Sunday, September 25, 2011

Buying a Franchise or Starting on my Own?

Buying a franchise is the safest way to start a business. If someone can afford it, going with a franchise will help protect your investment.

Franchising is where someone has taken a successful business or concept, perfected it and then duplicates it. In most cases buying into a franchise is the safest way to start a business. Quoting the book The E-Myth Revisited, “Over the course of one year, Business Format Franchises have reported a success rate of 95% in contrast to the 50-plus-percent failure rate of new independently owned businesses. Where 80% of all businesses fail in the first 5 years, 75% of all Business Format Franchises succeed!”

If you start your own business with $50,000 and fail, you lose $50,000. If you buy a franchise and invest $100,000 and succeed, it did cost you more to get started but not only did you not lose your 50k but now have a thriving business which is not only provided a good income, you are building equity for when it comes time to sell.

If the average success rate of a franchise company is 75%, then that means half of them are below 75% and are half better. Why not only look at those with a 90% or better chance of success? To do that you will need to do some research or get help from a qualified consulant.

There are many reasons to buy a franchise. First it is a proven concept. They give you a road map to being successful. Buying power, marketing help, accounting procedures set up, employee hiring practices are taught, salesmanship and other special practices are taught to the owners. Customers know if you are a franchise, you will be consistent, give good service and you will be around for years to come.

Is it cheaper to start your own business or to buy a franchise? Just ask the 80% of independents who have failed.

Saturday, September 17, 2011

How safe is a Biz Op

Business Opportunities sometimes referred to as “Biz Op’s or Licensing” is a type of business ownership where a person usually buys a new start-up company (non-franchise). There are very few regulations and laws governing “Biz Op’s or Licensing” and therefore there are many illegitimate and scams with this type of ownership.

Most of the time these type of businesses cost much less than a franchise because they do not give the owner as much help as a franchisor would give. Most of the time they have a high failure rate since they are not regulated very much. Besides giving little help they do not have to disclose their failures. Biz Op’s in my opinion are normally a bad investment. You can sometimes pay much as a franchise to open this type of business yet get no or very little in help in starting or operating it.

There are some good Biz Op’s but most are kind of scary to get into. If you do decide to look at one, research those owners of the company to see what their backgound has been. Be sure to look and research all those owners who have closed their doors. If the company will not give you the list of those closed, do not buy. Also if a company gives you flowery earnings claims without back-up and proven data, then it is probably a scam. Usually they will point to one or two people who have made a lot of money and suggest you can do the same. There is probably a good reason those one or two people have done well. It might take some digging, but if you are serious, it might be worth getting out the shovel.

Just remember most people who buy Biz Op’s or Licienses lose their investment. If you do proper research, you will not be one of them.

Thursday, September 8, 2011

Multi Level Marketing

Multi Level Marketing (MLM) has been a quick way to get a company’s product or service into the market place. It seems these type of companies can spring up and grow rapidly. They can be over night successes or failures.

Multi Level Marketing according to Wikipedia “is a marketing strategy in which the sales force is compensated not only for the sales they personally generate, but also for the sales of others they recruit, creating a downline of distributors and the hierarchy of multiple levels of compensation.” Sometimes MLM has been called Network Marketing, Referral Marketing and sometimes Pyramid selling.

There is a fine line between multi level marking and pyramid selling. Pyramid selling is illegal because it is too easy to cheat the buyer. Pyramids are usually low cost investments where the buyers invest money where little or no product or service is rendered. They buyer invests a little money in hopes when others in their downline sign on they will get a piece of the action. Most of the time exaggerated earning claims are given. Chain letters, Ponzi schemes and other consumer fraud scams are prime examples of pyramid type selling. The crook, Bernie Madoff was involved in a high cost pyramid selling. Many fortunes have been lost in this type of pyramid selling.

MLM marketing has succeeded over the years for the most part because they usually sell a legitimate product or service. But there have been many lawsuits with these companies trying to defend themselves. MLM is not a fully regulated business model so there are many exaggerations being made with very little proof of income. Some people can do very well financially if they have the right personalities, work ethic and personal contacts. Usually these companies will point out a few very successful members but never tell you the negative side of the business.

Most of the time these MLM companies are honest and legitimate businesses with well known names, but they still have their own baggage they don't want to talk about. Usually it is a high failure rate or lawsuits from its members (they do not have to disclose). Well known names like Avon, Tupperware, Kirby, Nuskin, Amway and hundreds of others have used MLM to expand the sales of their product.

I have known some who have become millionaires in MLM and some who have made a good living for a number of years. Mostly I have known people (including myself) who have bought into a MLM business and have quit within a short time. Most people joining these businesses never make their investment back. Since it only cost them a few hundred to a few thousand dollars to join, they chalk it up to experience and move on.

As reported in Wikipedia, they quoted “The Times”, "The Government investigation claims to have revealed that just 10% of ____ (one of most popular MLM company) agents in Britain make any profit, with less than one in ten selling a single item of the group's products." According to Newsweek, in one very popular MLM companies own disclosure statement, “fewer than 1 percent qualified for commissions and of those, only 10 percent made more than $100 a week.”

The USA today had several articles on MLM. Here is what they reported.
• While earning potential varies by company and sales ability, DSA says the median annual income for those in direct sales is $2,400.
• In an October 15, 2010 article, it was stated that documents of a MLM called ___ reveal that 30 percent of its representatives make no money and that 54 percent of the remaining 70 percent only make $93 a month. The article also states ___ is under investigation by the Attorneys General of Texas, Kentucky, North Dakota, and North Carolina with Missouri, South Carolina, Illinois, and Florida following up complaints against the company.
• A February 10, 2011 article stated "It can be very difficult, if not impossible, for most individuals to make a lot of money through the direct sale of products to consumers. And big money is what recruiters often allude to in their pitches."
• "Roland Whitsell, a former business professor who spent 40 years researching and teaching the pitfalls of multilevel marketing": "You'd be hard-pressed to find anyone making over $1.50 an hour, the primary product is opportunity. The strongest, most powerful motivational force today is false hope."

If you go into and Multi Level Marketing, realize the deck is stacked against you. If you have many contacts outside of your family, friends and are willing to give them a sales pitch, if you are outgoing and have a gregarious personality and if you are willing to work long hours during the evenings, then you might be able to make some money in MLM. If you are planning on selling family and friends, it is the fastest way to alienate yourself from them.

If you do go into MLM, just don’t call me to join for I want to stay your friend.

Saturday, September 3, 2011

Many Ways to Own a Business

There are a few types of businesses a person can own. Over the next couple of weeks I will talk about a few of them. They will include what is called Multi-level marketing, Business Opportunities, Franchising, buying an existing business and starting your own from scratch.

Over the years of have been involved with all of them. I will tell you the good and bad about each. Becoming an entrepreneur is not easy and seems to be a curse or a blessing. If you do it the wrong way, it is a curse. If you do it the right way, it can be fun and very rewarding.

How do you know which is right for you? Read some of my thoughts over the next month and maybe you will have that question answered for you. Remember to always do your homework and don’t let emotions of the moment direct you.

If you know anyone about to start or buy a business, have them read my blog these next few weeks.