The 7 Most Overrated Businesses

Posted in Uncategorized with tags , , , , , , , , , , , , , , , on August 31, 2009 by franchiseadvocate

The 7 Most Overrated Businesses

By Kelly K. Spors and Kevin Salwen

Open for BusinessWith roughly 6.7 million jobs lost since the start of the recession, it’s tempting – and often a great idea – to launch your own business. That way, of course, you can take matters into your own hands. No more rolling your eyes at the boss; it’s your show.

But many people do a lousy job of picking businesses they can realistically turn into a profitable operation.

“There’s this very sad pattern about how people start businesses,” says Scott Shane, an entrepreneurship professor at Case Western Reserve University in Cleveland, Ohio. “People are most likely to start businesses in industries where start-ups are most likely to fail.”

The problem: Many would-be entrepreneurs are drawn to businesses they like to patronize or the ones that are cheapest and easiest to start. Instead, experts argue, aspiring entrepreneurs should create firms in which they have professional experience so they have a competitive advantage in the market.

So, what are most overrated businesses out there? We spoke with small business experts to find out. Here are seven you might want to think twice about – and then maybe twice more.

1. Restaurants. Dining out and cooking are among Americans’ favorite pastimes. But “restaurants are among the toughest businesses to run,” says Donna Ettenson, vice president of the Association of Small Business Development Centers in Burke, Va.

Far too many people assume their culinary abilities will lead to success in the restaurant business. Instead, about 60% of restaurants close in the first three years, according to a 2003 study at Ohio State University. That’s quite a bit higher than the roughly half of all start-ups that close in the first five years.

The reason: Restaurants typically have low profit margins and need strong managers who can run an ultra-tight ship through seasonal fluctuations and other struggles. Most people don’t have that kind of intense managerial ability to pull it off. By the way, the pitfalls are quite similar for restaurants’ cousin – the catering business. In other words, Chef Emptor.

2. Direct Sales. It’s a tempting pitch: Work from home and earn commissions by selling cosmetics, kitchen knives or cleaning products. But companies that recruit independent sales reps tend to attract new team members by pointing to the success of their highest earners.

A harder look shows that those high earners are making big money in large part by recruiting new reps into the organization and getting bonuses or a cut of their recruits’ commissions, says Ken Yancey, chief executive of SCORE, a Herndon, Va., organization of current and retired business executives who volunteer time counseling entrepreneurs. The new reps then have a much harder job because they need to recruit more people on top of selling product even though the number of reps out there is increasing.

The result, Yancey says: “Most of them wind up with a bunch of jewelry or kitchen equipment sitting in their basement that they can’t sell.”

3. Online Retail. By far, one of the easiest businesses to start is selling items through online marketplaces such as eBay or Amazon. But as online commerce ages and these sites fill up with more established retailers, it’s much harder for new, small sellers to compete for attention and generate a viable income.

“A lot of people are thinking it’s the Web of five or 10 years ago and you stand out simply because you’re on the Web,” says Rieva Lesonsky, chief executive of GrowBiz Media, a content and consulting company for small businesses based in Irvine, Calif.

Instead, successful online retailers today must have a handle on sourcing their products at a low enough price, then layering on clever online marketing and fine-tuned logistics. These businesses won’t generate much income if they can’t be easily found in searches, maintain a good reputation among buyers or add enough value so that sellers can build profit margins high enough to take on bigger players and physical stores.

4. High-End Retail. Many people dream of opening a day spa, luxury jewelry store or designer clothing boutique – businesses they feel good patronizing. But specialty retail businesses close at higher rates than non-specialty stores, according to the Small Business Administration’s Office of Advocacy, and are even riskier now that consumer discretionary spending has dried up and people are no longer spending money on little luxuries.

“It’s going to be a long time before we return to the days of conspicuous consumption,” says Ms. Lesonsky of GrowBiz Media. High-end retailers often suffer from poor locations and lack of understanding of how to source and market their products in an effective way. In today’s economy and in coming years, she says, retail entrepreneurs should be looking to sell non-discretionary consumer goods or offer items at a value rather than high-end products.

5. Independent Consulting. Common advice for aspiring entrepreneurs is to stick with industries they know. So, for many looking to escape the corporate treadmill that means turning their professional expertise into a one-person consulting firm.

It seems practical – more companies are indeed relying on independent contractors and freelancers these days – but it’s not as easy to pull off as many imagine, says Dennis Ceru, an entrepreneurship professor at Babson College in Babson Park, Mass. Many consultants struggle with time management problems, spending so much time scouting work that it’s very difficult to earn steady income. “The difficulty many face is they go through peaks and valleys of having work,” says Prof. Ceru. “When the engagement ends, they are frantically looking for work,” which may take weeks or months.

A possible solution: “A successful consulting firm needs people to find the work, grind out the work and mind the work. Unless you know you can do all three yourself, you potentially expose your business to great risk.”

6. Franchise Ownership. The idea of being handed a proven business plan without the uncertainties and headaches that come with building a business from scratch is understandably alluring. But too many people don’t understand the risks associated with franchising and sign restrictive franchise agreements without thoroughly researching their franchisor and their contractual obligations, says SCORE’s Yancey.

Some franchisors, for instance, allow franchisees to open stores too close together, oversaturating the market. Or they simply require their franchisees pay so much in royalties and fees or other operational costs that it’s very difficult to be profitable. Beyond that, when a franchisee fails, a franchisor may make it extremely difficult and costly to get out of its contract.  (get a consultant)

7. Traffic-Driven Web Sites. Everybody has witnessed the success of social-networking sites like Facebook and popular blogs that generate all their revenue off advertising. But as the Internet ages, that’s much harder to accomplish, says Martin Zwilling, a start-up consultant in Fountain Hills, Ariz., who specializes in helping entrepreneurs find angel investors.

Zwilling says he hears pitches for new social-networking sites about once a week, but actively deters people from starting them. “I say, skip it,” he says. “You need to invest $50 million to get any presence” in the social-networking space right now and it’s very difficult to get people to leave established sites. What’s more, he says, the amount of traffic needed to build a lucrative traffic-driven Web site is far more than most new Web entrepreneurs realize: “Until you get to the point where you have a million page views a day, you’re nowhere.”

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Rainmaker Plan – Rollover 401k into Privately Held Stock

Posted in Uncategorized with tags , , , , , , , , , , , , , , , , on June 12, 2009 by franchiseadvocate

No doubt the banks are getting pretty stingy with capital these days and it looks as if the days of low interest loans are also numbered.  What is a future business owner to do? 

BeneTrends is the nation’s leading provider of small business retirement plan solutions.  The firm’s most popular retirement plan design, the Rainmaker® Plan, is structured to enable the rollover and investment of retirement money into privately-held company stock as a source of business capital for business acquisition, franchise purchases, business start-up or existing businesses.

Seems a little complicated but it’s really not.  It makes great sense when one considers the near and long term future of the stock market.  Remember, I am not a financial adviser but I do understand what trillions of dollars in debt, a weakening US dollar, and increased government taxation on pay, fuel, and health-care benefits is going to do to the investment outlook in the US.  Oh yes, and let us not forget about paying for carbon credits and the inevitable spike and sustained inflationary cycle just around the corner. 

What do you think the tax rate will be when you eventually tap that 401k?  In Great Britain and much of socialized Europe tax rates already exceed 50% so maybe that tax exempt 401k investment will not turn out to be such a great deal come cash out time.  Maybe it makes just as much sense to access that capital penalty and tax free now and use it to fund your own business, especially when bank lending rates are about to skyrocket.

Again this is just my view and I am not a financial adviser by trade, but if considering a 401k funding option makes sense to you, let me help you with the Benetrends Rainmaker program.  joe@franchiseadvocate.com or visit my website at www.franchiseadvocate.com for information on individual franchise opportunities.

Who Buys In-Home Assisted Living Franchises

Posted in Uncategorized with tags , , , , , , , , , , , , , , , , , on June 12, 2009 by franchiseadvocate

Right at Home is a very popular brand operating in the In-Home Assisted Living market.  According to a recent press release Right at Home identifies the following facts about their franchise buyers.

In their system the #1, #2, and #3 franchise owners have never owned a business before.  8 of the top 10 franchise owners have no previous business ownership experience at all.

8 of the top 10 have no healthcare background at all.

8 of the top 10 have no previous experience in sales.

The median age of the average franchisee at signing is 41 years old.

9 out of 10 have children.

Although these numbers pertain specifically to Right at Home, they are not dissimilar to what other franchises operating in this space report.  As I have said on many occassions, the In Home Assisted Living segment offers too many positives to be ignored.  It has it all. 

To learn more about assisted living franchise opportunities please visit www.franchiseadvocate.com and select senior services or e-mail me at joe@franchiseadvocate.com and I will be happy to fill you in.

All Franchise Consultants are Not Created Equal?

Posted in Uncategorized with tags , , , , , , , , , , , , , , , , , , , , , , , , , , , , , on May 18, 2009 by franchiseadvocate

Let’s put a common misconception to rest.  A buyer does not pay more for a franchise if they found it through a franchise consultant and there is no cost to a buyer for using a consultants services.  Consultants exist to satisfy both a buyer and franchisor problem.  Time.  Franchisors cannot afford to talk with everybody considering buying a franchise and buyers do not have the time for the multiple franchisor rejections, self education, or relentless sales tactics of used by some franchisors.  The consultant already knows what the buyer can and cannot qualify for.  The consultant provides viable options for the candidate and expedites meaningful exchanges with those franchisors plus a whole lot more.

Consultants do not (should not) make profit representations on behalf of a franchise.  By law those representations can only be made by the franchisor and when made must appear in the Franchise Disclosure Document.  A consultant knows who the ideal candidate is, (and this varies from franchise to franchise) if there is territory available, and what the purchase / financial commitments are.  They can also direct you to recommended CPA, legal, banking, demographic research, real estate, and government related resources.

A great consultant can also provide a means to fast-track a buyers road to success.  For example, the first ninety days of franchise ownership can be exhausting.  There is much to do. 

Would the services of a business coach be helpful during start up?  Because I want the buyers referral and I want the buyer to be successful I arrange these services.  It is a very selfish yet win/win arrangement.

What if the buyer wanted to use a 401k to fund their purchase?  Although this is done frequently and at not penalty there is a cost associated with setting it all up.  What if that cost were funded by the consultant?  Franchise Advocate can make this happen.

What if the buyer wisely chose to thouroughly research the demographics, traffic patterns, and spending habits of the people living in their desired business location and could have the cost of that research reimbursed upon purchase of a franchise?  Franchise Advocate has developed a relationship with MapSystems Inc.  We make it easy for buyers to source data at all levels of detail.  When and if a franchise purchase is made, those expenditures are reimbursed to the franchise buyer.

Most consultants do not go the extra mile.  Why?  Who really knows.  Maybe their business models focus on “fluff” and “pop” creating fixed expenses that make it impossible to support buyers in this fashion.  The expensive office, the endless newspaper ads, those emotionally directed ad campaigns that seem to always start with, “Be your own boss” may contribute to their margin problems.   Maybe they are simply sales mills, churning through expensive lead after lead and selling whatever happens to stick. 

Here is what I do know.  I put client’s first and fully embrace this novel idea.  A successful client generates referrals.  Referrals trump leads hundreds of times over.  I have learned there are actions that have a profound impact on a buyer’s speed of success.  My theory, take the monetary decision to implement one or more of those known interventions off of the buyers plate, and make it happen for them.  

In summation, consultants cost nothing to use and provide many services to those in the exploration process.  They save a buyer tons of time on education, endless calls to franchisors that “might” fit the bill, and provide resources a buyer is going to need. 

A select few consultants provide support after the sale, and Franchise Advocate is one of those consultants.

www.franchiseadvocate.com      info@franchiseadvocate.com

Business Continuity Plans – New Franchise

Posted in Uncategorized with tags , , , , , , , , , , , , , , , , on May 12, 2009 by franchiseadvocate

Franchise Advocate has been highlighting the only Business Continuity franchise available, and for good reason.  This is a remarkable opportunity for professionals to create their own “continuity planning and disaster response” business.  

Firestorm seeks franchisees who recognize a truly rewarding and exciting opportunity.  Over $5,000,000 has been invested to create the most comprehensive business continuity franchise available. 

Where do corporations go to find contingency planning & solutions?  Until now it has been to very expensive consulting firms and insurance companies.  End result, huge dollars spent to buy a plan and when the plan is done, they’re all gone.  Companies could try to do it themselves.  Too often the “home team” falls short of pumping out a compliant and comprehensive plan.  Even plans put together by those “big dollar consultants” can lose something between creation and execution.  Firestorm can assist with the execution phase as well.

Continuity planning and management are necessary tasks but these are complex, time consuming, and often overwhelming for the organization.  Fact is, a corporation of scale generally spends more money trying to do this themselves then they would paying the experts.  And, the do it yourself product does nothing to protect executives from personal accountability associated with having an ill-conceived continuity plan when disaster strikes.

Firestorm offers an inexpensive Business Impact Analysis.  Where, what, and how will your business most likely be impacted?  For example, what happens if you are a bottling company in Mississippi and your only container supplier operates from Kansas.  A tornado in Kansas would put you out of business in Mississippi.

Firestorm helps businesses achieve ISO1799 certification, provides dynamic speakers to address corporate groups, and delivers experienced disaster response teams for “mission critical situations”, (As they did at Virginia Tech)

Franchisees enjoy access to Firestorms massive template data base and has the flexibility to utilize home office resources available at Firestorm to grind out the detail work if they so desire.  General Honore of Katrina fame and C Everett Koop are two shining examples of Firestorms advisory committee.

*see Firestorm video  http://www.firestorm.com/firestorm-franchising/video/

Cash is King to Franchise / Business Owners. (by John Williams)

Posted in Uncategorized with tags , , , , , , , , , , , , , , , , , , , , , , , , on May 11, 2009 by franchiseadvocate
     
Cash is king to successful businesses and franchise owners!  Here is what John Williams, B2B CFO consultant, had to say on the subject. 
 
Unfortunately, to many entrepreneurs, cash is often viewed as a secondary consideration that might come from sales or reduction in expenses.  Expense reduction may not cash and focus on sales creation alone can be disaster. 
 
Take the case of a small specialty products company in a niche market with high barriers to entry.  The product is non discretionary but there is limited potential for growth.  The owners are experienced in developing and running the business, but have been focused on growing sales.
The owners had turnover in their accounting manager position, and recently adding an experienced person to manage the administrative operation.  The company was bumping up against its credit line limit and saw bottom line income disappear in the last year. 
A quick review of the balance sheet and sales records pointed out the first significant problem:

 

 

Year 1

Year 2

Year 3

Sales

$28,000,000

$27,600,000

$28,400,000

       
Accounts Receivable

$2,650,000

$2,450,000

$3,975,000

       
Days Sales Outstanding             34.5            32.4             51.1

 There was no management of the Accounts Receivable occurring.  While the collection effort was divided among several employees, there was no tracking of the success of these calls.  Additionally, there were no clear goals set among the collectors or review of their efforts.  As a result, the percent past due went from 25% to 63%.  Their newly acquired B2B CFO resource set up a management process to review the results of each person’s efforts and measured them against each other.  The result was that in two months the Accounts Receivable balance declined to a Days Sales Outstanding (DSO) of under 30 days.  Instead of the Revolving line balance being at 98% of the limit, it dropped to less than 50% of the loan limit.

*To read John’s blog in it’s entirety, please visit http://www.b2bcfo.com/partners/show,Cash-is-King.html/Itemid,0/ 

Discuss franchise business opportunities at www.franchiseadvocate.com

 

DOTI Franchisees Explore Options with Luxe Home Interiors

Posted in Uncategorized with tags , , , , , , , , , , , , , , , , , , , , , , , on May 6, 2009 by franchiseadvocate

It appears there is a big move coming for many of the DOTI(Designs of the Interior) franchisees.  My source describes Greg Wyers as the Ross Perot of furniture sales. It seems he has created a concept combining the best of the DOTI with those he mastered in his traditional retail furniture operations.  Wyers enjoyed great success with his Tulsa, Oklahoma based Norwalk Furniturestore, largely due to his advanced floor placement and marketing strategies.  Then the recession put the Norwalk manufacturing  facility out to pasture and Wyers was compelled to act.  He acquires partial ownership of DOTI and pitches a radical alternative to DOTI franchisees.  The new concept, Luxe Home Interiors maintains the tried and true design and personal attention DOTI franchisees are renowned for, with some twists.  Luxe showrooms will take on a “Pottery Barn” like feel, optimize display space, and offer broader selections appealing to a broader market. 

Dynamic operating changes will maximize utilization of floor space.  For example, designers may actually work from the sales floor at the very pieces displayed for the buying public.  How novel, beautiful desks, chairs, and lamps shown at their functional best.

Luxe Home Interiors will feature a simplified easy to understand fabric pricing scheme and a healthy range of Private Label furniture manufactured by industry icons like Century.  DOTI’s core competency, window / special treatments and professional design remain an important part of the Luxe operating model.  The mission is to provide quality options for an array of budgets, and a simplified yet impulsive buying environment.  Improved capital utilization is achieved by minimizing the display of slow moving inventory, traditionally used to stimulate ideas versus drive sales.  

Luxe is positioned to benefit from increased single piece sales while neutralizing the financial impact of “work from home” designers who use DOTI floors as their personal display centers, but wholesalers as cost savers.  This is how “work from home” designers justify their fees.  The Luxe “private label” will make things difficult for the free-loading designers.