Starting A New Franchise Concept Just Got Tougher

Bob McDevitt

Date

Feb 10, 2019

In a recent article in Forbes.com by Ed Teixeira, entitled “Seismic Changes are Altering the Franchise Industry”, Ed makes a compelling case that all the consolidation among franchise brands and growth of large multi-unit franchisees has reached a tipping point and is having a dramatic impact.

Ed sites six implications for the industry.  I will focus on one: “Startup franchises will find it more challenging to grow unless the franchise concept is desirable, franchise leadership well qualified and the availability of capital sufficient”.

In small and startup companies if franchise leadership doesn’t have the systems and controls up and functioning ahead of the early growth of the franchise, no matter how “desirable”, or well financed, execution becomes inconsistent and overall performance suffers.  In today’s environment early startups are less likely to survive that.

If you are considering franchising your concept or looking at a startup franchise opportunity look beyond just the desirability of the concept; look at the systems and processes that need to be in place to manage the standards.  Below are three areas that are critical to the early success of a new franchise.

A WELL WRITTEN FRANCHISE AGREEMENT

This almost goes without saying.  Any business thinking about franchising in today's environment has no choice but to bring in the experts and model a franchise agreement that protects the brand and its franchise partners.

A BRAND PROTECTION APPARATUS

Once the franchise agreement is in place the challenge is to execute the brand systems that made it successful in the first place.

To expand on this I  asked Ritchie Taylor about his recent experience in this area.  Ritchie is an attorney with Manning Fulton in Raleigh NC who specializes in franchise law and has worked with many new franchise brands.

“Even in the earliest stages of developing a franchise brand, some systems need to be in place to protect the brand experience” according to Ritchie. Ritchie added that “while working with startup concepts I have found that brands that do not start with at least a rudimentary process of managing concept execution run a higher risk of failure.  At Manning Fulton we recognize the need for new concepts to start off with operational consistency, especially today.”

The system could be as simple as leadership visits with clip board and pen in hand, or the use of outside “shoppers” to confirm product integrity.  The point is that poorly operated concepts will not be tolerated by the market today.

EFFECTIVE TRAINING AND COMMUNICATIONS

At a recent conference for new startup brands I asked the leader of an estate sale concept (franchisees own a territory and conduct estate sales using the concepts systems for staging, pricing, and marketing) about her training and communications. Her response indicated that there was a training seminar in the beginning but after that there was no real plan other than reporting activity and sales. Follow-up communications just happened when necessary.

Even at the earliest stages of development every concept needs seamless communications with its franchise operators.  A regular digital newsletter, regular emails, or face time conferences don’t take much time and you don’t have to be an IT pro to pull them off.  If the communications isn’t clear and concise especially about operating and execution imperatives it almost certainly will be reflected in consistency.

In short, new concept success in the franchise industry is getting tougher driven by huge multi-concept franchisors and billion dollar multi-unit franchisees  taking up more and more space.  New franchise companies and startups face competition not just for customers, but for franchisees and funding, from larger smarter companies.  The response is to have your concept operationally ready and the systems in place to guide the early growth for a consistent well operated brand.

Bob McDevitt is President of McDevitt & Co., providing franchise brands with the advice and support they need to grow their concepts.

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