New Venture Lab: Equipping Christian Entrepreneurs

Should I Buy Into This Franchise?

Question

I am a Christian and college graduate with eighteen years of financial services experience. I am considering a franchise opportunity in senior care, but the franchisor (a friend) has yet to document the entire business opportunity and is offering me a discounted beta rate to be his first franchisee. Can your service help me assess this investment? Also, is it a mistake to venture into an industry I have no experience in? My wife is a new Registered Nurse, but with no experience either.

Answer

First of all, franchises are typically a good way to go for an inexperienced entrepreneur because they usually offer a well-defined approach, business model, brand, and success formula. The downside is that you do give up a substantial amount of value in exchange in terms of the up-front franchise fees and the ongoing revenue royalty.

Having said that though, my concern in your specific situation is that the company you describe has not had any experience with franchisees since you say you would be the first. That would substantially increase the risk for you since much of the typical value of a franchise (as stated above) would not yet be in place and would still be unproven. While there is something to be said for "getting in on the ground floor", I would think the risk would easily outweigh any benefit of being the very first franchisee.

In terms of our services to help you assess the opportunity, you can always use our Venture Analysis tool at no charge to "score" the business opportunity to give you a sense for the quality of the business model. See this post for more info.

In general, elder care is of course a very large, high-growth market as baby boomers age and need care, but I'm not sure you need to give up a lot of value to a franchisor in order to figure it out. It's actually a pretty simply business model and the hardest issue would likely be sourcing your clients. Licensing is typically easy, providing the care requires little more than a spare bedroom or cabins for the clients for a live-in care facility, and leveraging your kitchen to provide meals. I doubt that a franchise could improve much on the operations, so the primary value would likely be in customer acquisition.

I also like the Biblical aspect of caring for elderly, widows, etc., so I've been a huge fan of family-run, home-based live-in elder care. It's especially easy if you have a small homestead with space and outbuildings that can be converted into nice living quarters.

Questions to ask the company:
  • Are you actually a franchise? (you indicated not yet)
  • May I see your uniform franchise agreement? (these typically cost $250k or more and if they are just getting started they may not yet have one - a huge red flag because a lot could change between your beta and any finalization of the agreement)
  • What type of marketing, advertising, and branding support are you currently providing for my territory that will benefit me?
  • What type of leads can you give me for clients based upon your current efforts? ( Then you can compare what you think your customer acquisition cost might be compared to what you would pay them for their service.)
Questions to ask yourself:
  • If I am going to evaluate a franchise opportunity, why don't I evaluate all kinds of franchise opportunities to compare them? See this post for more on that.
  • If I am going to launch an entrepreneurial opportunity, why don't I go through a well-defined step-by-step process of evaluating everything and approach this strategically instead of opportunistically? (You can purchase and download our Building a Business from Start to Finish framework here.)
  • Have I really bathed this decision in prayer and what is God telling me?
Another issue is one of value realized. If the primary value is one of customer acquisition and you are only looking for five live-in clients at $2,000/month, once you have your five clients you would still continue to pay a 5%- 10% revenue royalty for no ongoing or additional value.

Most companies of your type source clients via local elder care homes, social workers, healthcare providers, church bulletins, etc. and with a little hard work you can land the clients you need and serve them without any need for a franchise.

Carlos Lopez Jr. August 7, 2012

This type of generous feedback was exactly what I was looking for. I really like the thoughtfulness of Wade's answers to my questions. As a new member, joining NVL has already reaped benefits. Thanks!

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