Small Business, Big Burden

A friend of mine sent me this in an email the other day. He seemed surprised. In fact, that was the gist of his "Subject:"... surprise. I wasn't.

Let me quote from the article:

If you think of Domino's (DPZ) as a pizza-delivery chain, you're only partly right.

What you might not know is that the corporation's real money comes from selling dough and toppings to franchises, not from delivering pizza to your doorstep. Every year, in fact, more than half of Domino's revenue results from supplying ingredients and goods to its stores, 97% of which are operated by its franchisees.

That a franchiser, such as Domino's, makes a profit from its franchisees should be no surprise to anyone. Likewise, that the bulk of its profit comes from them should also be a no-brainer. The specifics of the agreement between franchiser and franchisee might be a surprise to many. At least to those who never looked into starting a business.

Starting a small business is not easy. There are so many things one needs to consider: initial outlay (aka "startup costs"), probable operating costs, staffing needs, location, and so many more that the mind often boggles at the enormity and complexity.

In my case, I considered the idea only relatively briefly. I am, after all, the laziest person you might ever meet and I am also very wary (perhaps too wary) of being used for profit (or anything else, for that matter).

Franchises take much of the guesswork out of starting a business. Most franchisers explain in detail all of those things I mentioned above and guide you through them. They train you in how the franchise should operate, what to expect, and offer many advantages to the new entrepreneur. You know, for example, who your main supplier will be and get a good idea of the cost of those supplies. Advertising costs, which are very important, are mostly borne by the franchiser.

But there are initial startup costs, not the least of which will be the franchise purchase. You will likely have to borrow to meet that cost. In fact, you will probably find that you will have to manage debt in a way the U.S. Government never seems able to do. If you are the type of person who is shocked by the size of your credit card debt each month, operating a franchise is probably not for you.

I applaud those who start up businesses, I applaud those who open a franchise, these people are the foundation of a free enterprise system.

I am, however, not one of them.