Place Your Bets On Franchising

I have never been much of a gambler but have always played games.  Growing up in the 1960’s and 1970’s there was no commercialized internet and less than 10 channels on TV, we spent much our time playing card games.  It started with games like “War” and “Go Fish” and as we grew older, so did the complexity of our games.  Games like Gin Rummy, Hearts and Spades started dominating our card play.  In college, I’m embarrassed to tell you how much time we spent playing, the games of choice were Euchre and Backgammon.  I did love playing poker, but it was a social event and I always played for small stakes.

When I think about games and betting. I focus on two primary drivers, they are: Luck and Skill.  So, if you think about Roulette, the outcome is pure chance or luck.  It can not be predicted and since there is no ability to predict the future outcome, there is no skill involved.  Think of the card game War, did you ever hear anyone say they are the “best War player in the world.”

On the opposite end of the spectrum are games of pure skill and Chess is a great example.  In Chess, there is nothing hidden and there is no such thing as luck – no flop, dice or draw.  The moves made by you and your opponent are the only variables. 

Games like Poker, Gin Rummy and Euchre are games of skill, but they require the players to deal with uncertainty.  Both the decisions your opponents make and the hidden information (i.e. you don’t know the cards your opponents are holding).  Additionally, many but not all, of these games have the element of luck (i.e. the roll of the dice or the flip of the cards) that will influence the outcome.

Now to an important question – How is investing in a business like games and gambling?  The answer is that hidden information, skill and luck all play a part.  Annie Duke’s 2018 book, Thinking in Bets: Making Smarter Decisions When You Don’t Have All the Facts, identifies what a bet really is, “a decision on an uncertain future.” Her premises is, thinking in bets starts with realizing that, “there are exactly two things that determine how our lives turn out: the quality of our decisions and luck.”  So, what do good poker players and decision makers have in common?  Annie sums it up as:

“their comfort with the world being an uncertain and unpredictable place.  They understand that they can almost never know exactly how something will turn out.  They embrace the uncertainty and, instead of focusing on being sure, they try to figure out how unsure they are, making their best guess at the chances that different outcomes will occur…”

Even in games with hidden information, no one can argue that experience does not matter.  An expert in any field has an advantage over a rookie.  While neither one will know what the next card will be, the veteran will have a better guess.

Understanding games and gambling has cemented my faith in the franchise business model because it greatly improves the quality of your decisions.  If you think about how you can improve your decision making, the two variables that you have control over are reducing the amount of hidden information and experience – becoming an expert.  A proven franchise models gives you both.

Franchise companies are required by the Federal Trade Commission and many states to file a Franchise Disclosure Document (FDD).  There is a wealth of information in this 200+ page disclosure, everything from audited financials of the franchisor to a list of all the franchisees that closed their businesses for the last three years.  Additionally, if you follow our process at The You Network, you will validate your assumptions by speaking with the franchise owners that are operating in the system.  It is all about making the “unknown known” thereby increasing your chance of winning.

The other part of this is experience.  When you buy into a franchise system, you are buying 5, 10, 30+ years of experience.  You must be willing to listen to the franchisor’s advice, because they have made the mistakes, learned from the experience and are selling that to you as part of the franchise fees.  I love Annie Duke’s story about Nick the Greek who had formed a strange set of poker beliefs.  His logic was that starting with 2 aces in the hole was bad as it was predictable and using his logic, having a seven and a deuce of different suites was the best.  A “bet you never saw coming, he would say.” Annie explains, “Nick the Greek, needless to say, rarely come out ahead, yet he never changed his strategy, often complaining about his bad luck.”

Which brings me the last part of franchise investing, luck.  You might have selected a path with a very high likelihood of success and gotten unlucky.  It is important to note that what makes a decision great is not that it has a great outcome.  A great decision is a product of a good decision process because good and bad luck exists.  What we are experiencing today with the pandemic is a great illustration of the role luck can play in your decisions. 

In the town next door to me, around the first of the year a new restaurant opened, and the name had a roman numeral II after it.  Good location, good market and they would appear to be experienced in the business.  You don’t need me to tell you the outcome because the same thing is happening everywhere in every town.  Good businesses are closing and will never reopen, through no fault of the owner nor the decision-making process. 

It is important to note that where there is bad luck, there is also good luck. What has been the death of many businesses and loss of many jobs has also created an incredible growth opportunity.  If you purchase a senior care or cleaning or home service franchise at the beginning of the year, luck would have it, you are growing and scaling up your buisiness like never before.

I think I will end with a quote from Thinking in Bets:

“How can we be sure that we are choosing the alternative this best for us? What if another alternative would bring us more happiness, satisfaction, or money? The answer, of course, is we can’t be sure.  Things outside our control (luck) can influence the result.  The futures we imagine are merely possible. They haven’t happened yet.  We can only make our best guess, given what we know and don’t know, at what the future will look like…When we decide, we are betting whatever we value…on one of a set of possible and uncertain futures. That is where the risk is.”

If you think this the time to explore a change and would like to discuss the possibilities, we are here for you.