Healthy Xenophobia - Avoiding the pitfalls of International Expansion

I was asked a question of whether or not I would expand my business internationally should there be a market for my product. I meditated on this for quite some time and, after much tortured deliberation, I came to the following conclusion…..YES. Thank you for reading my blog. Good night!!

Ok, I’ll prattle on a little further on this topic. I think it goes against my entrepreneurial nature to address why I would not pursue global expansion should there be a demand for my product. I believe it is important, however, to do every in my power to avoid the many pitfalls involved in doing business internationally.

Prior to expanding internationally, it is important to review the domestic operation. Do I have a smooth running business? Is my product experiencing strong and growing demand here in the U.S.? The stronger the performer domestically the better shot one has internationally. Of course, there can be examples where domestic demand drags but the company finds success overseas but that might not necessarily lead to relocation versus expansion. Now you’ve decided to take the plunge and try your product in France, for example. What business model works best in France? Here in the U.S. a particular business might work best as a stand alone entity but in another country a franchise might be the way to go. Some countries restrict foreign entities from having total control of a business operating within their borders. In this case you may need to pursue a joint venture with a local firm or individual. Cost is another issue to consider no matter which business model you choose. For the sake of this discussion, let’s assume the best route for entry into France is a joint partnership. This brings up a slew of new questions and concerns. Who will be the best business partner? How do we research potential partners and once found how do we check the references of our new business buddy? A business partner in a foreign land should not be chosen just because by linking up with him allows you to do business in a foreign country. This new business partner needs to bring something to the table as well. Do they have experience in your line of business? Are they connected to the local political and banking networks? Are they wanted for war crimes? Another concern to keep in mind, you need a plan to manage the language and cultural differences between all the countries you make expand into. The U.S. is one, huge market with the added benefit of a shared culture and a common language. Once you expand internationally you can find yourself dealing with multiple language and several confusing cultural differences where a single gaff can mean a serious loss of business. Now you know the How and the Who but what will be the capital requirements? Can you afford to expand into this country? Can you afford the lost revenue as you ramp up operations? Expanding overseas is a lot like starting from scratch and, like the business you built here at home, money was lost in the formative months or years. This will probably happen again when expanding into a foreign market. As you can see, homework is paramount when venturing into unknown territories. What is the labor situation like in the country at which you look to expand? Are labor costs higher? Is there a history of strikes? In France, a striking workforce is second only to soccer as the entertainment of choice. Higher labor costs cut directly into the bottom line. Currency rates can move rapidly and can increase cash flow rapidly or turn a profitable transaction into a money loser in a matter of days. Taxes, the U.S. tax code is confusing enough, throw in the tax code and tariffs of another country and you can quickly become overwhelmed. These costs all affect the bottom line. It bears repeating. Homework is paramount. You need to know as many of the variables in doing business in a foreign country as possible. Costs are a major concern but what about the political stability of the market? Business can be chugging along; smooth as silk, but a country with an unstable political atmosphere can shut you down overnight.

These are all potential scary scenarios but doing business internationally has been around as long as business itself. If you see an international market that can be exploited it is your duty as an entrepreneur to exploit it! It is important to remember, however, to get your ducks in a row before galloping off to France or wherever to expand your empire. Do your homework. Learn as much as possible about every market in which you are looking to expand. Take your time to make sure that you are armed with the knowledge and wherewithal to make your international expansion a success.

JIT Inventory Controls and the Unhappy Meal

It’s a well known fact that many wines improve with age. Hamburgers, not so much.

Many fast food chains, as a method of inventory control, will pre-cook their hamburger patties and place them under heat lamps and, like puppies waiting for adoption at the pound, would pluck them as customer orders would come in. Many a burger connoisseur would find these well tanned, well aged burgers, for a lack of a better word, gross!
Fresher is not just better for the consumer but better and more profitable for the burger joint as well.

Most fast food restaurants prepare the burger when ordered by the customer. Modern technology has made it possible to prepare a freshly made burger quickly so the need to “store” patties is no longer needed. Now the customer is getting a fresher, tastier product and the burger joint no longer needs to discard the unsold and probably inedible hamburger patties. By preparing the customer’s food when ordered saves the company money by reducing waste. So it is a win-win for the customer and the restaurant!
This is an example of Just-In-Time inventory control.

Investopedia defines Just in Time as: An inventory strategy companies employ to increase efficiency and decrease waste by receiving goods only as they are needed in the production process, thereby reducing inventory costs. (http://www.investopedia.com/terms/j/jit.asp)

There are many advantages to this method and a few disadvantages to this inventory control method.

On the plus side:

As we can see from the burger example, a business shows itself as more responsive to the customer by producing a better, fresher product. A fresher burger is also a mark of improved quality. Waste is reduced which leads to a higher profit margin. In addition to the savings from reduced waste a company’s holding costs for inventory is reduced. If a business such as a car manufacturer implements a JIT system then the cost of holding and maintaining their inventory is reduced.

JIT allows business to order and receive inventory as they need it. This shortens the time frame for production and, in turn, since the needed items for production are ordered right before they are actually used, the need to warehouse and store these products is greatly reduced. Many companies, using JIT inventory control, can reduce or even eliminate their storage facilities. Again, reduced holding costs equal greater profit margins.
A related advantage to not holding massive amounts of inventory is protection from the very items they are storing from becoming obsolete and thus being stuck with unusable inventory. A prime example of the advantages of a JIT system is to take a look at the automobile industry in the early 1970’s. American auto makers were beginning to face stiff competition form foreign manufacturers in the early 1970s. Especially from the Japanese who pioneered the use of JIT inventory control. Since Japanese car makers did not find themselves sitting on aging inventory they were able to more quickly re-design their products and implement improvements. Chrysler, on the other hand, found itself sitting on thousands of unsold cars and parts. These, of course, became obsolete inventory which incurred heavy holding costs. This lead to the first of Chrysler’s government bailouts. As Chrysler was circling the drain, Lee Iacocca came about when about modernizing the company including implementing a JIT system. JIT inventory controls lead to a reduction of 1 billion in inventory which in turn made it easier to reduce staff and increased profits. (http://www-personal.umich.edu/~afuah/cases/case3.html)

Though the JIT method can lead to reduced operating costs, better customer satisfaction and high profits there can be a downside to JIT.

With JIT, everything moves faster and more groups and departments find themselves interdependent of each other. As the old saying goes, “A chain is only as strong as its weakest link”. Since the JIT depends on speed and the ability of multiple departments working well together. Should one area hit a snag; the downstream effects can be quite troubling for the company. Should there be a communication breakdown downstream or upstream a company can find itself not ordering the correct amount of a particular doodad needed for manufacturing the company’s product. This can snowball into unfulfilled customer orders and production downtime. Rapid increases in orders can throw a JIT system out of whack. If production is not well planned then a spike in orders, such as a Christmas rush, can create a situation where the company simply can’t fulfill orders as they might not have adequate inventory to produce a product. External forces can have a negative impact on JIT systems. Again, a successful JIT operation carries very little inventory. Should there be a labor strike at a supplier or a natural disaster disrupts a shipping route a company with little inventory on hand will simply be unable to meet production quotas.

When adding up the pros and cons of a JIT system of inventory control it seems clear that the JIT method leads to lower operating costs, higher customer satisfaction, improved products and higher profits.

I’ll pass on the double card-board burger with cheese and look for a burger joint that uses a JIT system to satisfy my artery hardening needs.

The Four C’s of Credit - Bank on it!

A.P. Giannini, the founder of Bank of America, started his bank out of frustration with the banking system of the day. Banks of his era typically only serviced the wealthy and ignored the common man. He launched the Bank of Italy in San Francisco (the precursor of the Bank of America) in 1904 as an institution for the “little fellows”. He would loan money to local immigrants not based on how much money they had but based on their individual character. The cut of their jib, so to speak. In today’s world we should be so lucky to fund a few A.P. Gianninis but banks today use a common benchmark to asses the credit worthiness of businesses seeking loans. These are the Four C’s of Business Credit also known as Character, Capacity, Capital and Conditions.

Character is the overall view of an individual or business’ financial history. In the credit world the banks are asking if the borrower is a solid citizen. Do they pay their debts on time? Do they have a significant credit history? What lines of credit does the borrower current carry? What is the total debt load the borrower is currently shouldering? Banks typically get the answers to these questions by running a credit report via multiple sources such as Transunion, Experian or Equifax for individuals and Dun and Bradstreet for businesses. These sources store, report and convert this data into a credit score also known as a FICO score for individuals and for corporate entities, the Dun and Bradstreet Commercial Credit score. The higher the score the better the chances that borrowers will procure the funds they need at acceptable terms. Lower scores, raise red flags to the banks and even if they were so inclined to offer a loan, due to the lower credit score, the terms of the loan might not be to the borrower’s liking.

Capacity is simply the ability of the business to generate profits significant enough to pay the money back! An established, money making venture usually has an easier time accessing capital due to their proven track record of turning a profit and paying their debts. Start-ups have a tougher time of it. They have no track record for the bank to rely on so in the bank’s eyes, the risk is greater. There is an old saying that banks only lend money to folks who don’t need it. When considering capacity this saying appears to be true.

Capital is not just what the business is trying to access, when applying for a business loan the bank reviews the capital of the business seeking a loan. Here the banks pour over the financial records of the business. They want to see cash flow, net worth, working capital, inventory, fixtures etc. There is even some cross pollination of the Four C’s as the credit report plays a part in reviewing capital as well.

Last, but not least, Conditions. Dun & Bradstreet Small Business Solutions defines conditions as “The external factors surrounding the business under consideration - influences such as market fluctuations, industry growth rate, political/ legislative factors, and currency rates.” In other words, would a bank readily extend credit to a business launching a new automobile factory in this economy? How about an export company when the current exchange rates would clearly cut into the profit margins. This big “C” leans less on the financial information of the company and more on the business plan and overall strategy of the business seeking financing.

So, the question arises. Which of the Big Four is the most important? There is no clear cut answer. All are important from the perspective of the lending institutions. More weight might be given to Character over Capacity for a start-up or Conditions might sway the bank’s committee over the other factors for a manufacturing company seeking funds to branch out into an untested market. Though banks might assign more weight to one factor over another, you can be sure that they take into consideration all of the Four C’s.

Good things come in Four’s. The Four Seasons or the Four Tops come to mind. A four- pack of yoghurt is a good thing. “Four score and seven years ago…” is a great way to start a memorable speech. The Four Horseman of the Apocalypse….Well, maybe not that one. How about the Four C’s of Business Credit? That’s a good thing in a “look at us, we find accessing capital fun and easy!” kind of way.

It only takes one - Protecting the firm from Employee Fraud

A wise man with a profound limp once said, “If you’re gonna shoot yourself in the foot try to keep the number of toes lost to a minimum.” Actually, I just made that up but for small businesses just starting off - establishing good internal controls against employee theft is the best way to keep the gun in the holster and the little piggies happily unaware of the looming danger.

Larger firms can have entire departments set up to protect the firm from fraud and or theft from internal and external sources. A small fry usually does not have this luxury. A small company can find itself with one employee responsible for many tasks. This in itself is like putting a blindfold and cigarette on your pinky toe. An entrepreneur may have to lean on very few employees carrying out many tasks. If only one person overseas the books of the firm and there are no internal controls to make sure that everything is on the up and up bad things may and often do happen. How can an entrepreneur, operating on a shoestring budget, protect himself and his company from employee fraud?

The first step is the simplest and most important. An entrepreneur must come to terms with the fact that he or she will need to implement internal controls. In a perfect world, everyone we hire will be the type of person who, when finding a quarter on the street, canvasses the neighborhood in search of its rightful owner. Most people are trustworthy but it only takes one, creative individual with a gambling problem or perceived slight from the boss to put the company out of business. By establishing, maintaining and monitoring internal controls employees will work in an environment where they see there will be a consequence to their actions should they decide to do the wrong thing.

Let’s assume an entrepreneur realizes the importance of establishing controls that protect the firm from risk. Additionally, the business owner also knows that keeping the employees motivated, well compensated and enthusiastic about their roles in the firm is a great way to nip any potential malfeasance in the bud. What are some simple steps a small business owner can follow to ensure that employee theft will not be the kiss of death to his or her dream?

Let’s start with those pesky internal controls. Separation of job functions and duties is a must. Avoid situations where one person is responsible for recording a transaction and process the same. There should be, at lease two sets of eyes looking over the books.

Keep confidential information…confidential. Only those people in the firm authorized to the information found on financial or banking statements should have access to this information.

Establish policies that are crystal clear to all the employees that detail how all financial transactions will be handled. Additionally, let it be known what will be done should any of the policies be violated. Take the time to educate the employees on the rules and policies of the company and refresh this training periodically.

Hire good people and the best way to hire good people is to not only collect references but check those references thoroughly. Contact previous employers. Verify school records and degrees. A credit check is a good way to check the financial health of the prospective employee.

Put a little box outside your office where employees can anonymously slip a note to those concerned of any potential violations of the firm’s policies. Without this confidentiality employees may be reluctant to report infractions for fear of backlash from their fellow employees.

Check the books often and try to be a little unpredictable on the timing of audits. It will be difficult for someone to launch a scheme if they do not know when an audit may occur. Additionally it may be a good move to hire an external firm to come in occasionally to check the books. An outside firm can bring a fresh prospective to finding fraud and updating controls against fraud or theft.

Be a good boss. If the boss ignores rules and regulations, the employees may follow suit. On the other hand if the employees see the boss as a straight shooter who follows the rules and deals in an honest manner then this can motivate the employees and instill an environment of honesty and trust.

Keep your powder dry and your toes intact. Protect your firm and your dream by establishing safeguards against employee fraud.

E-Commerce - Level Playing Field? Maybe

It has been written in countless textbooks, articles and journals about how the internet levels the playing field for the little guy. After all, how can a consumer know whether the firm from which they just purchased a “doohickey X5000” online is a mega-retailer or some mom and pop shop in the middle of nowhere. It is true that the internet has opened up the retail highway for the masses of aspiring entrepreneurs and we cannot ignore the fact that the playing field has been leveled, somewhat, for retailers and the consumer as well. There are far more sources offering the same products and all competing for the consumer’s hard earned cash. All of this fierce competition usually leads to lower prices and happier consumers, no?

The little guy is going to show the big time retailers what for! After all, the small operator has lower overhead than the large retailers. They are the nimble entrepreneurs and the big box stores are lumbering giants who embrace change slowly and are weighed down by their own bureaucracy and the fact that many of these larger firms have to answer to shareholders. The little guy has the edge. Right? Often the answer to that question is yes but just as often if not more so the answer is no
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Though the overhead is lower for the smaller retailer the larger firms enjoy greater volume discounts. So, a small shop may be able to win on an item or two or ten but the larger retailer will get the benefits of economies of scale in the long run. There is also the shopping experience itself where the battle can be won or lost. This depends greatly on the product itself. We need to remember, most of the major retailers have a brick and mortar store to go along with their online retail operation and many larger retailers offer a hybrid shopping method wherein a consumer can research, price and purchase a product and pick it up in the store. There are a few advantages over the online mom and pop operator. The consumer is able to see their product in person and if they don’t like it they can return it right away. Now most online retailers offer return policies but being able to return it locally, get your money back and “Hey! While we’re here let’s go look at the LCD TV’s.” Advantage: Big retailers. Now, it’s not all dark clouds and rainstorms for the small online retailer. Many do very well for themselves especially when the product is a niche item or when lowest possible price is the driving factor. Take razor blade replacement heads, for example. The consumer knows what he wants and knows that he can get a much better deal buying them online. This definitely is not the type of product one needs to touch before purchasing. The field here is definitely level and it is like this for thousands of products from electronics to toys and much, much more.

But the idea that the little guy has an advantage over the large retailer is a fleeting one at best. Why? Money! The large retailers can spend millions on marketing and advertising. They can devote entire departments whose sole purpose is to drive consumers to their online site. Another advantage might be simple a matter of perception and perception is a mighty powerful motivator. True or not, consumers tend to do business with someone they already know. This familiarity could stem from knowing the name of the store since birth, seeing the signs and visiting the stores year after year. This same familiarity, whether fair or not, leads many consumers to believe that their online transaction is more secure. True or not, many consumers can’t imagine that a small, online retailer has the IT infrastructure to protect them from credit card scams or identity theft even though the software and infrastructure for the small online retailer exists and is in place and easily matches any in-house operations of a large retailer. Perception can be a killer.

The playing field for the retailer and the consumer is more crowded, more exciting and opportunities abound but, as for the field being level, one might need to prop a few beer coasters under the leg of the table to fool oneself that the field is truly level.

Goodwill gone bad!

Looking for Goodwill in all the wrong places.

In a previously written article on this blog I detailed some of the pitfalls of franchising a business. I wrote specifically about Satan and the loss of quality control and customer satisfaction when his services were rendered by the franchisees versus Mr. Pitchfork himself. Now let’s look at a scenario where the Devil has decided to call it a millennium and retire. He is going to sell his business and must now go about the task of figuring out the valuation of his enterprise.

There are many ways to value a business for sale. Usually the first step is to set a value on the tangible assets of the business. What is the current value of the plant equipment, real estate and inventory?
Add it all up and make an offer. This is usually the course of action when the business for sale is a money loser. When a company is in the red, goodwill usually does not come in the equation when valuing the company. It is difficult to make the case that the proprietor’s glowing personality is worth “X” amount of dollars when the cash flow is a negative number. In this situation goodwill simply does not exist or it’s really bad good will or simply, “bad will”.

This clearly is not the situation in Satan’s case. His inventory of souls is mind boggling. Possibly in the billions. His plant and office equipment, real estate and other holdings are fairly easy to set a value to but what is the overall value when you consider his “goodwill”? As we discovered, when he stepped away from the business of direct soul collection the image of his company took a measurable hit. Now let’s look at his business when he reasserts himself back into the business as the primary rainmaker for his company. He is his business and his business is him. Customers pay for and expect the kind of service that has lead to his name, in all its forms, to span the globe in many different languages and religions. This intangible quality is goodwill and in Satan’s case his goodwill might be so overpowering as to me immeasurable.
His may be one of the few cases where the goodwill is such an intricate part the business that a price tag cannot be applied to the value due to the fact that no matter how much was paid, his level of service could not be duplicated so it could very well turn out to be a losing situation for the purchasing entity.
In Satan’s case, it appears, goodwill indeed exists but because he’s so good at being bad that the premium he would add to the purchase price of his business based on his goodwill would probably make the venture unattainable if not simply a bad investment decision.

The existence of goodwill, in my opinion, is not in question. Whether goodwill is always a good thing is another issue. If the goodwill is tied more the personality of the seller of a business then a significant part of the buyer’s due diligence should be paid to investigate whether they can duplicate the service or even if it is worth trying. An example would be an old neighborhood bar that has had the same owner for 50 years. There is nothing in the quality of the alcohol he sells, nor the price in which he sells it or the ambiance of the establishment that separates it from his competitors. Neighborhood folk come to his bar because he tells a great joke or offers a shoulder to cry on. If he leaves, so may the customers.
Again, the goodwill exists but might not be worth pursuing.

Now let’s look at the flip-side where personalities do not play a part but the product produced is where the goodwill is derived. A local sausage making company has been around for 25 years. It has a great book of tangible assets such as a wholly owned plant and equipment, inventory and office supplies and it’s greatest intangible asset is the reputation it has for making the best sausage in the world. The recipe for the sausage is a tangible asset but the consumers love of the sausage is goodwill well worth calculating into the purchase price of the business. Here personalities are not involved and, with proper training, the name and the reputation of the business as well as continued customer loyalty can transfer to the new owners.

Goodwill is a very important part of assessing the value of a business for sale. It is calculated by the seller by adding the amount the seller believes his goodwill is worth to the fair value of the net assets of the company. The Buyer, through his due diligence, must determine whether that premium is worth the price.

The Devil may care - or the Pitfalls of Franchising your Business

Satan was overwhelmed. Business was booming. He had so many souls coming in at such a rapid pace that he had to lease more space in order to place the damned. Then it struck him. He’s been at this game for, well, a long time. Why doesn’t he license his process out? Charge a franchise fee to any well-qualified would be soul collector with a dream and charge them 8% of their monthly profits. (Satan would have to work out what 8% of a soul was but he’s the prince of darkness! He’s got skills!). The market was rich with well qualified potential franchisees. Half of Congress had been indicted on one charge or another! Satan busily went to work on creating his business plan, marketing and training materials. Before long he had created the-Devil’s Advocate (trademark pending) franchise system. He had more applicants than he knew what to do with. His life as he knew it was never going to be the same. No longer was he concerned with the day to day operations of direct soul collection. No more convoluted deals with folks willing to trade their souls for fame, love or riches. Now he was a franchisor! He had to concentrate on screening potential new franchisees. Did they have the skill set necessary to run their own business? Did they have the necessary funds (of evil) to pay the franchise fee and survive the early days of running their own business? The pool of applicants was huge and well diversified. Satan had the pick of the litter and soon he had 25 franchises up and running. This was the good life or in this case, the bad afterlife. Or was it? At first, Satan was quite happy. His profits, for a while, were steady and rising. Souls were flowing in at a record rate but now he had time to manage the operational aspects of Hell and he was truly enjoying himself. He even took up pitchforking, a hobby he had long set aside due to the time constraints of his business. Something wasn’t right, however. Soul collection started to slow and it appeared the quality of the damned souls wasn’t up to the level he was used to. The inventory seemed to be a little light on politicians, war criminals, dictators and cable tv repair technicians who say they will be at your house between 8 and 12 but show up whenever they damned well please. These souls were tame by comparison. Far too many Canadians for his taste. This was not a good situation. Satan knew evil and this evil was far too good. Satan could not understand where the problem was. He did his homework and he knew his system was first rate. He knew all the advantages of franchising. He put in place a proven system that has stood the test of time and that by implementing such a system the failure rate would be much lower than if some soul hunting entrepreneur wanted to start from scratch without the benefit of Satan’s knowledge or experience. His training program was second to none. If the franchisee followed his techniques success would be practically guaranteed. He had set in place a brilliant support system staffed by his most trusted and vile employees the likes of Pol Pot, Stalin and the creator of Hannah Montana merchandising. He had set up a marketing system that would support the franchisees and he made sure to give each franchisee their own, exclusive territory so they would have an ample supply of souls to cull. So what was the problem? Why so many Canadians? It appears Satan’s greatest strength is also his greatest weakness! His corporate image and brand awareness is Satan and Satan is his corporate image and brand awareness. Who wants to make a deal with the devil when the devil is Mildred Pringle from Great Neck, New York? It turns out that many of the franchisees were focusing on the quantity of souls turned over versus the quality of souls collected. Satan’s brand was taking a beating! A recently convicted felon was asked why he committed his crime he replied, “Mildred made me do it!”. These were light days for Hell indeed! Satan’s problem is not unique. Franchising has proven wildly successful for many franchisees and franchisors but there have been and will continue to be failures. In Satan’s case the problem was quality control. The franchise had his name on it and people expected the type of service that clergy have been hyping up for a couple thousand years.

When franchisees did not deliver the same quality of service as the original concept the brand became tarnished. There are a few other pitfalls in franchising your business. Many folks start a business and are very passionate about their venture. They put their heart and soul into the enterprise. When they decide to franchise their business, many franchisors do not realize they are venturing into a completely new business of selling franchises and providing service and support for those franchises. The franchisor may be top notch at running the business he loves but may not be up to the task of selling and servicing franchisees. Mistakes can be made in the strategic vision by the franchisor. In order to be successful, a franchisor may only need to sell 10, 5 or even 1 franchise to have a well maintained and profitable operation. Often, however, some franchises plan a hyper-growth strategy. They want to explode and expand on the scene. Some are very successful but if the franchisor has not properly planned sales and expansion strategy then there can and will be franchisee failures. A failed franchise just sits there. The franchiser may have collected a fee to start but that monthly percentage of profits payment is no longer coming in. A dead franchise not only hurts the bottom line but many franchisors marketing efforts to attract new franchises is based on the success rate of the franchise itself. If there are a high number of failures it will be hard to attract new buyers for new franchises. Additionally, one of the most popular sources for funding of franchises via loans is the Small Business Administration. The SBA collects and maintains a plethora of data regarding franchises and their successes and failures. The SBA is, of course, more likely to be friendly with their purse strings if the franchise one hopes to buy has a high probability of survival. Below you will see a set of data provided by the Small Business Administration. Franchises with the best performance i.e. lowest percentage of SBA loan failures and franchises with the worst performance i.e. the highest rate of loan failures. (Figure 1)- "Click" to enlarge

Best Performers (less than 1% failure) Sorted Ascending by lowest % (ties sorted descending by # of loans) Source: Http://www.SBA.gov




Note the figures for Subway and Blimpie's Subs. You see two franchises from the exact same industry. Both specialize in making and selling sub sandwiches but they appear to be on opposite ends of the “success” scale. Subway Sandwiches has a 4% loan failure rate. Blimpie’s, on the other hand, has a whopping 37% failure rate. Why? I doubt Blimpie Subs & Salads is making their sandwiches with toxic waste. It could be management of the franchiser, training, support or a combination of reasons.

Franchising has been and will continue to be a great method for entrepreneurs to pursue their dreams of owning their own business and for franchisors, a great NEW business for them to pursue and grow but the successful business owners contemplating franchising their business should prepare themselves for the potential pitfalls and be ready to invest time and money into preparing a strong management, training and support plan. Many franchisors, after discovering that the franchisees may not have the same attention to detail or quality control as the original business, find that their brand has been damaged. If they are not successful in turning these franchises around they could be looking at some serious trouble. They may have to revoke the licenses granted to franchisees which can prove legally difficult if not impossible. They may have to spend a fortune buying the sub standard franchisees out or they may simply stop selling new franchises and live with the ones that have been sold. A common Latin term, “Caveat emptor” - Buyer beware, is good advice for all of us but in Satan’s case a slightly less well known Latin term, “Caveat venditor” - Let the seller be aware! Seems advice he should well take to his dark, frustrated heart.