Digital Billboards Franchising: Pro and Cons

Digital Billboards Franchising

Digital billboards franchising became somewhat popular in Europe in the early 2000’s where it is offered as a form of “long term rental”, that allows to test the business model for a few months and with a fairly limited amount of initial capital.

Let’s just take a quick step back: what franchising is exactly and what are the main advantages?

Franchising is a business model that allows you (the franchisee) to open your own company by using the know-how of another company (the franchisor). There are several advantages in the well-known formula of franchising, when it is well organized by the franchisor:

Advantages of Franchising

• Tested Business Model: opening your own franchise it means to open your own private business on a model that has been already tested (hopefully successfully) by many other entrepreneurs and that therefore should bring no bad surprises.
• Lower Start-Up Costs: franchising allows you to reduce the start-up costs any activity has, for example by being able to exploit the reputation of the mark without having to invest in advertising. With the support of a parent company, you can also avoid all the costly mistakes made by those who open a new business and that are often the cause of the failure within months from opening.
• Turnkey Solutions: since you're opening a business already tested and where the details have already been studied, the new activity will be delivered to you in a "turn-key solution", that is (for example) with the furniture already defined, forms and contracts already drawn etc.
• Continuous Training: big franchising companies will provide adequate training on both the management practices of the business and sales techniques - while the promotion and marketing are usually handled by the parent company. In successful franchising programs, the training starts even before you open the real business and it continues at regular intervals (e.g. once or twice a year) for the entire duration of your business.

Well it seems the perfect activity. Why then there are not just franchising everywhere? Not only in the digital billboards industry, but in any other sector? Because, unfortunately, the practical implementation of the franchise can hide many serious drawbacks:

Disadvantages of Franchising

• Lack of Support: most of the big franchise companies (like McDonalds® for example), offer extensive training on procedures, a lot of support during the start-up phase and unlimited access to the resources provided by the mother company.
  
  But smaller companies may not be as prepared and professional in this sense, being more interested in selling franchises rather than in the success of the affiliate (i.e. the franchisee / contractor).
• Low Standardization Industry: franchising is applied most successfully in areas that have a high level of standardization, for which can be identified a "formula" for success. Taking the example of the chain McDonalds®, the popularity of this franchise depends on the repetitiveness of the food preparation and standardization of cooking procedures.
  
  In areas with low standardization however, this formula simply can not exist and therefore there can be no guarantee of success (no matter what the franchisor tells you). The low standardization industries are those where the human component is more important, such as those where required customized services are requested by the end user and where, therefore, the preparation of a seller and the availability of the company make all the difference.
  
  Like in the advertising industry, for example.
• Fake Potential: with franchising electronic billboards you are often sold the idea that by entering into the franchise, you become part of a national network of LED screens, where you can share your available advertising space with other entrepreneurs in network and therefore earn on sales made by others.
  
  Unfortunately, the advertising LED screens are a very local business, that targets advertisers within a radius of 10-15 km (maximum) from the installation site of the screen (whether it is in franchise or not).
  
  In fact, Customers who pay to their advertising on a LED screen are typically restaurants, real estate companies, car dealerships, hardware stores etc. So it is very unlikely if not impossible, that a typical advertiser will wants to broadcast his advertising on a LED screen located 200 km away.
• Not a Real Business: inexpensive franchise are often a real hazard. According to Mr Abel E. Malcolm from the American Business Law Journal “most abuses occur in the smaller franchise operations, which sell at less than USD 100.000” (about 70.000 EUR at the moment of publication). You can read the entire article from Dott. Malcom here: http://www.allbusiness.com/legal/618192-1.html
  
  The fact that a business offers a franchise, that doesn’t mean that you will be successful. In some cases, the franchising is the only real business: the franchisor is only interested in selling to more and more Customers and the fact the single franchise is successful or not, it is totally irrelevant to them.
  
  In case you are shown an annual report, keep in mind that it is not the financial success of the franchisor which is important to you, but rather the profits of the other franchisees in the system.
• Unrealistic Promises of Profits without Effort: it is a common practice among franchisors to make a verbal estimate of the profits during the negotiations with the perspective Customer. In some cases, however, these perspectives are totally unrealistic because they promise profits with only six or seven advertisers.
  
  Now, anyone with a modicum of experience in the field of LED billboards will tell you that to be successful in this industry you need at least 15/20 paying customers in order to repay the cost of the screen and get a good return on investment.
  
  By the way, promises of profits without effort are always unrealistic.
• No Government Protection: in most countries there are not effective regulations for franchising. In most cases these regulations do not require disclosing the risk factors of the investment before the franchise is sold to the public.
  
  Unfortunately, many franchisees have unrealistic expectations that the law will protect them from fraudulent franchisors, which is not often the case. In fact in most cases, once signed the contract you are not legally protected in any way.

Franchising as Business Model

To summarize, the great majority of franchisors are serious businesses that really want to develop a successful model, but as in any other industry there are people who are just looking for an easy way to make money.

So they create a “franchise” that looks great but has no substance and absolutely no support or training. They usually target inexperienced people that are so willing to believe in the easy profits that they fail to make a proper appraisal of the business being offered.

How to Purchase a Digital Billboards in Franchising

If you really want to purchase a digital billboard in franchise, I suggest you to contact one of the franchisee already in the network and investigate if he would be interested in selling his business. It is better to buy a “used” franchise, because you can see the annual reports of the business to understand if there are any real profits.

Once established the first contacts, mention your interest in acquiring the asset and carefully assess the reaction of the affiliate: if he is really making profits with his business, he should not be interested in selling his company, unless you make him a very high offer.

On the other side, if the franchisee appears to be immediately interested in your proposal and willing to sell his company (maybe at even less of what you could purchase it from the mother company) then this could be a sign that his business is not going very well and that he can not wait to get rid of everything.

Digital Billboard Franchising: Tell Us Your Story

I'd say it's all for today, but if you've tried the LED video wall franchising formula, tell us your experience (good or bad) and share with our readers by filling in the comment section below. We look forward to hearing your stories.