Franchising: For Better or Worse?

Posted on July 7, 2010

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For entrepreneurs, franchising often seems like a very attractive option. It’s a way for small business owners to immediately attach themselves to an established brand. And, whereas starting a business from scratch requires lots of networking, marketing and advertising to even begin the process of cultivating a customer base and building a name for oneself, franchises usually come with loyal customers, established reputations and instant name recognition among the public. (Not that marketing and advertising aren’t also necessary when opening a franchise, but much of the groundwork has already been laid by the parent company/franchiser.)

There are dangers to franchising as well, however, and perhaps there is no clearer example of these potential perils than the recent Gulf Coast Oil Spill crisis. Currently, thousands of small business owners who operate BP franchise stations are suffering the consequences of bearing the name of a company associated with an environmental disaster. Facebook groups like “Boycott BP” and other grassroots efforts are keeping customers away from BP stations. So, despite having nothing to do with the parent company’s mistake and actions, it is the franchisees bearing their own economic costs/losses for the catastrophe.

BP has tried to mitigate some of these consequences for their franchisees through television and radio ads asking the public not to forget that BP stations are owned by individuals, and not BP itself, but it remains to be seen what effect, if any, the PR campaign will have on where the public purchases its gas.

As I see it, the take away from all of this is not that franchises are evil or that they’re an incredibly dangerous liability for entrepreneurs, but rather that each and every business owner, whether a franchisee or independent entity, must always have a “worst case scenario” plan.

I imagine that most BP station owners never imagined it possible for an ongoing oil spill to develop underneath the ocean’s surface, and of course, not all catastrophes are conceivable. However, it is possible to review what could go wrong in any business, environmental and/or economic situation, and be prepared with a plan B, C and D in the event such occurrences do arise.

Have you saved for rainy days? Can you recall products if necessary? Are you prepared to apologize for public snafus? What would you do if it all started to go South tomorrow?

All entrepreneurs dream of success, but preparing for failure may be just as integral to that success as the quality of your product, customer service and available resources.

Mike Goodrich
Goodrich Law Firm, LLC

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