Avoiding 10 deadly investor sins

  • Business
  • Wednesday, 29 Oct 2003


“WHAT do you have in the fast food business?” Many prospective franchise investors come to me with that common question. 

While it may be an appropriate question to ask, it may also lead an investor down the road to failure, and even perhaps economic ruin. 

Lim Soo Kong

It's not that the fast food segment doesn’t include many good franchises opportunities. It does! But like all businesses, the franchise itself doesn't only need to be good at what it does; it also needs to fit the skills and personality of the prospective franchisee. 

Often times, clients know what they want in a business. They'll say the ideal business has few employees, keeps business hours, i.e. 9 to 5, has limited competition, it's a low investment, has low potential for theft, and offers significant growth. 

That certainly doesn't sound like many of the food businesses I have explored, and as soon as I ask them, my clients say it doesn't sound like any of the food businesses they know, either.  

It's only then that they begin to see how far off the mark they were when they said they were thinking of buying a food franchise opportunity. 

Why do so many people ask for a food business? Typically it's not because they are madly in love with the concept of running a restaurant, but it is because of what restaurants represent to them.  

Restaurants are everywhere, and we all eat every day. Most people enjoy eating at restaurants, and there are numerous successful chains and franchises in every city. So restaurants appear to be fun, feel safe, and look stable and successful.  

You only have to look around in your community to see examples of franchised food businesses that are great successes. McDonald’s, Burger King, Wendy’s, Pizza Hut – to name a few – have become giant franchise opportunities. 

However, I always ask clients if they're only interested in a food business, or in any business that is stable, strong, experienced and offers a good return on investment? In almost all cases, the answer is “Yes.” And that's when the client's focus broadens and a model of the type of business opportunity they actually want begins to emerge. 

My point is simple: Prospective franchisees often let their perceptions guide them, rather than their logic, and in so doing, they set themselves up for the likelihood of failure.  

Many of these investors commit one or more of the 10 deadly sins that are common among franchise investors.  

What are these 10 deadly sins? Here's the list: 

·Failure to create a model of who the investor is as a person, and failure to create a list of their personal business strengths and skills.  

·Failure to identify the types of businesses that will match the lifestyle they need. 

·Failure to de-identify the name of the business from the performance of that business, and how the business will help them achieve their goals and strategies. 

·Failure to investigate and compare several businesses to see which one best matches their needs and interests. 

·Failure to develop a three-tiered strategy for investing, including the entry strategy, a long-term strategy, and an exit strategy. 

·Failure to realise that franchisors are all different. Some franchisors are smart, some stupid, some young, some old, some with rigid systems and others flexible. It's important to find one that offers what the investor needs. 

·Failure to realise that they do not have to spend a lot of money to get a good business. There's virtually no automatic correlation between how much a business costs to start and how well it will do once started. 

·Failure to do sufficient research to not only find out whether a business and an industry is solid, but also whether it is good for their strategies and skills. 

·Failure to find both the successful and unsuccessful franchisees within the system and compare themselves with these franchisees. Are they like the people doing well, or do they have the same skill sets and attitudes as the people doing poorly? 

·Failure to use experts, like franchise attorneys, accountants, advisers, etc. Granted there are many variables. You can do everything right and still fail. But by not allowing yourself to commit these 10 deadly sins, you can greatly enhance your chances for success.  

To avoid the deadly sins, I suggest you ask yourself the following questions. 

·Do I like the idea of being part of a franchise system? 

·Do I want to invest during the early stages of a franchisor’s development when the opportunity to grow is wide open? Or do I want to get involved only after most of the growth is finished so the risk is greatly diminished? 

·Is the franchise I'm looking for a leader in its industry? Is the industry stable and growing? 

·Does the management team have a vision not just for today, but for the future? 

·Can I afford the business? Can I afford this business emotionally? Can I handle the stress of starting a new enterprise? Will I have support from my family? (It's a good idea to involve family members in your research.) 

·Does the business fit my personal strategy for growth and success?  

·Do I fit with the skills, abilities, corporate personality, etc. of this business, and with the successful franchisees who are now part of the system? 

Simply put, many people do not take the time to really understand what they're trying to achieve when they invest in a business, and consequently, they never find what they're after. Don't let it happen to you. 

Franchising offers many outstanding opportunities. You can probably find one that's right for you if you avoid the 10 deadly sins. 

  • Lim Soo Kong is the president, Asia Pacific of Frannet - The Franchise Connection

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