We’re going to play a word association game. When you...
As we approach the new year, it is perhaps a good time to reflect on our goals and on the strategy that we have employed to reach them. And, for some of us, that examination will lead us to the question of franchising.
When I am asked this basic strategic question, I tell people they should not decide to “franchise.” The word itself has too many emotional underpinnings. Instead, they should let business decisions drive their strategy.
They should start by asking if they need a third-party channel of distribution to achieve their goals – or if they can reach those goals with corporate locations. If they need third party involvement, they should then ask themselves whether the new channel will be branded – and if so, do they want to exercise control over the brand. Lastly, they need to ask themselves how they want to be paid.
If the answers are that they want a branded channel, they want to exercise control, and they want to be compensated through fees or revenue sharing, then the relationship they will create is a franchise.
If franchising is right for you, the next step is to determine if the business is franchisable.
Start by examining the salability of the business. Naturally, the business owner will believe in the concept, but he/she should ask themselves if the concept is unique, or if it is attractive enough for someone to want to buy. If it’s a business that has established credibility with its brand, if there is a strong value proposition, or if you have been approached by people who are interested in buying a franchise, it may be a candidate for franchising.
Next, the business must be duplicatable. Business owners should have the systems in place that will make the business teachable and a business model that will transfer well into other locations. There may be a local pizza business that has been a town favorite for a dozen years, but it’s run by one guy who is killing himself 80 hours per week to make it all happen. As successful as this one restaurant is, most prospective franchisees will not be willing to duplicate that effort over the long haul.
Lastly, and most importantly, is the return on investment. A business is not franchisable unless it can deliver a reasonable profit to the bottom line. Ask yourself if, after the franchisee pays himself a manager’s salary and deducts any royalties, if they still have a reasonable ROI? A prospect could invest their capital in any number of places, so is the return compelling? If the unit economics work for both the franchisee and franchisor, the concept may be right for franchising.
The key to success for the franchisor is the success of its franchise owners. One cannot exist without the other. For the right concept, franchising is a great way to grow a business. It is the process of utilizing someone else’s money to grow a business without giving up equity. It’s not for everyone. But for those who have goals that take them beyond their current reach, franchising may the vehicle to get them there – and beyond.