Legitimate MLM businesses can be enormously profitable, but there’s a catch: the failure rate is really high. You see, prospective MLM entrepreneurs tend to underestimate the amount of work involved in team-building. While getting involved in a particular MLM business might seem like a no-brainer opportunity to you, your prospective team members (i.e., the targets) probably won’t be as enthusiastic. The unexpected rejection can prompt discouragement, which is the kiss of death for any entrepreneur.

One thing people overlook is that launching an MLM business is like launching any other business. It takes research and planning. You need to research the business model and your personal skill set to determine if the opportunity is even viable. Then you need to create a plan to grow your business, and that plan must include specific strategies and staggered objectives. Building an MLM business is not as easy as talking to your friends and family.

If you aren’t sure where to begin this planning process, you can retain an MLM consultant to help you. An MLM consultant can provide insights that will keep you from getting shot down with unexpected surprises.

One MLM Consultant with pretty extensive experience is LaunchSmart. The company has been working with MLM entrepreneurs for more than 20 years, guiding those business owners to success. What sets LaunchSmart apart is its experience working directly with MLM giants, such as Herbalife, Tupperware, AmeriPlan and Prepaid Legal. You can learn more about LaunchSmart, its client list and its four-step system at www.launchsmart.com.

If you’ve tried to find this type of instruction, you’ve likely found yourself wondering how to tell the difference between scams and legitimate opportunities. Believe it or not, there’s an easy answer to that question, and it lies in your expectations. No business system you buy or invest in will make money for you. At the end of the day, you still have to do the work, solve the problems, make the adjustments and persevere through challenges.

Said another way, the service providers that offer to help you make money online are educators, not miracle workers. You still have to be the student and put the lessons into practice.

Take the Maverick Coaching Plan as an example. This program provides you with training on starting and operating a home-based, Internet business, which you can do “on the side” or as your full-time job. The program is geared towards real Internet newbies: those who don’t know much about html, Web site building, PPC campaigns and the like. The business model focuses on affiliate marketing, so you only need your computer, an Internet connection, and the right know-how to get started. Training consists of detailed video instruction and 24/7 access to a support team, in return for your monthly subscription fee. Interestingly, though, the Maverick Coaching Plan offers you a money-back guarantee. If you don’t make money in the first 60 days, you can get a full refund.

Now, if you view an opportunity like this as the road map to easy money, you’re going to be disappointed. But if you are highly motivated to launch an Internet business and clueless on where to start, this type of coaching plan may be a good fit. Consider the alternatives. You can get a master’s certificate in Internet Marketing from University of San Francisco, which will cost you about $6000. You can get a master’s degree in Internet Marketing from Full Sail University. That one will cost you about $30,000. Or you can educate yourself, which will be free, but time-consuming. All of these options have advantages and disadvantages — it’s up to you to pick the one that suits your learning style, time line and entrepreneurial objectives.

For additional insights, consider reading my series on evaluating franchise opportunities; many of the same concepts apply here. To learn more about the Maverick Coaching Plan and to watch sample training videos, visit http://www.MaverickEarningPlan.com.

*This is a sponsored post. All opinions are mine.*

You know, you’re right. You can still succeed in a franchise even if the business has a high failure rate. But don’t make the assumption that because you’re smart, you’re going to make it. Why? Because this assumption can cause you to gloss over the hard-hitting questions you should be asking about a small business franchise opportunity, such as:

1. Is this small business franchise viable in my community?
2. Do I have enough capital?
3. Does the cost structure make sense?
4. When will I be breakeven?
5. Who will my customers be?
6. How will I let my customers know that I’m here and in business?
7. Will I be providing a product or service that people need?
8. Will my target customers need the product or service enough to pay for it?
9. Does the employee pool in my community provide workers with the skills I need?
10. Who’s my competition? How will I differentiate myself?

In reality, you probably are smarter and more experienced than the franchisees who came before you. By reading this article, for example, you’re demonstrating your desire to make a solid and well-informed decision. That’s a huge first step towards your success — but you still have a long way to go. No matter how smart you are, you still need to know the ins and outs of the business model. You need to know its strengths and its weaknesses. You need to know the potential pitfalls. You need to know where you will win and where you will lose. If there are flaws in the business model, you need to define them and, if possible, limit their impact on you. And all of this evaluation and analysis has to happen before you make the decision to buy the small business franchise. Because once you buy it, there’s really no turning back.

Forget about IQ

There’s a flip side to this coin too. Just as you shouldn’t assume your brains and experience will create your success, you also shouldn’t assume that other franchisees failed because they weren’t capable of running a business. Don’t get me wrong. Franchisors do sell small business franchises to individuals who aren’t well suited for the role of entrepreneur. But again, when you decide that franchisee incompetence created the failure, you may not see other factors that likely contributed. An inexperienced franchisee can fail with a good business model or a flawed business model — but you don’t know which one you’re dealing with if you chalk all the failures up to “human error.”

If there have been a lot of failures in the franchisee system, you might hear this explanation from your franchisor: “Well, we’ve been doing a better job of qualifying our franchisees…” Don’t accept that explanation! Here’s what you really want to know:

1. If the failures resulted from lower-than-expected sales or higher-than-expected costs
2. If the sales were too low, was the problem related to the average transaction size or the number of transactions
3. If it’s a retail business, was there insufficient customer traffic? Or did the stores drive traffic, but not sales?
4. If costs were the problem, was the cost of product too high? Or did the franchisees spend too much on non-product-related expenses?
5. Were there other issues, like legal problems, industry trends or aggressive competition?

If you don’t know the answers to these questions, it’s tough to make an informed decision about buying into a failure-ridden franchise system. You may be smart and you may be savvy. But that doesn’t mean you want to take on the challenge of running a business that’s flawed. There are easier ways to make money.

This is the last episode of our franchising series. In summary, remember these five tips when evaluating a small business franchise opportunity:

1. Don’t assume the system is proven.
2. Don’t assume the Franchise Disclosure Document isn’t misleading.
3. Don’t assume the Franchisor is motivated to see franchisees succeed.
4. Don’t assume you can be trained to do anything.
5. Don’t assume that you’re smarter than all the other franchisees who failed.

Questions? Send them to us at questions@businessmorgue.com. We’ll address them in the next episode and publish your information on the site.

“Well I don’t have any sales experience, but I’ll just have to learn. My franchisor will give me the training and coaching I need, so it’ll work out.”

By law, franchisors have to spend a certain amount of time training you to be a franchise owner. This training generally covers basic topics related to running a business, plus any specialized skills related to the franchise’s specific operations. If the business requires you to cold call and sell, you will be given sales training. If the business requires you to use specialized equipment, you’ll be introduced to that. If you will need to hire and train staff, you will be shown how to get those tasks done as well. You’ll also be given an operations manual that outlines most of what you need to know to run the business.

While training is a good thing for any profession, you do have to approach it with realistic expectations.Don’t assume that you can pick up a new skill and be a pro after two weeks of instruction — particularly if certain aspects of your personality conflict with the skill you are trying to learn. For example, you won’t become a rock star sales person if you are shy. And you won’t become a good manager if you hate people. You might learn these skills with diligent practice over time, but it’s just not going to happen overnight — despite what your franchisor may tell you. That’s why failing to address the role your own personality characteristics play in your future business possibly sets you up for a very hard fall.

Overnight salesperson

Franchises that require direct, B2B selling are notoriously tougher to operate than you might think. No matter how amazing your product or service is, many of your prospective customers will simply be lukewarm to your presentation. And that’s if you’re fortunate enough to get a meeting scheduled. Think about it; your prospects have probably already heard every pitch in the book. They’ve bought into bad promises and they’ve gambled on the next big thing. And they’ve been disappointed. So they’re skeptical and reserved. They don’t trust you. An experienced, confident sales person understands that this is the nature of sales. It’s like batting averages; the really good ones only close three of every ten customers they pitch.

The lesser experienced salesperson — say, the newly minted, inexperienced franchise owner who’s just completed sales training — might get discouraged and frustrated with the difficulty of his mission. Discouragement can quickly become incompetence and, ultimately, failure. Believe me, I’ve seen it happen. And it’s not pretty.

Instant manager

The same dynamic applies to management skills. Effectively leading your employees to buy into the mission of your business is not a skill you learn overnight. But it’s a skill that directly influences the success of your business. You just can’t expect your employees to have the same drive and determination as you. Sad as it sounds, you have to inspire them not to steal from you, show up late or not at all, leave equipment turned on at night, work slowly on purpose, or yell at your customers. Just like the inexperienced salesperson, the inexperienced manager can get caught off guard by difficulty of the task at hand.

Self assessment

So you have to take a good, hard look at yourself to decide if you have the skills needed to run the franchise effectively. Don’t expect your prospective franchisor to tell you that you’re not a good fit for the business; that’s just not likely to happen.

If you are lacking in certain skills, you have two choices: find another, more suitable franchise business to buy, or find a way to get the experience and training you need. Don’t assume that your franchisor’s training program will be enough. Most of the time, it won’t.

If you have questions about this episode, feel free to email them to us at questions@businessmorgue.com. We’ll publish your questions on the site and address them in the next episode of the podcast.

“The Franchisor wants me to be successful. With that kind of support, I can power through any business challenges that come my way.”

Here’s where I have to tell you more about our franchise story: we still own and operate the franchise we purchased. After a terrible first year, we turned things around to achieve moderate profitability. It’s not the kind of profitability you dream about; it has to be healthily supplemented with other lines of business to be even worthwhile. But we found a way to make it work. And frankly, the support of our franchisor was not a factor in the turn around. In fact, at times, we went directly against the advice of our franchisor. I can think of two specific pieces of franchisor advice that would have likely put us out of business if we had followed it. There have been times when I truly wondered if franchisee churn was the franchisor’s true business model.

The reality is, franchisors only care about your success in as far as it facilitates their success. And this is not really unreasonable. You would do the same thing. If you had a choice between firing yourself or firing an employee, for example–you’re going to fire the employee, right? In the same token, your franchisor will, at the end of the day, pursue its own success. Even if that negatively impacts you and your business.

Real-life scenario

Here’s a real-life scenario to consider. Say the franchisee is losing his shirt and wants out. His options are: turn the business back over to the franchisor or sell it to a new franchisee. He goes to the franchisor and explains that he wants to sell the business; he asks that anyone who approaches the franchisor with an interest in buying that business be referred to him. And then the franchisee waits, hanging on for as long as he can. He can’t find a buyer. He finally decides to walk away, for fear of losing more money. Shortly thereafter, the franchisor has magically found a buyer for the business. Only now, instead of having to refer the new buyer to the franchisee, the franchisor can sell the business directly, for the full franchise fee. Did the franchisor just keep that new buyer waiting in the wings, until the franchisee inevitably gave up? Sure looks that way. Note that I’ve seen this happen more than once and involving more than one franchisor.

And why is this important for you to know as you evaluate your franchise options? Because you can’t run a business effectively if you truly believe the franchisor’s looking out for you. To be an effective entrepreneur, you have to be comfortable making informed decisions, as opposed to taking advice or following the lead. While you can ask the franchisor for advice, you have to be willing to evaluate that advice — to decide if it’s right for you and your business. You have to think and act outside the box, as they say, to create your own success. You can’t do this if your primary method of problem-solving is to call and ask your franchisor for advice. And you can’t do it if you assume the advice you get is rock-solid.

For that matter, the same dynamic should apply when you are interacting with other franchisees within the system. One of the positive aspects of owning a franchise is being able to tap into the franchise owner network for advice and support. But remember that the advice you get from other franchise owners may not apply to your market and your business.

So be prepared to be an independent thinker. If you don’t accept total responsibility for running your franchise now, you could find yourself in a bad place — and wondering how you got there.

If you have questions about this episode, feel free to email them to us at questions@businessmorgue.com. We’ll publish your questions on the site and address them in the next episode of the podcast.

When you are researching a prospective franchise business, you are provided with a pile of paperwork. Pages upon pages of official-looking documentation that details your upfront and ongoing costs and other issues particular to the business. This documentation is prepared by lawyers and filed with the state. And still, believe it or not, that documentation may be entirely misleading.

Operating and start-up cost estimates can be particularly problematic. Since the franchisor can’t legally give you detailed income statements and balance sheets for every franchisee, you get averages and ranges. If you don’t think carefully about how far off an average can be from true experience, your franchise business may be sunk before you even open the doors. On top that, the franchisor may not be diligent about collecting information from every single franchisee in the system. In reality, the most successful franchisees are the ones most likely to report their information. This would skew the range away from being credible and reliable.

Also remember that the franchisor is trying to sell you something, in the same way a car salesman wants you to buy a car. So if that franchisor can get away with leaving certain details out of the FDD/UFOC, you can bet those details will be left out. If the franchisor can get away with presenting numbers in their most favorable light, you can bet that will happen too.

Of course, I speak only from the experience of having purchased one franchise. The FDD I was given was strictly a marketing document, filled with questionable facts and over-arching assumptions. There are many who would disagree with this characterization of the FDD, but I stand by my experience. Other franchisors may be far more concerned with pitching an accurate representation of the franchise business — I don’t know. But it never hurts to be too careful.

Steps to take

So if you can’t trust the documentation, what can you trust? Well, here’s what you need to do:

• Analyze the ownership changes in the system
• Interview existing franchisees
• Do your own research

The franchisor has to disclose the composition of ownership within the franchise system. Start by reviewing how many operating franchises have been sold to new franchisees as well as how many have been taken over by the franchisor. Ask your franchisor to detail any ownership changes that occurred after the FDD/UFOC was printed. If you see a rash of ownership changes within a short period of time, consider this a red flag. Be particularly concerned about franchises that became corporate-owned — as this means the franchisees likely gave up and walked away from their investment.

At some point in the process, you will have the opportunity to contact and interview existing franchisees. Take these interviews seriously. Ask detailed questions about the support they receive from their franchisor, their margins, the time it took to reach stability in the business and so forth. Question the franchisee about expected and unexpected business challenges and successes. Always ask the franchisee what she would do if she had the opportunity to buy or not buy the business again. Note that the franchisees do not have to disclose detailed financial information to you, so be tactful and polite in your question-asking.

Be concerned if your prospective franchisor tells you what questions to ask or wants to limit your interviews to certain franchisees.

Finally, you need to do some independent research to verify the cost data put forth in the FDD. Check on the cost of retail or office space as well as business insurance, permits, and any other expenses that may vary by location.

It also doesn’t hurt to search for the franchise on BizBuySell.com. If you see dozens of franchisees trying to sell their businesses at dirt cheap prices, start asking questions.

Next up, why you should never assume the franchisor is wholly motivated to make you successful.

Let’s face it. If a franchise opportunity were the tried-and-true formula for being successful and financially independent, everyone would be doing it. In reality, buying a franchise and working that business to stability (and then success) has its pitfalls. Having been through the process of purchasing, owning and operating a franchise business, I can tell you — the experience has been eye-opening.

Before you take the leap by signing that Franchise Agreement, take a deep breath and make sure you aren’t making assumptions about the franchise opportunity that lies ahead. In particular, don’t assume that…

The system is proven

Prospective franchisors tend to use the phrase “proven system” liberally. If this phrase means anything at all, it means only that one of the franchisees in the system at one time, in one locale, has achieved moderate success. It does not mean that the franchise business model has proven itself in your community, with your prospective customers, and with you as the owner. Be realistic about the value of the “system,” because business success in today’s world just can’t be whittled down to a formula.

In reality, small business success often has more to do with the entrepreneur behind the scenes, the individual who’s making the sound decisions to keep the business afloat. If you can run a franchise opportunity successfully, it’s likely that you can run any business successfully. In other words, the system does not create or ensure your success.

So how do you evaluate the cost of a franchise opportunity? What benefits will you be paying for?

An effective franchise model should streamline your start-up and ongoing operations: you don’t have to create a brand, you don’t have to decide how to lay out the inside of your retail space, you don’t have to select a product set, etc. There are many franchise opportunities out there, and each fulfills the efficiency promise to a different degree. You’ll have to evaluate each opportunity relative to if you tried to start up a similar business independently.

Two other important factors to consider when justifying the cost of a franchise opportunity are:

*Buying power. The franchisor should be able to consolidate the buying power of all the franchisees to keep your operating costs low — lower than they would be if you went out and secured vendor relationships on your own. Ideally, the cost savings should offset your ongoing licensing fees. To assess the value of a franchise opportunity’s buying power, go out and price your own inputs as an independent buyer. Say you are considering a Subway franchise; you need to compare the cost structure of an independent sub shop to that of the Subway franchise.

*Brand recognition. The most valuable franchise opportunities come with a recognizable brand name. Opening your business under a brand that’s already established potentially gives you immediate access to a base of brand-loyal customers. As soon as the Subway sign goes up outside your building, you may have people dropping in — because they already know what the Subway experience entails. By comparison, they won’t know what to expect from Joe’s Independent Sub Shop, so they’ll be more resistant to trying it out.

It’s tough to put a price on brand recognition. What you can do is assess how well the brand is known locally in your community. Had you heard of it before you began pursuing the franchise opportunity? Do your friends and neighbors know the brand? What are their perceptions of the brand? Is the franchisor taking steps to maintain and build the brand’s power through local, regional or national advertising?

If the brand is not well known, the up front and ongoing costs associated with the franchise opportunity should reflect that. Don’t get fooled into thinking that a “proven business model” is more compelling than a recognized brand name. It’s not.

This article series will continue with the next assumption you should never make about a franchise opportunity: that the Franchise Disclosure Document isn’t misleading. Come back for that discussion shortly!