Living next door to…
Today I’ve talked to my former classmate who was the franchise owner for at least the last five years or maybe even more (as I don’t know if the franchise we were speaking about was his only one). When he learned that I was editing my personal franchise blog he told me an interesting fact from his business experience. It can be useful while studying a prospective franchise agreement.
So my friend is the owner of a small franchise business related to food industry. When he was choosing the franchisor company to work with he spent a lot of time comparing different franchise agreements. At least he opened a small restaurant and was enough happy as the main company provided everything that had been promised for the initial fee. By the way the fee also was not too high, and as a result my friend had almost no problems with finances for his new business. I need to say that he was an enterprising person with good knowledge of business and marketing. And not only this! He was enough lucky on the one hand, and far-seeing on the other hand to surround himself with good specialists. So the result was even better that promised by the official statistics for that kind of franchise business in that region. He was happy. He managed not only to earn money operating his personal company but also he was doing something for people, he impacted their lives by selling good products they really needed. In a short time he had a lot of clients, and many of them recommended his company to their friends and relatives. It was like a business paradise…
As usual in true life stories then comes a huge BUT.
But as some time have passed he found his business going to shutdown. He really could continue it but the overall situation in that area moved him to make the decision of closing. What has happened with that prospering business?
Unfortunately the business of my friend was destroyed by his franchisor. How could this happen you may ask. Is there any franchisor that is willing to annihilate its milch cow? No, for sure. But the situation could become reality for most franchisees.
One day my friend has found another restaurant of the same franchisor opened not far from his place. The franchisor company has conducted a kind of analysis and found high profitability of business in that region (it was for sure… My friend has slaved away in order to make it so profitable). And as a result they gave an advice for their next franchisee that he could start his business in a very profitable environment.
As a result my friend has lost a considerable part of his clients who were not devoted to his place so much. He had even lost some of his regular customers. They decided that another restaurant is a product of my friend’s business development. So they have thought that there’s no difference between that two places.
My comment to this story is the following:
Read your franchise contract very carefully. You should examine it on the topic of yours and your franchisor’s business rights. And there should be a statement on the area you are working solely at. You shouldn’t agree to start a business in the area inner competition could destroy your business.