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By now, the laser-like focus of the virtual world on the hoax video by two misguided Domino’s pizza employees and the effectiveness of Domino’s corporate response has dimmed. But for a few days last week this story was the train-wreck we couldn’t stop watching.

No question, Domino’s has been a very successul franchise. And in this economy, people losing their jobs may be tempted to go into business for themselves by buying a franchise business. You can find dozens of articles claiming that franchises are recession-proof. There are plenty of companies that will, for a fee, help you select the right franchise opportunity.

If this thought crosses your mind, there are a lot of issues to think about besides a stupid joke video tarnishing your corporate reputation. Franchised businesses, like everything else in life, have their pros and cons.

The main reasons to buy a franchise are that you are provided with a proven business model, given administrative support, trained on all aspects of the business from hiring to making the product and marketing known brands that will attract people to your location.

The main reasons not to buy a franchise are that the franchise system is new, weak or not well-developed, you won’t get enough administrative or operational support/training, you may be forced to buy supplies or raw materials from the franchisor at an inflated price, or the trademark/brand is tarnished or weak.

In fact, the main asset of a franchise is its brand or trademark. The customer’s loyalty is to the brand, NOT the individual franchisee. Nobody walks into a McDonald’s because they know the owner; they go because they want a Big Mac, Coke and fries. And the quality of these items should be the same from Murphy to Manteo because every franchisee is making Big Macs with the same ingredients and using the same system.

Chief among things to consider when evaluating a franchise opportunity is the reputation of the brand. What is especially unfair in the Domino’s affair is that every single Domino’s franchisee (local owner) suffered because of the two idiotic North Carolina employees who thought they were being cute on YouTube.

Pointing out the obvious (and new!) power of social networking is Nightline reporter David Wright: “What seems to have changed is a couple of yahoos in a pizza joint sticking cheese up their nose can threaten a global brand.”

So if you are planning to invest tens or hundreds of thousands of dollars to buy a franchise, it is important to do your homework. You should be given a Franchise Disclosure Document that contains financial information, lawsuits, bankruptcies, franchisees who have left the system and other important information.

It is crucial to have an accountant or financial advisor review the document and assess the profitability of the business, and to have an attorney review the franchise agreement. You want to know what happens after the initial term of the franchise agreement, if the franchisor goes out of business, what types of fees you will pay to the franchisor, and what happens if you under-perform.

Even so, recent events demonstrate that a prank can capture the world’s attention for a few days and tank your business because your wagon is hitched to a national brand and because any franchise is only as strong as its weakest link. Google the franchise name and you may discover just how strong, or vulnerable, it is at the moment.

Even for non-franchise businesses, it is vital to monitor your trademarks and public relations. A scathing (and perhaps unfair) review on a local business review site can do as much damage to your business as a snafu with a random franchise across the country can do to a franchise business.

Tags: consumer review sites, Domino's, Domino's video, economy, franchise, from Murphy to Manteo, Nightline, recession

This entry was posted on Thursday, April 23rd, 2009 at 12:51 pm and is filed under business law, Consumer Law, economy. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.