Why do franchisees buy franchises?

Research by the Franchise Advisory Centre indicates there are several key motivating factors for the decision to buy a franchise. While most of these factors will be present for different people’s decisions, the relative importance given to each of these will vary from one person to another, resulting in unique combinations which might arrive at the same destination, but take different paths to get there.

These key decision making factors are:

• Lifestyle
• Brand security
• Self-direction
• Income
• Skills development

Lifestyle

By far the greatest factor in the decision to buy a franchise – weighted at 33% – is the perception that franchising will provide an improved lifestyle. Rarely will two people agree on what lifestyle actually is, yet it seems to be something that the overwhelming majority of new franchisees and small business owners value and want.

What “lifestyle” is or should be will vary according to individual circumstances, such as age, gender, likes, dislikes, hobbies, sporting interests, family, friends and so on. Lifestyle for some people might involve playing lots of golf, while for others it may mean spending more time with their children. For others, it might mean less stress in their working life so that they are able to enjoy their home life more, even though their working hours may not change.

Lifestyle is often considered to be synonymous with leisure. In other words, a quality lifestyle may be one that involves lots of leisure time or activities. Many franchises are even promoted on the basis that operators will enjoy a good lifestyle, with the inference being that they will have more time, income or both to pursue their leisure activities.

Lifestyle for most people is not seen as work, but rather the outcome from work. Even though the nature of the work itself may provide lifestyle benefits (eg. travel, social interaction, outdoor activity, etc) these may not be the same leisure benefits sought by a buyer (eg. greater time for family, hobbies, etc).

Despite its role as the greatest factor in the decision to buy a franchise, the concept of lifestyle is also dependent on many non-business factors. It does not automatically follow that buying a franchise (or any other type of business) will result in an improved lifestyle. Additionally, lifestyle “needs” change over time. For example, people who choose a certain type of business in the hope of being able to spend more time with their children may find the business no longer suits this need if the children have grown up.

Brand security

The next greatest contributing factor to the decision to buy a franchise is the strength of the brand and the support provided by the franchisor (a decision weighting of 27%).

Potential franchisees perceive that franchisors will provide complete training, knowledge, skills and ongoing support in the total front and back end operations of a franchised business. The perception that the all-knowing franchisor will steer the franchisee on a course to prosperity is often based on the success stories of other franchisees in the network, the demand for the product or service in the marketplace, and the franchisor’s own recruitment advertising and PR.

Potential franchisees – especially those going into business for themselves for the first time – place a premium on going with a business model that is tried, proven, or otherwise appears successful. By doing so, potential franchisees also assume that the risk of business failure is either eliminated, or massively reduced. The reality is that no business venture is without risk, but franchising is nonetheless perceived to be safer because of the franchisor’s experience, knowledge and support.

Self-direction

A third contributing factor to the decision to buy a franchise (weighted at 19%) is the concept of being your own boss, calling the shots, taking charge, and setting your own direction in life.

People who have lost their jobs, or worked in unstable industries or for employers with volatile businesses, poor workplace practices or high levels of staff turnover attach greater importance to controlling their own destiny, and see self-employment through franchising as a way of achieving this control.

Buying a business is the ultimate form of economic self-determination. Business owners don’t need to worry about a bad boss, and can control the work practices and stability of the business.

Taking control through becoming your own boss might solve these problems, but also replaces them with entirely new ones, such as meeting market demand and dealing with competitive forces.

Income

In the research, income was perceived as a much smaller contributor to the decision to buy a franchise. Ranking fourth after lifestyle, brand security and self-direction, income for many potential franchisees appears not to be the most important factor in choosing a franchise.

There may be several reasons for this. One is that potential franchisees assume that the income from their business will at the very least match their previous wage or salary, but often arrive at this assumption without any financial analysis to prove that the business is capable of supporting owner’s drawings at such levels.

Another reason is that the franchisee may place greater emphasis on lifestyle, and therefore decides to trade off income in order to achieve their desired lifestyle.

A further consideration may be that information about income is rarely available from franchisors. Franchise recruitment literature usually promotes lifestyle, the support provided by the franchisor, and the opportunity to be your own boss, but seldom discloses financial information. Advised by their lawyers not to provide financial data for fear of making representations, franchisors are conditioned not to offer this information, and potential franchisees may not pursue it in detail if the idea of lifestyle, support and self-direction are ultimately more appealing.

Skills development

The last of these main factors in the decision to buy a franchise is the development of new skills (weighted at just 3%). Potential franchisees who have been in the workforce for 10-20 years may find that their job is no longer fulfilling or challenging, and that future prospects for advancement are limited or non-existent. The alternative of starting their own business can be very exciting and involve new experiences and the gaining of new skills, confidence, contacts and self-esteem not previously available as an employee.

A potential franchise may look to a franchise to deliver these skills through a combination of the formal and informal learning provided in the franchise network, as well as the person’s own desire to learn in order to succeed.

In conclusion…

If you are reading this article and are contemplating buying a franchise, chances are your decision-making process will be largely governed by these five key factors. The relative importance you attach to each factor will be different from other people on the same search.

The weightings you apply to each major factor will change according to your personal circumstances, and even change after you have bought a franchise as you rationalise the purchasing decision to yourself.

For example, while lifestyle might appear to be important at the outset, lifestyle alone will not pay the bills and therefore the requirement for an acceptable income may rise in importance following the purchase of a franchise.

Once you know what relative weighting should apply to each of the five key factors for your franchise buying decision, you are ready to start looking for brands that meet your criteria.

Be sure to undertake adequate due diligence before making a final purchasing decision. A good rule of thumb is to allow one hour of your time on due diligence for each $1,000 to be invested in the business.

Then, if the business is the right fit, be sure to review your buying criteria over time to ensure it continues to meet your needs.

Jason Gehrke is a director of the Franchise Advisory Centre and has been involved in franchising for 18 years at franchisee, franchisor and advisor level. He provides consulting services to both franchisors and franchisees, and conducts franchise education programs throughout Australia. He has been awarded for his franchise achievements, and publishes Franchise News & Events, Australia’s only fortnightly electronic news bulletin on franchising issues.