Thoughts on Starting a Business – Part 2

I am considering purchasing a franchise. In Part 1 of this series, I discussed the types of working environments that I liked and the types of franchise models that fit my working style.

My coach found me some initial franchises to consider. They were:

My research found some additional models. They are:

  • Kumon – an after-school learning program that helps students with math and reading,
  • GeeksOnCall – a franchise that provides computer and networking support,
  • Profit-Tell – a franchise that provides audio marketing and is also a competitor of On-Hold Marketing, and
  • Coffee News USA – a franchise where you sell advertising for a newspaper that is circulated for free in restaurants, hotels, and other businesses.

Investing in a business requires a lot of research. You want to find out how well other franchisers are doing and if the model is really right for you. When you purchase a franchise you are buying a system, a method of conducting business.

The value the franchiser provides you is the knowledge that makes their business concept a success. They have done the research, learned what works, and what is the best way to run their business. This is what you want to learn.

What questions do you ask? You want to ask questions about their success, their problems, and how well the franchiser’s training was. Some of these questions are:

  • Why did you choose this business model?
  • How long have you owned this business?
  • How many hours a week do you dedicate to this business?
  • How long did it take you to earn back your investment?
  • What type of training did you receive?
  • Is the business what you expected it to be?
  • What prior experience did they have?
  • How well are they doing?
  • What problems did they encounter introducing their business to their community?

My coach told me that 20% of franchise owners of any franchise do exceptionally well. They are the leaders of the pack. Since everybody in a particular franchise plays by the same set of rules, you want to know the “how” of what they are doing that makes them successful.

I also ask them about the geographical makeup of their business community. I want to know how well the franchise does in suburban areas and metropolitan areas. Maybe a particular business model is more appropriate to a suburb as opposed to a large city or vice versa.

I concentrated on two franchises, Professional Referral Exchange and Coffee News USA. Both are different types of businesses but share the same goal – helping other businesses.

Professional Referral Exchange is a business networking group similar to Business Networking International. Both provide a forum where member businesses provide each other referrals. Each member business has the opportunity to talk about their business and tell other members what type of people are good referrals.

Professional Referral Exchange limits chapter membership to one member for each business type. For example a chapter may only have one commercial real estate broker, one residential real estate broker, one caterer, one bakery, and so on. This prevents members of a particular business from competing against each other.

Meetings are structured, meet once a week and use the same format week after week. Each business gets about one minute to explain their business. However, one business is featured every week. They receive twenty minutes to explain in detail what they do and who are their potential customers. This method allows all members to teach their business and describe the best referral.

So how do you make money? When you purchase a Professional Referral Exchange franchise you purchase a territory. You make your money by receiving a percentage of each membership fee.

I interviewed both members of Professional Referral Exchange and franchise owners. Members told me that this helped them build their businesses. I also asked them if they could tell me a success story , something that this group provided them that without membership they could not achieve. Each told me that a group member gave them a referral that provided them access to a client that they could not attract on their own. They all believed the $300 yearly membership fee was a good investment.

So far, I’ve spoken with only one franchise owner. She owns a franchise in a city in the Midwest. This city has many larger businesses and has a population of around 50,000 residents.

Her reasons for purchasing this franchise were similar to mine. She worked in the software industry for many years and found herself looking for work when the company downsized. She chose Professional Referral Exchange because she likes working with and helping people and enjoys the flexible hours. This type of business allows you to set your own hours. She invests about 30 hours per week running this business.

She has owned her franchise for almost a year and has not earned her investment back. However, she knows that she will. She is a believer in this business model.

She found the training to be fine. She spent the first part of the week shadowing the trainer, learning how to sell this business. The second half of the week she did the selling while the trainer critiqued her performance.

I suspect that this type of business has the ability to do well both in larger cities, metropolitan areas and smaller cities and towns. You can create several chapters in larger cities and metropolitan areas. There should be enough businesses to support multiple chapters.

This business model should do equally well in smaller towns and cities. Certainly Chambers of Commerces of smaller towns and cities have merged into regional Chambers of Commerce. However, I see no regional benefit for this type of business.

Professional Referral Exchange is a training and referral organization. Each membership covers its own cost. Monetarily there is no difference if a chapter has 5 members or if has 25 members. Certainly a chapter’s size may have an affect on its usefulness, but size doesn’t hinder your chapter’s profitability.

In some ways a chapter may be more effective if it represents one small town as opposed to a region. The sense of community may make the chapter more effective.

Coffee News USA is a one sheet 11 by 17 newspaper that is distributed to restaurants for free. It contains short interesting stories on both sides of the paper. The idea is to provide some interesting news for people to read while they have coffee. You make your money selling ads.

Like Professional Referral Exchange, only one entry in a business type is allowed. For example, if a residential real estate broker buys ad space, no other residential real estate broker can advertise in your paper until the initial one chooses not to continue advertising. This is a selling point. It provides the ad buyer exclusive space in your paper.

No restaurant ads are allowed. This makes it easier to distribute the free papers in restaurants.

I was attracted to this concept for a few reasons. I come from a publishing background. While my field was technical writing, I interfaced with printers and did some desktop printing design.

I also enjoy working with small businesses. I am actively involved with my Chamber of Commerce and want to help small businesses succeed.

One of my fascinations is with the art of selling. Although I have had problems selling in the past, I have improved. One of my goals is to be a successful sales person.

The basics of this franchise are simple. The franchiser provides you with most of the stories. One section of the paper is reserved for local news. I would write that section.

Since I have some design experience I would design the ads. Obviously I sell ad space and distribute the newspaper to the restaurants.

Once I sell and design the ads, I include the supplied content and my blurb of local news. I save this and convert the file to a PDF. I can use the Coffee News printer or choose a printer of my own. Franchisees tell me the Coffee News printer provides the least expensive prices. They specialize printing this type of newspaper.

The first person I spoke to has been in this business for 5 months. His territory is in a community that I know well.

This gentleman is not doing that well with this franchise. He is quite honest; he is new to selling and doesn’t like just walking into a business and selling his product face-to-face. He schedules business appointments.

I respect this approach but I see it as a path to doom. In sales you certainly have to be polite and respectful but I also believe you need to be aggressive. I find nothing wrong to walk in a business unannounced when it is not busy and talk with the owner. If a customer comes in during my presentation I would step aside and allow the owner to assist the customer. I feel comfortable with this approach.

Sales are not going well for this person but they are picking up. He hasn’t earned his investment back yet.

There is good news. He believes strongly in this business and believes that it will be successful. He found the training very helpful. He went to the training before purchasing the franchise. The training sold him on this business model.

The second person I spoke with was doing well with this model. His background was sales. He has owned the franchise for 2 years. He has earned back his initial investment.

Although he is doing well he pointed out that selling is not easy. Many customers are hesitant. However he releases an issue every week so it appears he understands the model.

We spoke a lot about doing marketing analysis. He pointed out it is important to know where your potential clients spend their advertising dollars. For example, many businesses advertise with coupons (like ValuePak) that are sent to each household via traditional mail. They can be less expensive. If they find this method effective you need to present a compelling reason why Coffee News USA is a good investment.

I am looking forward to talking with one other Coffee News USA franchise owner. This lady is one of those in the top 20% who is making money. Everyone I’ve spoken to has told me to speak with her. She is making money and is buying additional franchises.

Buying a franchise or starting a business requires patience and a game plan. The biggest mistake you can make is to quickly buy into a concept. It may sound good and you may believe that it is the greatest idea ever. It may be. However, that does not necessarily mean that you will make money. The key is that potential customers believe that it is the greatest idea ever.

So what is my game plan? I plan to continue keeping an open mind and talking with the franchisers of all the different models. I do plan to give some extra effort to Coffee News USA since it has caught my interest.

I have some sample copies of the newsletter. I plan to distribute some to restaurants in my area and see if they generate interest. I’m thinking of attaching a sheet and asking people to check yes if they enjoyed the paper and no if they don’t.

I will also leave a copy at my local Chamber of Commerce and see if the paper attracts any interest. I will also show it to some of my friends who own businesses.

I will ask the Chamber and my friends what they think. I will ask them to be brutally honest. I am not offended if they tell me that this is the dumbest of all the ideas I’ve had. When investing, honesty is the best policy. I will also ask them if they would advertise in this type of paper.

I also plan to display samples in communities where I am a stranger. This is the true test.

I always find it hard to sell to family and friends. When you sell to strangers, the sale is made based on the product and you sales pitch. When you sell to friends or family, you don’t know if they are buying because they find the product useful or because they want to help you out. If the product garners interest in other communities, that might be the sign that I have a product that is worth looking into.

I haven’t forgotten Professional Referral Exchange. Since Business Networking International (BNI) is similar, I plan to attend one of their meetings as a guest. I want to see firsthand what goes on in this type of meeting.

I also plan to talk with my Chamber of Commerce. I plan to ask them questions about BNI. I want to see if they view this organization as competition. If so, then if I purchase a Professional Referral Exchange franchise I might do it in another area. The Chamber has been good to me. I don’t see any reason to burn any bridges.

I may write some letters to the editors of local newspapers. I will ask if businesses are interested in organizations that provide training and referrals.

Lastly, I may also conduct the research described for both franchises in a completely different area of the state. It may be useful to see if one or both franchises fare better elsewhere.

Please share your comments with me if you are familiar with any of the franchises discussed in this article.

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