Why eBay Franchise Failed
Scott Pooler has a long analysis on why the eBay Drop Off Franchises failed. He is a former eBay Trading Assistant. But his insights on the failure of this franchise system can be generalized.
First, what was the pitch?
"These franchises promised individuals an easy way to be in business for themselves - a way to "have a store without investing in inventory" by offering a simple effective solution to everyone in America's battle with clutter.People heard the story and they believed; they read about eBay's fabulous growth and the amount of merchandise sold every moment on eBay and they felt it was a sure thing.
If any franchise could work for them, this type would because it was easy and it was new and customers would clamor over themselves to get in the door. And really it was a "cheap" franchise to buy"
This was a very effective pitch because everyone can "see" that clutter is a problem. But it wasn't a real business idea because although clutter is a problem, there are a number of solution providers in the market place: garage sales, consignment stores, second hand stores, and the weekly garbage pick-ups.
Second, what did you have to invest in? You had to find a suitable storage site. There was another trap here.
"These prime retail locations usually were recommended to have a footprint in excess of 2500 square feet.The storefront itself did not require more than 300 square feet, but storage would be large consideration.
Usually the overhead numbers involved with operating a 2500 square foot space in prime retail locations were not stressed to the new store owner, but it would be mentioned to cover the basic requirements of disclosure.
Ah, the infamous technique of saying or emphasizing one thing, prior to the deal, and then after the trap has been shut innocently pointing the the FDD or UFOC, saying "well, didn't you read the contract and disclosure?"
The author quite correctly points out the "the U.S. government requires this UFOC document, but they do not provide a course in how to read it. I will say that it is intended to provide many worthwhile protections for prospective franchise buyers, but since most of those same people do not read the document, these protections are rarely understood."
Finally, what training were you given?
"A new store owner is first given a training course, usually lasting approximately 7 days. This course is given by the franchise at a franchise designated location (travel expenses are not included in the up-front franchise fee).The course is designed to teach the standard methods and practices of the franchise methodology of drop store operations. The class will also include many details about eBay rules, eBay practices and eBay listing procedures.
Very little time is usually devoted to the calculation of eBay fees.
Intake, Description, Software Operation, Photography, Storage & Inventory, Shipping, Customer Service (both store front and online) and numerous other topics are covered in this 7 day course.
It really is a lot to absorb, especially if the new store owner has never sold an item on eBay before."
Is seven days of training enough? Well not according to Steven Michael who analyzed franchisor training recently.
" Advance, in-depth training on everything from bookkeeping to dealing with customers and suppliers is a key to survival for franchise outlets, said Steve Michael, a professor of business administration in the U. of I. College of Business.But while some chains put aspiring entrepreneurs through months of schooling, others turn them loose in as little as two weeks, increasing the odds of failure, said Michael, whose study was published in January's Journal of Small Business Management. "
So, there you have the components of failure in a nut shell: a wonderful pitch unconnected with a real business, over investment in fixed costs by the franchisee, and and under investment in substantive training by the franchisor.
