Steve, I have a current roofing & GC construction co. Should I buy a franchise for ~100k or go it on my own?
Thanks, Undecided in Memphis
Good question, Undecided. And of course like any good consultant I’ll answer your questions with (drum roll please!) even more QUESTIONS! For example…
1. WHY do you want to move into a new field? You don’t specify what type of franchise but I assume given your construction business you are interested in restoration. So I would ask why? Are you a) searching for a new market due to the recession and/or too much competition? Or b) are you just plain bored? (Seriously, I see this all the time.) Or c) do you want to grow to provide a career ladder for some competent young managers? Once again, the “why” is so very important!
2. WHERE is your highest and best (not to mention most lucrative) use? The main purpose of your business is to serve you and your family. Which inevitably includes making hopefully obscene profits! (I tell every SFS class “there is no virtue in poverty”!) So would it make more sense to focus like a laser beam on your current construction market and dominate it before you go off into a different business?
3. WHO will focus on and run this new operation? Too often an expansion into a new field results in “Managerial Dilution”. Any business (and especially construction nowadays) is a fragile creature. So you should either designate a manager for the new venture or your old one and then you take the reins in restoration.
4. HOW will you fund the new business? It doesn’t matter whether it is a franchise or not- restoration requires deep pockets and not just in the initial equipment purchasing phase. Long pay times are legendary in restoration and few losses provide the regular draws that construction and roofing will have. So you either need a high limit line of credit or lots of cash. (And with a “100K franchise” the initial fee is just the beginning!)
5. WHAT business structure will you use? An “add-on” to your existing company or a separate business venture that is a stand-alone operation? Both have advantages but most folks will just go the “add-on” route to both save on overhead and piggyback on to your existing contacts/marketing.
6. WHEN will you go into this new industry? Up to you of course AFTER you reflect on the five questions above! This question #6 is sort of redundant but I wanted to complete Rudyard Kipling’s “Who-What-Where-Why-When-How” quote! (Actually the “when” is important as in: “When will you want to sell this business”?)
Now that I’ve had my fun, Undecided, please send me the answers to the questions above. Then maybe you’ll arrive at not only the “Should I buy a franchise?” solution but also the “Should I be going into this diversification at all?” answer!
Steve Toburen
PS My cut to the chase reply on “Should I buy a franchise”? It depends and mostly based on what type of person you are! To me the big advantage of a franchise is it adds structure AND the often much needed “accountability” to your business and your life. (A lesser benefit of a good restoration franchise is they MAY give you a much quicker opening into restoration contacts by you automatically becoming a member of insurance companies Preferred Vendor programs.)
NOTE: An often over-looked advantage of franchises is they are much easier to sell and often to another franchisee. So you should factor your exit planning strategy into the mix. The disadvantages of any franchise (even the good ones) are many and obvious. To mention a few: a) The steep initial fee (Jon-Don’s Papa Nick Paolella will sell you a lot of air movers for 100K!), b) continuing royalties, c) restricted territories and d) you are continually accountable to “play by the rules”. (This “Entrepreneurial Accountability” can be a good thing!)