risks at Business Franchise

I found the information on two more eBay franchises. In my previous posts I described iSold, NuMarkets Franchise Program, QuickDrop Franchise Program and Ebay Drop Off Stores.

Today I want to write about an interesting one. They decided not to take a franchise fee and as I understand consider this as the main point of their franchise program. The title says for itself: “Auction Post Inc.’s No Franchise Fee Program”.

To tell you the truth I’m not sure that I completely understand why they do this. It seems for me that they operate like educational courses explaining how to use eBay for drop-off operations. This training will cost you $9,995 but as I see it’s the only money you have to pay them. Maybe it’s a part of their promotional strategy and they are trying to attract franchisees on the first stage… Maybe it’s the way they are trying to get a bigger market share… Maybe this is not the only program created by the company and they are promoting other Internet projects with the help of this one… Anyway the idea seems to be rather attractive.
Franchise program includes:
- guidance on setting up and running your store;
- training program based on their e-auction experience:
- operational consulting.

So I can find only the following risks when starting this franchise:
- their experience can be not enough for you and as a result training can be not so good;
- as their operational consulting is free for you can’t make high demands to its quality.

But you can get more information on that points (as you know them) asking other franchisees and studying the documentation.

The other eBay franchise I’m going to write about is called Snappy Auctions Franchise Program. As I realized it’s not so famous (maybe rather new one but I couldn’t find the information). It’s very common to the other eBay franchises. The franchisee has to follow their guidelines strictly when setting up the store. The program includes both types of payments to the franchisor:
- franchise fee is $15,000;
- Royalty payments are 2 - 4%.

My conclusion:
If you want to start a drop-off business based in the modern informational technologies (like e-auctions, Internet bidding and so on) you have a lot of franchise programs to choose from. They only thing you have to do is to compare the money you spend with the services and help you get from your franchisor.

Ok… Few more words about declining a business idea. I’ve already mentioned very important factors: demand for good or service, possibility to win the competition, capital requirements and economic results, and risks. The last I want to speak about are the following:
A) problems with raw materials;
B) ecological problems;
c) public opinion.

For most industries and businesses raw materials play a big role. They represent costs and influence price of a product. Of course, for services they are not so important but still you need to think about them:
-where you plan to buy them;
-who are your main and alternative suppliers;
-is the price for each item stable or it fluctuates;
-is there a deficit material and is it easy to find a substitute and so on.
The main thing about materials is that your customers are not interested in your problems with them. Buyers want cheap products and that’s all… And if you can’t satisfy them you’ll loose your business.

Ecological movement is growing in strength. You need to evaluate your business idea from the following conditions:
-will my business pollute the air, water, and so on;
-is there any risk of accident that can do harm to the ecological situation in the town or city, or region.
While evaluating a business idea it’s necessary to remember that ecologists and environmentalists live among your prospective buyers. They can either improve or worsen your reputation.

Public opinion is the last but not the least in that list . It’s clean that it influences demand greatly. I’m not going to explain such an easy thing but will give only and example. In early 90s the market economy came to the former communist countries. At the same time most people had not enough education and business way of thinking. But everybody wanted to live better and to earn money. Many people were involved in network marketing and….. many of them lost money. Why? There were many reasons and I don’t want to discuss them in this article. The main thing I want to bring to notice that till today many famous network companies (already successful in US or UK) face the problems to overcome the public opinion that states: “Network business is not a business but a skullduggery”.

I hope I proved that it’s necessary to evaluate your business ideas before even thinking about investment. And thank you for your patience while reading all of my thoughts!

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.

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