Risk Reversal is important

The problem for so many people when they buy something is that the risk stays with them and isn’t passed on to the person they are buying from.

Let me explain what I mean.

We recently had plumbing issues – no real plumbing issues with our pipes and everything.  The guy fetched up having informed us that there was a £99 call out charge.  He couldn’t find anything wrong, didn’t do any work, used our toilet and left.

What we were left with (apart from a smell) was a £99 hole in our budget and the same issue.

We were happy to pay the £99 but just think about how we would feel if the plumber had reversed the risk.  For example, if he charged £99 when he found the problem but there was no charge if he didn’t.

The risk would have been transferred from us to him; something that would be very, very valuable.

We’re finding the same when we talk to new franchisors we’re working with.  They are looking for professional advice and help to set up their franchise operation – and quite right, too.

The thing is, they’re concerned that there’s a possibility they could pay over many thousands of pounds (often tens of thousands) without any guarantee of results.  In other words they are shelling out a ton of cash but carrying all the risk.

But what if a franchise consultant reversed the risk?  For example, what if the franchise consultant fixed the fee for their consultancy depending on what needed to be done and then reversed the risk by guaranteeing to deliver two franchisees as part of the package, no matter what that took?

Would it be valuable to the new franchisor?

You betcha.

Although it doesn’t quite like this, effectively, if the franchisor and the consultant structure things in the right way setting up the franchise operation actually ends up paying for itself.  In other words the risk has been reversed.

And that’s exactly what a colleague of mine is doing – he has set up a thing he’s calling fixed package franchising.  The package includes manuals, agreements, processes, branding, legals and… two franchisees.

And those two franchisees are guaranteed.  My colleague delivers two franchisees no matter how long it takes.  And he won’t deliver just anyone; they have to be right for the operation and right for the business.

Risk reversal.

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