Mistakes Will Cost More Than You Think
Most people who start independent business, i.e. not afranchise, eventually will say: “I made too many costly mistakes.” Thosemistakes may or may not kill the business, but they will reduce the amount ofmoney that an owner can pay to him or herself.
Do independentbusinesses survive?
There’s no clear answer to the survival rate of independentbusinesses in America, except that every report, regardless of who issues it,never favors the success of independent businesses. Failure rates arereportedly high. In America, for example, the rule of thumb is that half of allnon-franchised business startups fail within 12 months; and 85% fail withinfive years. Who wants to risk their life savings with those odds?
Of course, many entrepreneurial-minded people will say, or convincethemselves, that they can avoid the mistakes. “I’ll do my homework. I’ll takemy time. I’ll avoid the mistakes.” And yet, it never works that way becausemost independent startups fail.
Why business mistakesoccur
What’s to starting a business? Especially businesses thatappear to be simple: cleaning, business services, retail shops at the mall, andfood businesses, especially pizza and desserts. Many people believe – andperhaps correctly so – that they can improve the products or services providedby franchises.
And so they make their own pizza, or they develop a new maidservice, or handyman service, or ice cream parlor, and they invest $150,000 to$500,000 to set up their own business. And what happens? They run out of money!
Why businesses fail
Here’s the curious thing. If their product or service wasbetter – and let’s agree that it was – what happened? Why did they run out ofmoney? The answer is easy: Too many costly mistakes.
Can you sell what youmake?
There are countless mistakes to make, but one of the worstis assuming that you can market and sell what you make. Everyone tells you thatyou make a better pizza than the franchise chains. But what they don’t know,and you don’t know, is that you don’t know how to market and sell pizza . . .or handyman services, or maid services, etc. And even though you spent moremoney than you intended testing out marketing ideas, nothing produced asatisfactory return on your investment. Eventually, you ran out of money!
It’s easy to make mistakes, and most of the time you won’tknow that you’re making them. It’s only when you realize there’s no more moneythat you look back and ask: “What happened?”
Should you buy afranchise?
What happened is that you didn’t buy a franchise. Whathappened is that in spite of making a better product, or delivering a betterservice, you didn’t understand human behavior. Franchisors understand why, whenand how consumers buy products and services. And that information is moreimportant than the product or service itself.
Don’t be fooled by people who tell you, “You can do ityourself. You don’t need a franchise.” You probably do. Of this you can besure: If you buy a reputable franchise, the franchisor’s training will save youfrom making costly mistakes.
In addition, you’ve got one other advantage to protect yourinvestment when you buy a franchise. Every U.S. franchisor must provide adisclosure document to prospective franchisees. You can use that document tohelp you determine the success rate of franchises in that specific franchisenetwork. Need help doing that? We’ll tell you how in a future blog article.
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