The Global Economy and Business

Ok… Few more words about declining a business idea. I’ve already mentioned very important factors: demand for good or service, possibility to win the competition, capital requirements and economic results, and risks. The last I want to speak about are the following:
A) problems with raw materials;
B) ecological problems;
c) public opinion.

For most industries and businesses raw materials play a big role. They represent costs and influence price of a product. Of course, for services they are not so important but still you need to think about them:
-where you plan to buy them;
-who are your main and alternative suppliers;
-is the price for each item stable or it fluctuates;
-is there a deficit material and is it easy to find a substitute and so on.
The main thing about materials is that your customers are not interested in your problems with them. Buyers want cheap products and that’s all… And if you can’t satisfy them you’ll loose your business.

Ecological movement is growing in strength. You need to evaluate your business idea from the following conditions:
-will my business pollute the air, water, and so on;
-is there any risk of accident that can do harm to the ecological situation in the town or city, or region.
While evaluating a business idea it’s necessary to remember that ecologists and environmentalists live among your prospective buyers. They can either improve or worsen your reputation.

Public opinion is the last but not the least in that list :-). It’s clean that it influences demand greatly. I’m not going to explain such an easy thing but will give only and example. In early 90s the market economy came to the former communist countries. At the same time most people had not enough education and business way of thinking. But everybody wanted to live better and to earn money. Many people were involved in network marketing and….. many of them lost money. Why? There were many reasons and I don’t want to discuss them in this article. The main thing I want to bring to notice that till today many famous network companies (already successful in US or UK) face the problems to overcome the public opinion that states: “Network business is not a business but a skullduggery”.

I hope I proved that it’s necessary to evaluate your business ideas before even thinking about investment. And thank you for your patience while reading all of my thoughts!

So, in the previous post I expressed my opinion about necessity to evaluate the idea before starting a business even if you were buying a franchise. Many people forget about it. They think that if the franchise chain has many franchisees and they operate with profit the new business also will be a success. But as there no identical children there are no identical markets and businesses. Information from other franchisees is useful but not sufficient to make such an important decision.

Last post was dedicated to market demand as a factor influencing franchise idea. Now I want to speak about the others.

The second thing to evaluate is competitiveness of goods and services your business is going to sell. You need to study the market competition as serious as possible. Visit the shops or restaurants of competitors – both franchise and non-franchise. Listen to what people are saying about their products. As a result of your survey you need to become sure that you product has real advantages over theirs. If not - I suggest you not to buy this franchise for this market. Think about other idea or maybe other region.
What advantages can be considered as real and competitive? Certainly, there are a lot of them. Here I’ve listed the main:
-price;
-discounts and possibility to get them;
-quality;
-technical and economic operation factors;
-prestige of a trademark;
-convenience of packing;

-guarantee period and conditions;
-post-sale support and services;
-reliability;
-payment terms;
-credit conditions;
-advertising and other promotion activities;
-delivery services and so on.

The next factors require some economic calculations. I mean that you need to decline an idea if capital investment is too high and/or economic efficiency is too low. I plan to dedicate a special article to economic efficiency in future. Here I’ll only say that you need to be sure that future profit will cover initial investment in not more than 5 years (in general) and your personal income has to be greater than interest you could get for your personal savings.

Also the idea must be considered as unfavorable because of high risk factors. Thinking about risks you need to take all of them together and consider their probability.

Ooh! Only three more factors remained… I need to have a break… and will continue in the next post.

Today I was a witness of the dialogue between two students. They are 14 or 15 and were discussing how they would start their future businesses. I hope they will not have objections if I present a part of this dialogue here.

“I’m thinking about IT business. It’s the easiest… and the sphere is growing”
“Do you have an exact idea? E-commerce?… ”
“I don’t know. I think to take the list of franchises and will choose the one with the best program or the least investment…”

I wanted to interfere but decided to stay away and to express my opinion here.
I’m absolutely sure that it’s necessary to study a franchise program before investing your personal or borrowed money. But I think that studying the idea itself is more important. If you choose a franchise with an attractive program but the idea is not OK for your region or your country the result will never satisfy you. And it’s not necessary to be a prophet to say that to avoid bankruptcy you’ll have to invest more, to work harder and so on.

What factors can make an idea having no prospects? I found some and want to express my opinion with the potential readers of my blog.

At first I need to mention the demand for the product. You need to take into consideration as many as possible factors that influence the willingness and ability of people of the concerned territory or country to buy these goods and services. It’s not too hard if you live in this region yourself. You can spend some time listening to people’s complaints. You can ask your friends and neighbors. It’s not necessary to carry out a marketing research if you are planning to start a small business company. (Certainly if the matter concerns a big investment and large company it’s better to order a marketing research from professionals).
The factors you have to think over vary for different ideas and different markets. I’ll say some words about the most important ones as I think.

So, the first one is geographical, historical, religious and cultural traditions that prevail on the concerned market. I’ve read a story about McDonalds’ franchise in France (unfortunately it was some years ago and I can’t recall the source). It was a sad story. The idea almost collapsed because of cultural food traditions in the country. The author of the article explained that historically the French were in earnest about food. And the idea of fast-food itself was offensive for them. But if to add that the French have no special liking of American life style we’ll get the complete picture of extremely bad idea.
But at the same time the same franchise idea (I mean McDonalds’) became enough profitable in Japan. Why? Because it was absolutely uncommon for Japanese and was taken by them as something interesting, and unusual, and modern.

The next factor that influences demand is size and growth of the target market. It includes the number of potential buyers. Thinking about buyers you have to study their tastes and preferences on the one hand. Also you need to study buyers themselves: age, income, sex, life style and so on. You need to study their attitude to your idea before you start your business. By the way it will help in future while planning advertising and promotion activities.

Also it’s necessary to think about seasonality of demand. If sales change greatly during the year it means that your personal income will change too. Sometimes you’ll get nothing at all. Usually you’ll have to invest more money in inventory when demand goes down. Are you ready for this?

OK. That’s enough for demand factors for the first time. Read my next post to answer what other factors can make a franchise idea having no prospects.

The idea of combining franchising and e-auctions is divided into to possible businesses, as I think.
 On the one hand, the company can provide services of Internet auctions bidding. I wrote about it a bit earlier when I told about eBay franchises. Really, not many people are enough familiar with the procedures of selling and buying goods through the Net. They can overcharge or sell for too low price. Ordinary people usually don’t have many good references and this can decrease the possibility to get all possible advantages of e-auction…
So, this kind of franchise business is developing now and it concerns not only eBay auction but any other – cars (like Copart),  web-design and software development services (like Elance) and so on.
 

On the other hand, big e-auctions start selling franchises themselves. Here we are not speaking about consulting or assistance services. Usually, the system works the following way. Franchisee gets the necessary software to start the auction himself. Why people will use this small one instead of the main? The main reason is territory or specialization on particular kind of products. But territory is the main reason. Franchisee has the opportunity to meet the needs (and legislation) of particular state or country. And if to speak about different countries the main advantage will be using of native language.
 So, I think that franchising + e-auction = good business opportunity.

In my previous article I discussed only consulting in the Internet sphere. But at the same time some companies sell franchises to provide general consulting or training using the Internet technologies and special systems of distance learning. It may cover all spheres of consulting: medical, psychological, economic, legal and any other. Some companies specialize on one direction, the others try to combine many. But in general the main idea remains the same – they teach and consult people through the Net.
 Why should you buy their business? In most cases the main reason to become a franchisee is the software provided by franchisor. Usually it’s much cheaper to get it from the main company than to develop yourself because the development costs are divided between many franchisees. Also franchisor provides the already tested system. So, you can start consulting or training immediately.
 

Also I want to say few words about one more hidden benefit. As you understand franchise package includes compulsory training. Training in some professional sphere! Usually in also includes ongoing training too. So, it seems that you can get professional knowledge and business at the same time (as if you attend the college for free….)
  As for me it’s one of the business ideas or opportunities when you exactly understand what you get.
 And what about weaknesses? To my mind they are the same as I mentioned in the pervious article.

So, I decided to continue the Internet franchising topic using the example of the most (as I think) well-known company in the sphere of web-consulting. I mean the WSI  or (as they call themselves) #1 Internet and Technology Services Franchise.
 And what do they mean by Internet and Technology Services?
The first thing I need to speak about is their target market and the problems they are trying to solve. WSI helps small and middle-size private companies to use the Internet resources as efficient as possible. Does it mean that many of them are using the Internet inefficiently? Unfortunately, yes. Global network provides a lot of opportunities to decrease costs and to increase sales at the same time. It allows to increase productivity and to improve the communication with the clients, suppliers and partners. It opens a wide variety of different marketing instruments (not only just web page registered in Google…).
But for most middle and small-size companies my previous paragraph brings nothing more than a disappointment. They understand that do not have enough experience in e-business and Internet technologies and have no time to study it.
 

So, WSI decided to present solutions that assists these businesses. They’ve created proven and patent pending Business Systems and established an outstanding Franchise System to reach as many small and middle-size companies as it’s possible!
 What do you need to know before making a decision if the become a WSI franchisee? I hope the following summary can be helpful.
 

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Number of current franchisees: 1,000 franchisees in 87 countries around the world. More than 1500 offices of the company.
Franchise fee: $49,700 USD
Founded: 1995
Franchising Since: 1997
Estimated total cost of franchise: As the franchise is a home office based enterprise, costs on top of the initial fee are small. I can even say that it’s equal to franchise fee, not more.
Territories Available: There are franchises available both nationally and worldwide.
Royalty fee: 10%
 The main idea:
As new Internet technologies appear and will continue to appear, as a trained and certified WSI Internet Consultant, franchisee is positioned to assist businesses in capitalizing on these new possibilities.
WSI franchise program includes compulsory training of all potential franchisees to become Professional Internet Consultants, allowing them to act as a one-stop shop of internet solutions for small and middle-size businesses. Consultants help boost firms’ internet profits by offering a variety of web-based services, while still being able to work from the comfort of their own home.
As they say
“WSI liken their Internet Consultants to ‘architects’, who assess their clients’ business needs using WSI’s Lifecycle System. Each client is then provided with a tailor-made internet solution, which aims to both reduce business overheads and increase revenues.
Once the internet solution has been formulated, it is then independently built at one of WSI’s Global Production Centres, located in a low-cost, high-tech area such as India or Australia. The clients are then delivered a results-orientated, technologically advanced internet solution at an economical cost”.
To train the company also uses the Internet technology called e-learning or on-line education. It provides additional benefits to the potential franchisee as this variant is much cheaper (no transportation costs, you can choose better time and stay with your family).
 

Following current support:
WSI uses developed by themselves Client Support System. It can provide franchisees with an on-going stream of reoccurring revenue from each client. The company also helps franchisees by offering an on-going support program that is custom-made to meet the unique needs of each new franchisee.
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 As for me, I think that I’d buy the franchise license. Why not yet? Maybe because I still see a very serious competition in that field. Certainly, the WSI company has a well-known brand and a wonderful advertising campaign, but…
Small business owners are trying to save every dollar and pound. And there are too many freelancers in the consulting sphere (undergraduate and graduate students and even former employee of WSI franchisees) that can provide that services for lower costs. I agree that in most cases WSI-trained companies using good software and technologies will perform better quality. But I’m still afraid…. Can anybody overpersuade me?

Ok, I’m back to continue writing about Internet and computer franchise opportunities. Last time I was so busy that I managed to write only about the first – providing web-services. So, now I’m going forth.
 2. On-site computer services will be the next idea to write about. The franchisee has to hire a specialist(s) in the technical sphere. Usually it’s not necessary to have prior experience in computer repair because franchisor will provide all the training. For example, Geeks On Call® Company says:
“Everything starts with “Geek University,” which is an in-depth, weeklong training program”
 

The benefits: the market of home and office computers is rather big and it’s growing; franchisor provides training and some other useful stuff for start-up (business plan, results of marketing research and so on); you can reach small business owners and households large service-centers are not interested in.

The potential losses: the competition in the industry is very tight; every technical specialist with even little experience in computer-repairing can provide the same services himself anв for lower cost (as he doesn’t have to pay royalty and other payments to franchisor).
 (to be continued)

Internet business or e-business as many professional call it is rather modern trend in the world economy. Many people believe that it’s only a nifty and we will see the failure of that businesses soon. The others truly believe that it’s a panacea and every company has to move it’s business to the web.
 Anyway I’m not going to discuss this topic (or maybe not now). I want to present my ideas about franchise business though the Net and in the Net.
 

The first thing I want to write about is the following. Internet is not a new sphere of business but it’s only an instrument. To make my thought clearer I want to use the example of a phone. A phone is an instrument to call somebody or somewhere. For example, if you need to call in an ambulance it makes you no different whether to use mobile, radio or a public call box. They are only instruments to reach the doctor! The same can be said about the Internet – it’s only an instrument to improve your casual activity. You can use a post office of e-mail. You can go to casino or play poker online… You can sell you products through the shop or set-up the Internet-shop… The same happens in the sphere of franchising. Franchisor can advertise his business in the business pages of newspapers, on TV or on the Internet. As I understand it has no difference at all.
 My second thought is about franchising of Internet-based and computer-based business. As I understand it will include ATM, computer, Internet, ISP, web design, wireless, home electronics, web hosting and other technology related franchises and business opportunities. So, as you can see it’s not just selling through the Net but much wider. I decided to write few words about some franchise ideas that fit the definition of Internet-based and computer-based franchise.
 

1. Providing web services. Franchisee is usually operates as a consultant in the one or some of the following spheres (not the complete list certainly):
Website Design
E-Commerce Solutions
Application Development
Content Management
Search Marketing
Web Advertising
Site Hosting & Technical Support
  The benefits: as a franchisee you do not need to have special web-knowledge – the franchisor will do all the job; you operate in one of the fastest growing industries in the world; you can meet small business companies in your region (very small ones).
The potential losses: the competition in the industry is very tight and you may have not enough education to win it.
 (to be continued)

There are some countries (like some former Soviet Union republics) where still there is no legislation about franchise. But even there You will meet McDonald’s restaurants. Certainly they do not use the word “franchising” during the registration. Usually it’s organized as joint venture but all the other characteristics remain the same.
 At one business seminar I’ve heard a question: can anybody cook the hamburger better and tastier than McDonald’s? Most of people said that they not only can but the cook better hamburgers. But then the trainer asked the second question. Can you create a business system that will operate as efficient as McDonald’s? The silence has been established….
 

You can criticize their food, you can dislike their traditions… But being honest to yourself you will agree that their business system – the franchising system –is one of the best since 1955.
  Create such a system for you business and you’ll become enough rich for the rest of your life. And students will study the history of you company!
 By the way, McDonald’s has more than 30,000 franchisees. And you?

iSold it (as they say) is #1 eBay seller. They managed to combine traditional and on-line drop-off selling business. You can bring them the things for sale and they will do all the rest – picture, list on eBay, control and after selling they will send you a check.
If you plan to join the iSold It Franchise Network you need to think over the following information.
Advantages:
-         Use national brand (there are more than 900 companies in the chain), wide advertising and public relations;
-         Use special (tested) software
-         Get help from real estate brokers;
-         Easier get SBA loan as the company was approved by the Franchise Registry program.
Costs:
-         $85,500 for a fully operational store, plus working capital;
-         Minimum 1,200 to 1,500 square feet;
-         Minimum 15 feet of frontage;
-         Located in a highly visible strip center;
-         Co-tenants include grocery and national chains;
-         Easily accessible with parking at the storefront.
Under the iSold it Franchise Program a franchisee also has to pay a monthly royalty 4% of the total sales (not gross or net profit). It means that there can be a situation when you have no profit at all but will still pay 4% from the price of every unit sold.