So You're Thinking of Starting a Business

Here's my latest column in the German magazine, Business Spotlight.  It's quite applicable to Americans. 

So You're Thinking of Starting a Business

My father was a Holocaust survivor. He was psychologically healed not by psychotherapy but by work, by owning his own small business.

Perhaps owning a business can heal you, if only financially. And in today's slow economy, many people need financial healing.

Of course, most new businesses fail, but this article can help you beat the odds.

First some reassuring news: You don't need a new idea. Indeed, new ideas are more likely to fail--guinea pigs often die, the leading edge often is the bleeding edge, choose your metaphor. Large companies have deep pockets and can afford failures but you may not have such deep pockets. If you don't, a wiser rule may be: Don't innovate, replicate

So, for example, you might pick a proven business concept. For example, in the U.S., food trucks are big--selling sandwiches, burritos, felafel, etc from a truck parked in a high-foot traffic area---A great location with no rent, a great combination. Just visit a few successful food trucks and incorporate their best features in yours. Then hire one or more of the business owners as a consultant to help you launch your business. They well may agree, even if you ask for them for free advice. Many people are flattered to be asked and enjoy sharing what they know. If they're worried about your opening up shop near their place, agree not to.

But if such an unstructured approach is not for you, it might be worth paying the usually stiff fee for the more structured handholding provided in a franchise.

Alas, the workplace battlefield is littered with dead-broke franchisees so you must be extremely careful before plunking down the tens or often hundreds of thousands of euros it costs to buy a franchise.

These sites profile some of the many franchises available in Germany: http://www.franchisedirect.com/internationalfranchises/germany/76/ and

http://www.franchiseek.com/Germany/#.T8KhedVfHRY

But which, if any franchise should you choose?

According to Franchise.org, in Germany "there are no specific laws or government agencies that regulation the offer and sale of franchises." So it is wise to ask these questions.

Questions for the seller of a franchise (usually called the franchisor)

1. Describe what you'll be providing me.

2. Describe what your most successful buyers of your franchise do that average and below-average ones don't.

3. What are all the costs I'll be required to pay, both upfront and after the franchise is up and running?

If you're satisfied with the answers to those three questions, go on to these more probing ones:

4. May I see a spreadsheet showing last year's profit for each of your franchisees? Far less helpful would be a verbal representation, for example, being told the average or projected profit. Even if the seller gives you the spreadsheet, it is important to ask:

4a. May I have a copy of the current complete list of the buyers of your franchise and those who have sold or closed the business in the last two years? Of course, it's better if you can pick from the complete current list than to have to rely on a few hand-picked by the seller. The seller may reasonably withhold that list until you've demonstrated you're serious, for example, by completing a long application form.

If the seller gives you only a few names, you may find others by Googling the franchise's name.

5. What lawsuits are in process, especially, disgruntled franchisees or claims against patent.

Supplement their answer by Googling the name of the franchise plus the words "lawsuit," "complaints," "scam," and "reviews." A small amount of litigation is common even in good franchises but an excessive amount is a red flag.

Questions for people that have bought the franchise

It is critical that you speak with five to ten franchisees by phone and one or two in-person.

Tell each franchisee your strengths, weaknesses, work preferences and time availability and ask:

1. Now, knowing the franchise and a bit about me, do you think I'd be wise to buy one?

After getting an answer to that key overall question, ask about some or all of these:

a. the quality and pricing of products the seller requires you to buy b. the seller's ethics and the ethics inherent in this business. c. the accuracy of the provided estimate of costs d. satisfaction with the training provided e. satisfaction with the ongoing support f. satisfaction with the marketing support g. the typical work week, and how it's spent (including marketing) h. the skills that are critical to succeeding in this business i. Would you add another store/territory if you could?

Questions to Ask Yourself

1. Am I a self-starter, not a procrastinator? Often, long hours are required--and no one will be supervising you to make you work all those hours.

2. Am I willing and able to sell and market? For example, have you, in the past, consistently been able to close deals while remaining ethical?

3. Will I follow the franchisor's system? Everyone says they will, but many franchise buyers fail because they don't.

4. Does this franchise capitalize on my strengths and preferences? For example, cold-calling, night/weekend work?

5. Am I resourceful? Will I usually be able to solve the frequent problems that arise in running any business?

6. Am I resilient when setbacks occur, or am I too likely start procrastinating?

Questions to Ask Before Buying a Franchise or Business Opportunity

I recently gave a talk on how to vet a franchise or business opportunity. I thought you might like to see my handout. 

Questions to Ask Before Buying a Franchise or Business Opportunity

Keynote Address by Marty Nemko

Work at Home Business Expo, Apr. 29, 2011

The Office of the California Attorney General's site on business opportunities http://oag.ca.gov/consumers/general/business_opportunities  says:

Running a successful business involves hard work with long hours and substantial risks... Beware of any business offer that promises quick riches and short work weeks:

·        Be skeptical about earnings claims that sound too good to be true;

·        Obtain and review the state's required disclosure documents before you give the seller any money;

·        Talk to others who have purchased the business opportunity, but watch for people who are paid to be references or shills;

·        Do not automatically assume those promises of prime locations, speedy repairs and ongoing assistance will be there when you need them.

Here's a link to the Federal Trade Commission's similar but more extensive advice on how to evaluate a business opportunity: http://www.ftc.gov/bcp/edu/microsites/moneymatters/jobs-business-opportunities.shtml

Asking these questions can help you decide which if any business opportunity you should consider buying: 

Questions for a Franchise or Business Opportunity's Seller

1. Describe what you'll be providing me.

2. Describe what your most successful buyers of your business opportunity do that average and below-average ones don't.

3. May I see the SAMP Registration or Franchise Disclosure Document (FDD) you've filed with the state? (Sellers are required to provide it at least 48 hours before accepting payment. A sample SAMP is at www. oag.ca.gov/sites/all/files/pdfs/.../Sample_SAMP_Registration.pdf)

The document is required to include, for example, all costs and any lawsuits against the seller: disgruntled buyers, claims against patent, etc. Supplement by Googling the name of the business plus the words lawsuit, complaints, scam, and reviews. Ask the business owner about any litigation that worries you. A small amount of litigation is common even in good business opportunities but an excessive amount is a red flag.

The document reports only the range of buyers' income so ask:

4.  May I have a copy of the spreadsheet showing last year's profit for each of your business opportunity's buyers?  A verbal representation, for example, being told the average or projected profit, is far less helpful. Even if the seller gives you the spreadsheet, it is important to ask:

5.  May I have a copy of the current complete list of the buyers of your business opportunity and those who have sold or closed the business in the last two years? Of course, it's better if you can pick from the complete current list than to have to rely on a few hand-picked by the seller. The seller may reasonably withhold that list until you've demonstrated you're serious, for example, by completing a long application form. 

If the seller gives you only a few names, you may find others by Googling the firm's name.

Speak with five to ten buyers by phone and visit one or two in-person.

Questions for People Who Have Bought the Business Opportunity

Tell the buyer your strengths, weaknesses, work preferences and time availability and ask

1.  Knowing this business opportunity and a bit about me, do you think I'd be wise to buy one?

After getting an answer to that key overall question, ask about some or all of  these:

            a. net profit

            b. the quality and pricing of products the seller requires you to buy

            c. the seller's ethics and the ethics inherent in this business.

            d. the accuracy of the provided estimate of start-up costs

            e. satisfaction with the training provided

            f. satisfaction with the ongoing support

            g. satisfaction with the marketing support

            h. the typical work week, and how it's spent (including marketing)

            i. the skills that are critical

            j. Would you add another store/territory if you could?

Question for Potential Customers of the Product/Service You'd Be Selling

1. How likely are you to repeat-buy this service or product? Buy a few samples so you can show them to at least a handful of sample potential customers. Tell them the price. Sometimes, friends will buy one time from you as a favor and then go back to buying a bigger-brand-name or less expensive product. Urge them to be honest about whether they're likely to repeat-buy.

Questions to Ask Yourself

1. Am I a self-starter, not a procrastinator? Often long hours are required--and no one will be supervising you to make you work all those hours.

2. Am I willing and able to sell and market?  For example, have you, in the past, consistently been able to close deals while remaining ethical?

3. Will I follow the business opportunity's marketing/selling/service system? Everyone says they will, but many business opportunity buyers fail because they don't.

4. Does this business capitalize on my strengths and preferences? For example, cold-calling, night/weekend work?

5. Am I resourceful? Will I usually be able to solve the frequent problems that arise in running any business?  

6. Am I resilient when setbacks occur, or am I too likely start procrastinating?

Remember the lesson of my dad's story: Never look back, always take the next baby step forward.