Franchising can be an extremely successful growth strategy, but it’s not the only way to scale your company. I’m a big fan of franchising because it’s
worked for me and my family for over 30 years, but it’s not for every individual and it’s not for every business.
As franchise consultants with FranNet, we not only help people find a franchise that aligns with their personal and professional goals, we also consult with growing business to help them determine whether or not franchising their business makes sense. Often the strategy I recommend is to get your feet wet and familiarize yourself with franchising before diving in. You’ll need to be clear with your answers to these 3 key questions:
What makes your company profitable?
What makes your company necessary?
What makes your company unique?
The fact is, in order to sell franchises, you’ll have to prepare to demonstrate each of these three items in great detail for your prospective buyers.
The job of a franchisee is to create customers. How will they do that? How much does it cost to get a customer? How will franchisees find and retain
good employees to service customers? What’s your training process for new franchisees and their employees? How will you support your franchisees on
an ongoing basis?
Here are some ways you can test the waters:
Test with a Co-Venture
To ensure your business is an attractive proposition, you must show exactly how you’ve been successful. Once you have all your business systems and processes documented, tested and refined, why not first test the waters with one second location? Pass your playbook to an investor. Your objective is to see how well your system translates to another owner. If that co-venture can reach profitability within 18 months following your lead, you’re one step closer. While you will not be allowed to collect a franchise fee or royalty, only a nominal training fee, once you do decide to franchise your company that co-venture becomes a franchisee by contractual agreement.
Get Comfortable with Being a Disrupter
There’s very little blue ocean in franchising. Some of the most profitable franchises are successful because they’re disrupters. They take a concept that’s already in high demand and disrupt the market through innovation. Let’s take Five Guys Burgers and Fries for example. Everyone knows they didn’t invent the carry-out burger joint, so how did they become on of America’s most preferred burger chains with virtually no advertising? Five Guys focused on delivering a unique customer experience with a simplified fresh menu. The disruption came when they discovered an innovative way to achieve and retain unprecedented loyalty in their customer base.
Get Ready for Regulation
Franchising is regulated by the Federal Trade Commission. This means your business must comply with the regulations set for all franchises. This included creating an FDD (Franchise Disclosure Document), which is no easy, quick or inexpensive task. Hiring the right team to help develop this document is essential and the spend will be well worth it in the long run. Plan on a minimum of three years to prepare and optimize all the documentation necessary to franchise your business. Your systems, processes and especially your books need to be rock solid.
Plan for the Long Haul
Franchisors are not immediately profitable. Most franchised companies have a one-time franchise fee paid upfront at the time a franchise is purchased. Typically, these start in the $25,000-$50,000 range. Sounds like a lot, but rarely if ever does a franchisor make a profit from charging the fees because so much has gone into franchising the business to begin with, they’re just recouping at that point. The profit comes from the ongoing royalties paid by successful franchisees.
It’s never a one and done. Supporting a franchise system is an ongoing effort on the part of both the franchisor and franchisee. To get those royalties coming in, you as a franchisor have to invest in training, systems, processes, staff and so much more to ensure you’re providing everything your franchisees need to be successful. What’s even more important is that young franchised companies start within a specific region. Don’t try to expand nationally right away, stay within a region, specifically in non-registration states such as in the southeast.
Other Ways to Get Your Feet Wet
So maybe you’re not ready to franchise your business quite yet, but perhaps you’d like to explore franchise ownership as an alternate means to owning your own business. Would that work for you? That depends too. For individuals and families looking to become part of an already franchised system, the concepts above are important for you too. You’ll never find a successful franchise that has no competition. There are 500 franchises selling French fries, but there are only a few who’ve captured the market share through proven customer acquisition strategies, differentiation and sustainable operational processes that are documented and constantly refined. I can help you sort through the clutter and find the right exiting franchise for you to own if that’s the swim lane you choose.
Still, if you’re dead set on franchising your business, my best advice is to take some time to really think it through and it’s never too early to seek counsel from an experienced franchise attorney. If you’re not profitable yet, that’s a deal breaker. If you’re not capitalized to afford the costs of becoming a franchise company, wait. If there is no demonstrated demand for your products and services, hit pause and get to work on your market research. If you cannot clearly articulate your unique value proposition or “disrupter strategy”, you may want to rethink your business model all together.
In my more than three decades in franchising, I’ve seen far too many put all they’ve worked for at risk. Better to get your feet wet in franchising than to take a bath in debt down the road.
Want to discuss franchising? Give me a call at 770-973-0221, email me at email@example.com.
Thinking of Starting a Business? FranNet Can Help