make sense for certain people, without question. For them, the solution is simple - buy an existing franchise location. That way, you marry the best of franchises and an ongoing, proven business.

Trump University Professor Richard Parker developed Trump University's self-paced multimedia home-study course, The Art of Buying a Business.

To read the conclusion of this interview with Prof. Parker, be sure to visit this blog again one week from today: Friday, January 19th.