We've had a few customers ask us about franchising in the past, and put simply, we never steer anyone in this direction. On the outset of opening a karting facility there's quite a few uncertainties, you as a business owner are looking at a large investment without truly knowing what kind of return on that investment you are going to get. The karting industry has seen a pretty good return over the past year and a half, but it still has a way to go to be back in it's glory days. The future is brighter than ever right now for entertainment facilities, but you have to be careful and make sure you put the right foot forward, every step you take.
With that said, we can see the juicy carrot that franchisors can hang in front of you. The things they usually offer seem like they would make opening a kart track easier, and in some ways that is definitely true. However; be wary of what you are truly giving up to get these few conveniences in the beginning.
Let's look at what a typical franchisor will entice you with:
Every franchise will offer you some type of branding. This might help you if you don't have a single creative bone in your body, but truly, that's about it. They can offer you pre-designed forms, marketing materials, logos, etc. But how much do you need to pay for these? Do you think you could get these materials at a better price? I'm willing to bet you can, but I'm also willing to bet your agreement states you need to purchase all your materials from the franchisor, which is just another way for franchisors to extract money out of your location.
Paying for branding makes sense when your are licensing a nationally known brand that brings warm fuzzies to customer’s hearts without ever having set foot in your facility. This just will never happen with the karting industry. 99% of your customers aren't going to care what brand of kart track you are, they just drove by with their buddies and it looked like fun. Or a Mom wanted to throw a birthday party for her son...do you really think she's going to drive past one kart track to get to the one with the brand she's heard of before? No, she's going to go to the closest, easiest location. So while this might seem like it takes some work load off you in the beginning, the ROI on paying for someone else's branding in this sector is just money down the toilet. Money that could be padding your bottom line.
Most franchisors will offer some sort of site selection and design cue assistance. This is another bad carrot to the uninformed. This industry is an amazing industry that harbors a lot of business owners and vendors with surprisingly open doors. Every kart vendor we've ever worked with will help you design multiple tracks for your chosen location and most will even travel out or look over site blue prints to help you decide if the pole spacing in a facility is conducive to racing. We as a software vendor have help innumerable customers in choosing layouts for buildings and trying to design the internal flow of customers to best suit optimum throughput.
If you call around to a lot of tracks, be open and honest about wanting to pick an owners brain for a couple minutes you'd be surprised how many will take the time to talk to you and convey their mistakes and what they would do differently if they could do it over again.
This is all free info, in the case of vendors, they are obviously helping you because they want you to succeed. Its a symbiotic relationship. You succeed, your vendors succeed. However, you both succeed without the restraints of a legal agreement. Do the colors of a certain franchise not suit you? Maybe you want to hold off on spending $250,000 on tenant improvement and "ambiance" so you can get the doors open and a positive cash flow. Not going to happen with a franchise. You need to do it the way they've decided it should be, whether that's right for you or not.
Karting facilities also offer you great leverage when initially opening. We've seen a lot of guys offer Holiday parties and company parties to contractors and vendors in order to open the doors with the least amount of out of pocket expense as possible. You probably won't have this leeway with a franchise agreement as they have already gone to their vendors and setup agreements that suit their bottom line, not yours.
Obviously we're a little biased on this one, but in actuality, this can be your biggest competitive advantage, or your biggest pit fall. We aren't particularly fond of the franchise model, so we don't lock customers in through anyone's franchise agreement. What does that mean? Well, if you're signing a franchise agreement, then you are instantly putting yourself at a disadvantage. Club Speed ® is simply put, the premiere timing and venue management software suite on the planet. If you are signing a franchise agreement, you're getting left behind before you even start. If the software that your franchisor has chosen is a broken, Frankenstein of a software that just doesn’t offer the scalability, features, and most importantly price that you need....well, you're up the proverbial creek.
Just as important as the software is the karts. Make no mistake; those little 4 wheeled wonders are your life blood. If you have a crappy fleet of karts that don't perform, break constantly, parts cost too much or new parts take ages to get, don't fool yourself and think that you're customer's won't notice.
Your fleet of karts are your bread winners. In the examples above, if the group of guys that came in for some weekend fun have drastically different performing karts, do you think they'll be back again soon? If the birthday boy can't race with all of his friends because a couple kids karts are out of commission waiting for parts do you think that Mom is going to be raving about you on Facebook?
No.
If you have a franchise can you choose a different kart supplier?
No.
Don't lock yourself into something without knowing if it's best for you. You might not know if it’s not best until its too late. Maybe you ordered 40 karts and they just aren’t up to your expectations. At least you can sell them off and get something else. Or drive them till the wheels fall off and look for another supplier the next time around. With something this important you do not want handcuff yourself to one horse.
Take a long hard look at your franchise costs. And I mean really figure out exactly what it's going to cost you. There's simply no reason you should pay 1.5 - 2.5 million to open an indoor karting facility when it can easily be done with $1 million or less. This is a lot of money we are talking about. The difference between making it or breaking it. When I said you want to put your best foot forward...this is a very big foot you're putting down. Every penny you save before you open is money you don't need to make back before you're profitable.
Humor me for a second, and let's do some over simplified math. Let's say you give a franchisor $2 million to open a facility. If you are selling 10 lap races at $15 a piece, that's about 134,000 individual paying customers, or 13,400,000 laps before you turn a profit...and that doesn't even take into account any expenses like rent, payroll, insurance, etc. AS WELL AS THE 3-4% standard royalty fees a franchisor will charge you. That's another 500,000 laps on those karts you need to do in order to pay your franchisor.
Same scenario, but you shouldered the opening yourself and used $1 Million. 67,000 individual customers, or 6,700,000 laps before you are turning a profit...and 100% of that profit is yours. No licensing fees, no extra laps on those race horses of yours. You are the master of your domain.
This is quite obviously over simplified. Its not a detailed run down, because each case will be inherently different from the next. It's intended to get you thinking in the long game. Those extra 500,000 laps on the karts cost you money in maintenance; both in parts costs, tires, electricity or gas, payroll to pay a mechanic to work on them, shipping to get you the parts, etc.
This one is just too easy to pick on. Do you really think you're going to get the best price through a middle man that's already worked out a deal where they get either better pricing than you, or a kick back of sorts to pad their pockets? You agree to buy their products under the guise of uniformity, when in reality it’s just another profit center for them, not you.
Don't take this all just from us. Be smart. Do your research. Make sure you know EXACTLY what you are getting into before you sign something. Ask for pricing on all of your marketing materials, signs, karts, anything that they say you have to buy from them, get a price list and then go shop around and see the profit margin they are making.
Forbes.com has a great list of the reasons not to buy a franchise in general. You can read the full article here:
Forbes - Ten Good Reasons Not To Buy A Franchise
Here's a synopsis:
1. Questionable Profitability - "Usually franchisers give only average sales figures and profits before expenses are deducted, numbers that aren’t very helpful..."
2. High Startup costs - It can easily take years to recoup the franchisers initial startup fees.
3. Encroachment - Franchisers usually reserve the right to operate anywhere...even in your backyard.
4. Lack of legal recourse - Most franchisers will have you sign your soul away, making any sort of legal recourse prohibitive and usually in a far off state.
5. Limited independence - most franchisers impose price, appearance and design standards on franchisees, limiting the ways you can operate the franchise.
6. Royalty payments - Franchisees are generally required to make continuing royalty payments...eating into your bottom line.
7. Inflated pricing on supplies - In many cases, the franchiser can designate your franchise’s supplier of goods and services. Franchisers argue that this is done to maintain quality control, but almost all franchisers receive kickbacks from the vendors.
8. Restrictions on post-term competition - Think you can run this business better? Too bad, you signed a non-compete agreement.
9. Advertising fees - Just know this...the franchiser has no fiduciary duty to its franchisees...ouch.
10. Unfair termination. Even the slightest impropriety on your part, such as being late on a royalty payment or violating the franchise’s standard operating procedure, can be cause for the franchiser to terminate your agreement
That's not a quick read, but this isn't something you should choose lightly. Building an entertainment facility from the ground up can be a daunting task, and might look a little overwhelming at first. But it's not impossible, there are literally 1,000's of tracks around the world where 1 person or a couple of people hunkered down and got it done with great success. Don't sell yourself short, don't give up your hard earned profits, and definitely don't lay down and let someone else feed their baby on your sweat, blood and tears. The pluses to going it on your own are just too large to take the easy road on this one.
As always, send us any comments, questions, etc. here Staff@ClubSpeed.com
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