Declining an idea
So, in the previous post I expressed my opinion about necessity to evaluate the idea before starting a business even if you were buying a franchise. Many people forget about it. They think that if the franchise chain has many franchisees and they operate with profit the new business also will be a success. But as there no identical children there are no identical markets and businesses. Information from other franchisees is useful but not sufficient to make such an important decision.
Last post was dedicated to market demand as a factor influencing franchise idea. Now I want to speak about the others.
The second thing to evaluate is competitiveness of goods and services your business is going to sell. You need to study the market competition as serious as possible. Visit the shops or restaurants of competitors – both franchise and non-franchise. Listen to what people are saying about their products. As a result of your survey you need to become sure that you product has real advantages over theirs. If not - I suggest you not to buy this franchise for this market. Think about other idea or maybe other region.
What advantages can be considered as real and competitive? Certainly, there are a lot of them. Here I’ve listed the main:
-price;
-discounts and possibility to get them;
-quality;
-technical and economic operation factors;
-prestige of a trademark;
-convenience of packing;
-guarantee period and conditions;
-post-sale support and services;
-reliability;
-payment terms;
-credit conditions;
-advertising and other promotion activities;
-delivery services and so on.
The next factors require some economic calculations. I mean that you need to decline an idea if capital investment is too high and/or economic efficiency is too low. I plan to dedicate a special article to economic efficiency in future. Here I’ll only say that you need to be sure that future profit will cover initial investment in not more than 5 years (in general) and your personal income has to be greater than interest you could get for your personal savings.
Also the idea must be considered as unfavorable because of high risk factors. Thinking about risks you need to take all of them together and consider their probability.
Ooh! Only three more factors remained… I need to have a break… and will continue in the next post.