Of all the get rich quick schemes that the FI comes up with (gold, property, bitcoin), franchising is seldom discussed. I’m not trying to sell franchises – but maybe they deserve a closer look?
When people think of McDonald’s they think of a massive corporation which micromanages every aspect of its business – from the feed of the cows that go into the burgers to the taps in the toilets where diners (and non-diners) wash their hands. But the surprising thing that not many know is that each McDonald’s restaurant is just a franchise, owned by someone and they effectively rent the McDonald’s brand and use their systems to run their business. It’s a remarkably effective way to run an organisation – both for the franchisee and franchisor.
From my reading of Rich Dad, Poor Dad years ago, I’m sure that franchising is mentioned as one way to become wealthy. It gives you the control over your destiny that is lacking in many other ways to earn your living.
Mr. GFF decides to invest in a franchise. He does his own research and decides on a great new chain called Café Costar – he knows good coffee from bad coffee and Café Costar is where you get your good coffee! He saves/borrows/begs/steals the £100k start-up money to buy the franchise rights. He can then set-up shop and by following Café Costar’s policies for internal fit-out and decoration, menu offerings and stocking he can open up to the public. Café Costar receive money from Mr. GFF in the form of a share of revenue/royaties and Mr. GFF must pay for overheads, staffing costs, operating costs etc… What ever is left of is profit for Mr. GFF – and the directors of the business. If the business does well, Mr. GFF will be moaning about the tax-rate on dividends.
It’s clear that to be a success you need to first of all have a high turnover – get people/customers/clients in the door and spending money. Second of all, you must keep costs low (and the largest cost will have two legs). So pay everyone minimum wage or as low as you can. That’s the secret to success!
Franchising is an appealing proposition for a number of reasons:
- Tried and trusted brand name companies
- Support available to make a success of it
- Quick to get up and get running
- High degree of autonomy and control
- Within reach of many individuals / low barrier to entry
- No special qualifications or knowledge required
- Businesses are readily sell able (exit strategy)
You can find someone to buy your franchise quite easily or you could even buy one of your own. Doing the same for your own business might be a lot more difficult – so pricing franchises is more like commodity businesses than trying to price a Picasso.
All this said, why is Franchising not of interest to the mainstream FI community? I don’t know but I think that it could be because many are in STEM careers which give the possibility to have high earning and the savings rate that goes with it – maybe FI a possibility. Maybe it all seems like a bit too much hard work?
One observation is that many of the people who fall for Multi-Level-Marketing scams are less well-educated and poorer. The pyschological pull of these scams is strong and it’s the same appeal that you get from franchises – do you want to have more free time and make loads of money? You don’t need book smarts, just hard work and self belief and you can do it!!! Pay me some money and you’ll learn the secrets / get the start-up pack / start making money now!
There is nothing stupider in my eyes than an intelligent person putting 20+ years into a career that leaves them treading water financially, overweight and unfit, institutionalized, jaded and cut-off from the real world plus being at risk of being fired/downsized/made redundant/outsourced at any time and almost certainly within the next x years.
Franchising is a way to get to FI for those who need a quantum leap – whereas for many it’s just steady as she goes in our boring office jobs.
I’d be interested to know what others think and especially if there are any FIranchisers out there.