Waiting for the ‘Right’ time to Buy a Franchise?

This is not just about being ‘glass half-full’ or irrationally exuberant about today’s snapshot in time. This is about laying out all the data points and facts and …

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This is not just about being ‘glass half-full’ or irrationally exuberant about today’s snapshot in time. This is about laying out all the data points and facts and rationally concluding that now is a fine time to launch a business. Or, at a minimum, it is as good a time as any…because no matter when you are looking to get in, there will always be plenty of reasons not to take the proverbial plunge. Fact is, there has always been (and unfortunately, always be) geopolitical tension, economic ups & downs, and reasons to not take risks (e.g., buy a business). This is not new at all.

Historically, some of the greatest business launches came at a time when it might have seemed counterintuitive to the academics and the uninitiated. If we rewind the clocks back to 1954 (a recessionary cycle that coincided with the end of Korean War) a young salesman named Ray Kroc began negotiating with the McDonald’s brothers to be their franchise agent. To many, Ray seemed ‘off his (K)rocker’ (or a couple Big Macs short of a picnic, as it were) to be taking risks in such an economic environment. Well, how wrong they were! I really give Ray Kroc a ton of credit, because the reasons not to do it likely outnumbered the reasons to move forward 10 to 1.  But his vision was not as nearsighted as others.

Frankly, it just is not hard to kill a good idea. You don’t even have to be a cerebral academic to poke holes in perfectly good business models. Every day, good and bright people miss out on perfectly viable opportunities because they take a pass on them by allowing the potential for risk to sabotage them. To enjoy any upside potential, there almost necessarily has to be risk in the equation. Otherwise, you are left with models that have low ceilings with limited growth opportunities. My advice to buyers is to go beyond doing simplistic pluses and minuses on the flipchart (I’ll save you the trouble — the minuses usually will far outnumber the pluses) and to attack it by playing-to-win versus not-to-lose.  I am not saying you should eat a consistent diet of risk for breakfast, but I am saying that you should not let it curb your appetite.

Yes, I too read the negative headlines and listen to the pessimistic pundits on their views of the world and here at home. Problem is, they fail to give the positive factors equal airtime. And there are plenty of them. Now, of course the stars are not all aligned and we no one could possibly convince me that it is a perfect time. There has never been nor will there ever be a perfect time. No such thing. Besides, timing the market is a sucker bet anyway – I learned that lesson back in Mr. Murrison’s 11th grade Economics class.

So what are the favorable market forces that are shaping up this time to be as good as any? I could list many, but I will focus on 3 for this article:

Money is Cheap and The Faucet Has Been Turned Back On

The bankers are back and approved loans are happening again. The Thomson Reuters/PayNet Small Business Lending Index was up 18% in 2011 (a 4-year high). After a moratorium of sorts, the lending community is no longer scared of their own shadow. I think everyone realizes that the overcorrection did not solve any problems, and only served to exacerbate them. With a federal funds rate of .25% (the interest rate at which depository institutions actively trade balances held at the Federal Reserve), lenders are duly-incented by the government to close loans. Moreover, the SBA guarantee rate has increased to 90% (up from 75%) which allows lenders to sleep even better at night. And finally, the loan maxes have increased in both the 7a and 504 programs to $2 million and $5 million, respectively. So, most sized projects are ‘in play’ again.

Credit Unions too, have ratcheted up their commercial lending portfolios. New legislation is also paving the way for them to be able to increase their loan base up to 25% of their assets. Other emerging players like BoeFly (the eHarmony of the lending world) are making the loan process more seamless and predictable.
Subhead (Unprecedented Bargains)

Arguably, we’ll never see the tenant-friendly conditions in the commercial real estate market like this ever again in our lifetimes. Right now, you see the terms and conditions skewed to the tenant like never before. Dollars per square foot and other costs like CAM (Common Area Maintenance) are down across-the-board (Retail, Techflex, Professional Office, Industrial, etc) and across the country. And, there are prime, “A” locations that are available that would not normally be in a ‘normal’ environment. You also see flexible lease terms being agreed-to like never before, including shorter commitment periods and easy out clauses.

Even better, you are seeing landlords providing more tenant improvement (TI) allowances and other goodies being thrown in. Just three years ago, it was hard to get a return phone call from some commercial real estate brokers, but now, they are showing signs of humility and a conciliatory spirit. Translation: buyers market.

Market Share Up for Grabs…Who Wants It?

Probably the most strategic, yet still economic and quantifiable, of reasons ‘now is the time’ is that market share is up for grabs. While companies are slashing marketing budgets and taking customer/client relationships for granted, new market entrants with the play-to-win approach are conquesting these customers and accounts and gobbling up market share. The defensive posture some companies have been taking are going to cost them dearly soon.

I could list many other macroeconomic signals as demonstrable evidence that we are ‘out of the woods’ and in the midst of a recovery (e.g., jobless rate falling to 8.5 percent, the lowest rate in nearly two years, business profits being up, consumer debt levels decreasing, etc, etc) but the point still is no matter what the charts and graph say, there will never be a ‘right’ time to start a business.

I am living proof that starting a business in a contrarian environment can be very rewarding. I started my business not long after 9/11 and people thought I had lost my marbles. They all had plenty of reasons why I should not have done what I did (and some of them were actually valid). But thankfully their dissenting opinions were weighted low in my overall decision making equation. As someone with a degree in Economics, if I had relied solely on the indices and forecasts, I would likely not have followed my dream, and still be working for someone that did. 

As the old saying goes, “if you line up all the economists end to end, you still couldn’t reach a conclusion’. So for me, the only conclusion I can rationally arrive at is that today’s climate is as good as any to launch your dream so temper the naysayers and play-to-win. You will like the final score much, much better if you take this approach. 

 

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