Reading the Ratings. Does it Help? Can it Hurt?
By Howard Bassuk

You're tempted...seriously, sincerely tempted! You reach for it, then pull back! You look around nervously, as small beads of sweat begin to trickle down your flushed forehead. Are you going to summon up your courage and go for it, or once again come away empty handed....defeated?

Your heart races as you summon up every ounce of courage that you can muster. You make a bee-line directly for it. You know that if you hesitate you are lost, so you reach out quickly and grab it! As your fingers pry it loose from its tight confining nook, a cool breeze seems to overtake you. RELIEF! You clutch it in your hands, its smooth, cool cover feeling strangely comforting to you. You can't help it. You break out in a self-satisfied, conquering smile!

Suddenly, out of nowhere, a hand lands on your shoulder and a very authoritative voice breaks the silence of your thoughts and you hear it ask you:...."JUST A MINUTE.....WHAT DO YOU THINK YOU'RE DOING?" Your heart pounds once again as you look for an exit.....Nowhere to go. Too Late... You are trapped!

You turn around plaintively, and in your best attempt at summoning a calm, matter-of-fact voice, you say

"Honey, I just wanted to see how they rated the franchises in this magazine this year. I really want to know what's good!"

Your partner's all knowing look of scorn and derision telegraphs her lack of agreement, and you feel those beads of sweat starting to return.

You want to argue but she begins to rattle off a machine gun like litany of doubts: "How do you know if the list is any good? I've heard some of these lists are just created to help the magazines sell advertising! Some of these 'experts' have probably never worked in a franchise before!"

She pauses for a breath, but before you can respond, she hits you with her "Sunday Best," and says:

"Besides all the experts come up with different lists, and even the lists from the same magazines are so different every year they can't be any good!" She thinks she has you...Its Coup de Grace time...."You're just wasting money."

Somehow you regain a little of your composure. You say to her that you know the lists aren't perfect, but you would like to see what others think. Sensing a small breach in her armor of disapproval, you continue that you are just gathering information, and certainly don't plan on making a buying decision from a list at the newsstand. "After all, research can't hurt, can it honey?"

Now you've got her on the defensive.... You start to feel a little smug. She seems unsure of what to say next....You swoop in for the kill. "Besides, honey, you're the one who is always talking about real freedom and independence!"

You go on: "Wouldn't it be wonderful if we can find a great business, we could have. Then maybe you won't have to work so hard. I'm really just thinking of you"! "After all, these people must know something about which franchises are best...Otherwise why would they publish a list?"

Who's right? In truth, they probably both are. A lot of good work goes into making the lists that proliferate the "business opportunities, and franchising magazines." Some of the lists clearly have been compiled after a lot of research, a lot of good thinking, a lot of good intentions, and after a lot of cost and great deal of hard work. Some publications collaborate with outside consulting firms to help research, gather and collate the responses. Others use panels of experts with a great deal of knowledge and experience. Unfortunately, other lists seem to be more contrived, more haphazard and more self serving.

But, no matter how good the list, my advice is never to rely on a list as a way to buy a business. In my opinion, these lists may be great at pointing out possibilities for you to investigate, and they may show you

some high quality companies. In no way, however, should they be the basis of your actual buying decision.

Remember this: lists won't know what you're goals are. They won't know what you are good at, and they certainly won't know which companies match up best with your particular needs and desires. Most importantly, they are just lists! They are imperfect at best, and at worst, are seriously dangerous to someone who blindly relies on them for either accuracy or appropriateness. Even the choices on these lists are sometimes difficult to understand. Some of the selections just seem silly compared to other choices that are not selected.

Let me give you an example. Recently, I was talking to a Franchisor whose company debuted on one of these lists as one the top 10 franchise opportunities in the nation. That is quite a singular honor. Not only did they make the list, but they STARTED IN THE TOP 10.

Competition is fierce in the franchise industry, and most franchisors want to be recognized as being one of the best so they were pleased and proud. This particular company not only appears on many lists, but usually graces the top portion of them. So, in this case, the magazine's early insight was terrific.

The honored franchise company has continued to grow (some would say dramatically) every single year. It publishes an earnings statement that is very attractive. It has virtually no failures amongst its franchises. It enjoys high validation and support from its franchisees, many of who are successful enough to own multiple units. It is certainly one of the premiere franchising companies in the United States today.

Every year it has grown larger and larger. Every year it's franchisees have grown and become more successful. Every year the company improves its operations, its support, its advertising, its name recognition, and its market penetration. Every year its strength, desirability and reputation has grown. It still has many major markets with significant room for continued growth, so the opportunity is still there for real accumulation of units by astute investors.

But a funny thing has happened to the company's ratings. Every year since debuting as one of the 10 best franchises in the country in a specific magazine, this company has fallen lower and lower on this particular list of "best opportunities." Finally, this year, IT FELL OFF THE LIST COMPLETELY!

IN OTHER WORDS, THE MORE SUCCESSFUL IT BECAME, THE LOWER ITS RATINGS BECAME!

How can this be? How can a company that is clearly a far better company today than it was a few years ago, not appear anywhere on a list that it made when it was much weaker? It still appears on other lists....In fact, on some others it continues to move "up the chart"!

I believe that this points out the biggest problem that exists with all lists. Like so many other things in life, beauty is in the eye of the beholder. Some cynics might say that the lists change so much each year mainly to attract new readers. I don't personally believe that. I know a lot of people involved in working on these lists or on their respective publications. Largely they are very serious, bright, caring people, who try very hard to put out a meaningful product.

It's true that the experts doing the ratings may change from year to year and different people may gather or interpret the numbers and businesses differently.

And of course, some companies really do make great strides in improving themselves, and deserve to be newly included on a list of "best opportunities." Others do lose ground and should be removed from any listing.

But, if a company is truly one of the 100 or 200 franchisors best in an industry of thousands of franchise companies, it is not logical to assume that the quality of so many of them would change radically in just a few months or a year. They might move up or down a little, but wholesale radical change is unlikely if the list is accurate to begin with.

Overall, in my opinion, there is a lot of quality but not enough constancy on these lists. These lists change significantly every year, and no two publications seem to come up with lists that are even remotely similar. Some names are conspicuous in their absence, while some company's inclusion causes a lot of curiosity, and even amazement at times.

As someone in the industry, and someone who knows and works with many of the companies on these lists, I must admit that there are times when I find myself scratching my head and wondering what is going on.

Perhaps the problem comes from trying to put out a list with the word "best" in it. "Best" has meaning. It declares a winner, a company that is more worthy than another. I don't find that to be accurate in terms of the lists I have seen.

"Best" is a very relative issue. If you, as an investor are looking for a growth opportunity, you may favor one company over another, but if you are looking for stability you might favor another altogether. If you want good marketing support you might find one franchise far more to your liking than another, and if you are looking for flexibility, you might want other companies once again.

So, what should you do with these lists, and how should you use them?

First - Remember that these lists should not be taken too seriously and that not all lists are created equal! Lists provide insights, and directions, not solutions. Look at the criteria used by the publication to determine the way franchisors are ranked. Also look at the number of franchisors that have been considered for the list.

Second - If you really like lists, compare lists from several publications. Look for names that appear on most or all of the lists. Chances are that the companies that do will be pretty good ones.

Third - Look for industries that seem to have a lot of companies that are represented on these lists. Those industries may be a good area for growth and opportunity overall for you as an investor.

Fourth - Look for CONSTANCY. Companies that are on one or more lists, year in and year out have demonstrated not just short term quality, but ongoing strength. This may be the most important aid you can get.

Consistent quality is very important, so companies that appear on a list once, and then disappear, may not have the management depth that you are seeking.

Fifth - Be sure to think of lists like a movie critic's review of a movie. It's one person, or one organization's OPINION, not a certifiable fact.

Sixth - Investigate other companies in the same industry as the company you are interested in. You may find that the company you would rate most highly is not on the list you first looked at.

Seventh - Find out if a publication will only include a company on their list if that company is also an advertiser in the publication. If the answer is yes, you must question whether that list can be objective.

It's important for you, as an educated reader and investor, to realize that lists are there for you to use, but not to rely on. There are many good names on these lists, and sometimes, some names that turn out to be anything but good.

Whatever you do, remember that the ultimate decision of what to buy is yours, and good solid research is your best ally in making a good decision. Lists might be a good starting point, but that is all they should be. Do not let them become more than a signpost in your decision making process.