by Mark Laughlin

In your quest to find the perfect business for you, for a brief moment, I am asking that you become a visionary. 

Step back and take a long hard look at the industry you are considering.  Then look at ALL the available options within that industry.  Are you entering an industry when the “bell curve” is swinging up?  Or are you entering it when it is flat lining or on the downswing?  How will you know?

Research!  Due diligence (a legal term meaning appropriate carefulness: the degree of care that a prudent person would exercise, a legally relevant standard for establishing liability) and a lot of common sense will be your guiding light.  Are you buying a Montgomery Wards or a Wal-Mart?   Schlitz Beer or a Millers? 

Why do some businesses soar like eagles and others become dust in the wind?  Are you buying a business that is on the cutting edge or on the chopping block?

After the franchiser has wowed you with all their positive attributes, ask some pointed questions.  How many franchises are currently operating?  How many have closed in the last 3-5 years?  How many re-sales have their been in the last 3-5 years?  How many new stores will open this year?  What are the projections for new store openings over the next three years?

Did you feel you got honest answers?  Did the person answering those questions squirm in their seat, sigh heavily or transfer the burden to someone else?  Did they look at the ground or make eye contact with you while answering your questions?  Observing body language may tell you a lot about the honesty of the answers.

Ask the franchiser what sets them apart from their competitors?  What gives them an edge?  What do they have in the planning stages that will gain them a lion’s share of the marketplace?

If the company you are looking at is spiraling to the top of the heap, do they have the infrastructure in place to support the existing stores while opening all the projected new ones?  If you buy a franchise from them, will you be able to get a real person to answer your questions or will you be talking to voice-mail?

If the company has reached a plateau, ask them why?  Are they simply replacing unit attrition and treading water?  If they had 200 units in 2001 and 196 in 2003, your investment might pay less than the interest on your saving’s account.

If the numbers are trending backwards, what do they intend to do to reverse the trend?  Will they implement a changing of the guard (new corporate officers), a new marketing strategy or launch new products and/or services?

I have purchased three franchise businesses.  They have fallen into all three categories.  We made a go of all three businesses, despite the franchisers.  All three had excellent blueprints for running the franchises. 

In our first business venture (a quick print business), we were store number 1184.  I watched the number crest at 1300, then the downward spiral started.  When I sold the business nine years later, the franchise count had dropped to around 600.  When the number dipped below 500, a competitor bought them out. 

Looking back on it now, this franchiser just wanted to sell units.  SELL, SELL, SELL!  That was their only motivation.  The changes that others and I saw in this industry passed them right by.  When they finally jumped on the bandwagon, it was too late.

Our second company (a home cleaning business) was mired in the mud with a stagnant store count of around 200.  When we sold the business four years later, the number had dipped under 190.  This franchiser had a full-time job just trying to outsell his attrition rate. I still have a warm feeling in my heart for these folks.  They would go to the wall for you, if you were in trouble.  The infrastructure and support was in place.  But they struggled internally selling.  They had a good brand name and a caring corporate staff.  They just couldn’t close the deals.

Our third business (a women’s weight loss/exercise business) was chugging on its last legs when I caught up to them.  I loved the concept and felt there was a niche for this type of business in my marketplace.  But the CEO refused to drastically alter the blueprint he put in place in the mid-80’s. 

I was in PC mode; he was in fax mode.  I wanted to cross over to using Val-Pak and Money Mailer coupon advertising; he wanted stick with traditional newspaper ads.  His company could have been as successful as Curves, if he had changed with the times.  He continues to slug along with 60 units, compared to the 5,000 that Curves currently has open.  He refuses, to this day, to significantly alter his business model.

Selecting the right business is sometimes like playing craps.  A good strong healthy business today can be in shambles in short order if the top brass is unwilling to change with the times.  What’s the old adage, “Don’t fix it, if it’s not broke.”  But if you don’t do maintenance and grease and oil the parts, the machine eventually turns to rust, the hoses leak and the fan belt breaks. 

Does the company you’re looking at purchasing have tunnel vision or peripheral vision? 

Do you want to buy a Wal-Mart or a Woolworth’s?