It seems funny to think about selling your business before you even start, doesn’t it? But having a vision of how you would like to conclude your business ownership before getting started is no different from knowing your destination before you start a trip.
When I talk to prospective franchisees early in their discovery process, I always ask the same question: “When you look back at your first year in business, what would you like to have accomplished?” More than 75% of the time, I am met with a blank stare. When they finally do respond with an answer, I usually follow up with, “So, when the day comes to eventually leave the business, how do you foresee that happening?” That’s the guaranteed deer-in-the-headlights question.
Where to Start
Do you think if I had asked Donald Trump or Michael Phelps when they started out what they hoped to accomplish that they’d have that same look? Nope, not even close. These competitors know how they want to finish what they start – and how to build the plan to achieve it.
So how does an aspiring entrepreneur envision the conclusion of their business endeavour before they get too far into it? Often franchisees are first-time business owners, and it’s a huge step for them. It can seem inconceivable to discuss exit strategy before even celebrating the grand opening, but doing so has tremendous value for both the franchisee and the franchisor.
Why? First of all, it gives you a sense of motivation. The fear of losing a job or the sting of having already lost one is encouraging more people to own their own business. With the economic downturn, aspiring entrepreneurs are really struggling to fund their dreams of self-employment.
And once the funding is there, they still have to battle through the inherent fear of such a big decision. The best antidote to fear is knowledge! Knowing you have options and control over your future is empowering.
Think ‘What If’
In talking with other franchisors, I’m somewhat surprised at how few of them engage in the ‘what if’ business transfer discussion with prospective franchisees. In some cases, by not bringing eventuality, they fall short of extolling the many virtues of franchise ownership. Perhaps they fear extinguishing the excitement of the launch.
But I believe this is an ideal time to discuss the end-game, because in today’s uncertain world, it’s comforting to know you’ll have options when the time comes to exit your business. It takes planning and hard work to make sure you maximise the value of your efforts.
For example, one franchisor I talked to had a 70-year-old, highly successful franchisee who was thinking about passing on his franchise to a family member. But that family member didn’t have the same experience or appreciation for the franchisor and only saw the individual work their father had invested in building the business.
When the time came to prepare the owner’s exit, the franchisor reached out to both members of the family and worked with them to smoothly and profitably transition the business to the next generation.
Does this story make you wonder what would have happened if the business in question had not been a franchise? I can answer that from personal experience; my family’s landscaping business was a case study for exit strategies (both good and bad).
Exit Strategy in Practice
My father had a 10-year plan in mind the day he purchased seven acres to house the building and nursery of Lindenmayer Landscapes. At the time he was 55, and the thought of digging holes and carting around wheelbarrows into his late 60s was pretty far back in his mind. As the business’s 10th year began, my parents obviously planned to pass it on to my brother and me.
Unfortunately, his divorce and my lack of funds kept us from being able to carry the torch. My dad sold the equipment and a few accounts to a budding entrepreneur and the land was eventually sold in two parcels.
Lindenmayer Landscapes ceased to exist.
My family’s story is not uncommon among entrepreneurs who try to transfer their businesses to family members. Unfortunately, reports show that two-thirds of businesses passed on to the next generation fail.
I’m not saying a franchised business can’t fail upon a transfer, too, but a franchise system is designed to survive the individual, and a successful brand is something that has a life of its own.
A business doesn’t have to be a household name to have value at the end of one owner’s life-cycle; however you must have someone vested in the transition. By its nature, a franchise system must ensure the success of its franchisees and work diligently to provide training, support and ongoing inspiration to whoever’s at the helm.
Given the tightening of the credit markets and the transient nature of today’s society, don’t you want the peace of mind of knowing that your business is nearly as mobile as you are? Make sure you understand the options you’ll have down the road if and when the day comes to move on, and you may find that some of the anxiety of starting your journey into franchise ownership subsides. L
Keep in Mind
- Here are a couple of things to consider long before your grand opening:
- What’s the market for your business today? What’s it likely to be in five, 10, 20 years?
- Are there any barriers to you selling your business – certifications, the name of the business, personal relationships that can’t transfer beyond you, etc.?
- If passing the business on to family is a consideration, how will you prepare them to take over? Is that going to be an option for both you and them financially?
- Will your cash management allow you to properly value the business? What actions do you need to take to make sure you show accurate numbers to a potential buyer or investor?
Factors To Consider Before Signing Up As A Franchisee
Franchising is a brilliant way to get into business with not many entrepreneurial skills as it comes with a roadmap to follow for success.
You’ve been considering entrepreneurship for a while, and now that you’ve finally raised some money and been approved for a loan, you’re ready to quit your 9-5 job to run your own business. You may even already have your eye on a particular franchise, but while franchising is considered an easier and more low risk way to get into business, are you suited to being a franchisee?
“The question is not ‘is franchising right for you’, but rather, are you right for franchising? Because if you don’t have the right attitude and skill set, it can be a very expensive mistake,” says small business expert and author Steve Strauss.
Franchising may seem like an easy way into entrepreneurship, but along with an established name and proven systems, come rules, regulations and little room for creativity. If you’re not ready to become a franchisee, but want to go into business for yourself, you may find yourself struggling to operate within the system’s blueprint.
Ask yourself these three questions before proceeding with the process of franchising:
1. Will you be able to follow the directions of the franchisor?
You’re buying into an existing and proven concept so it’s safe to assume that the franchisor knows best, and so you have to be open to learning and following guidelines for business success. If, for example, you have experience in advertising and think you have an improved technique of marketing the franchise, you may want to change the advertising material provided by the franchisor – don’t.
“Being a franchisee means following the directions of the franchisor, even when you think you know a better way,” advise experts from strategic and tactical advisory firm MSA Worldwide.
“In addition to initial training, you need to be prepared to accept coaching and advice from the franchisor on how you operate or market your location.”
2. Do you have the need to experiment?
Lou Groen may have had success in launching a new menu item that McDonald’s approved of in 1962, but not all franchisees are that lucky. Stick to the plan and limit deviations to the menu or anything that involves the customer experience.
If the franchisor’s concept doesn’t involve deliveries, offering them to your customers may cause issues for others within the franchise system. “If it’s not part of the franchisor’s concept, you’re deviating from the concept and therefore, no longer running your store as a franchise,” according to MSA. Franchising arguably limits innovation opportunities, so if you’re prone to implementing creative ideas and evolving business offerings based on said ideas, rather start your own independent business.
3. Are you a team player?
These first two questions you address should already lead to the realisation that everything you do affects everyone in the franchise chain. One bad experience at your establishment and suddenly, all the stores are affected by bad press or unsavoury social media attention.
“Other franchisees are relying upon you to offer to the consumer a consistent level of service, product quality, and brand message. You are going to have to work with others in the system in making decisions,” advise experts.
Remember that as part of a chain of other business owners, you may have to accept that majority rules when it comes to decisions where franchises do have a say.
3 Ways You Can Innovate And Improve As A Franchisee
Although your role as a franchisee isn’t really to innovate, there’s room for creativity if you go about it the right way.
When you signed on the dotted line after reading and agreeing with the franchise agreement, you knew that you were buying into a proven system where everything has already been thought out for you, and all you have to do is follow the formula for success.
But you’re a franchisee longing to put your own imprint on your business, and it may be frustrating to feel boxed in by a formula, while you’re bursting with new ideas.
“Franchising, by its nature, discourages innovation on the part of franchisees, who are required by their franchisors to follow very specific policies and procedures on exactly what they will sell, how they will make or deliver it,” notes Randy Myers, contributing editor for CFO and Corporate Board Member magazines.
This doesn’t mean your ideas will never see the light of day though. But before you approach your franchisor with your brilliant insight, consider the following steps that may well lead you down an innovative path:
1. Get the basics right first
Franchisors know that customers like consistency as it makes them comfortable and trust every location of their franchise they choose to visit. But, even the strictest franchisors get hungry for new ideas. It’s the timing that’s vital for your idea to even be considered.
“Most good systems don’t want new franchisees to even think about innovations until they learn the existing system inside out and prove that they can execute it like a star,” said Jeff Elgin, CEO of FranChoice, a network of franchise referral consultants. “At that point, they have become successful, their base is secure, and they have earned the right to consider innovations.”
It’s wise to ensure you’ve learned your franchisor’s existing business model before you suggest any improvements.
2. Do your homework
So, you’re doing well and you’re sure your idea will be welcomed as a crucial innovation to the franchise system – but research your proposal, suggests Kim Stevens, VP of Regional Development and Director of Franchise Awarding at Woodhouse Day Spas. “Especially if you’re suggesting something that would impact all franchisees, create a business plan before approaching your franchisor,’ she says.
It’s also good to have another look at the franchisor’s policy for accepting new ideas to ensure you’re prepared for tough questions before you propose your idea.
3. Speak to the right people
Elgin recommends you first identify the person at the franchisor’s head office who’s responsible for receiving new ideas. “Many of the ideas a franchisee comes up with will already have been proposed by another franchisee,” notes Elgin.
To avoid wasting your time, no matter how great you think the idea is, present it as early as possible before spending anything developing the idea.
3 Pricing Tactics To Recession-Proof Your Franchise
As consumers tighten their belts, how can you ensure your franchise is their first choice in the midst of strict budgeting and curbing of spending?
Whether or not there is a dip in the economy, you have stock on shelf you need to sell. But, if consumers are cash-strapped, you have to make every effort to ensure that your franchisees aren’t running at a loss.
“There’s no doubt that shoppers are more discerning about what they need and how they shop. However, quality remains significant and brands that continue to delight their customers will reap the benefit of being chosen,” says Ailsa Wingfield, executive director marketing and communications: Africa, at Nielsen.
Why not give customers the best of both – value for money at a competitive price – by applying one or more of the following pricing tactics in tough economic times:
1. Consider a greater focus on your house brand
“The days of in-house retail brands being treated with a fair amount of disdain by South African consumers have come to an end,” says Wingfield.
The global performance management company’s research has found that R38.4 billion of the amount consumers spend at hypermarket and supermarket tills – or R10 out of every R50 – is spent on private label products. South African consumers are beginning to feel that the quality of these house brand products is as good as that of established name brands.
Since research indicates consumers are further likely to shift between branded products and retailer private label offerings, it would be of benefit to your franchise if your in-house products are perceived as viable value alternatives of similar or better quality.
2. Sell products in bundles
This the method combining various products and selling them together as one bundle for a lot less than if they were being sold separately. This method is great for moving items that might be selling slower but also great for achieving a higher value perception in the minds of consumers.
CEO of GuruShots, Gilon Miller, says there are several bundling techniques you could apply, including:
- Pure bundling, where you offer a group of products that are only available as a bundle and aren’t sold separately.
- Mixed bundling, where you offer products that are sold both as bundles and as individual units.
- New- or lesser-product bundle, where you bundle a successful product with a newer or less successful product – the stronger product will help the other product find its way into a new market.
Bundling results in cost efficiency, more competitive pricing and might also encourage customers to regard a single store as a source for several solutions.
Related: How To Recession-Proof Your Business
3. Add even more value
When you price your product in alignment with the value your customer sees in it, you’re preventing both you and your customer from the possibility of losing out on value.
Calculating your optimum price, involves asking yourself these questions:
- Will your customers save money or time by using your product or service?
- Is your product or service is unique?
- Will your product or service help customers gain a competitive advantage?
- What does the competition charges?
“Value-based pricing ensures that your customers feel happy paying your price for the value they’re getting,” says Patrick Campbell, co-founder and CEO of Price Intelligently. “Pricing according to the value your customer sees in your product prevents you from short-changing yourself while creating an experience for customers that’s most aligned.”
The more value your customers see in your product, the more they will be willing to pay for it, ultimately improving your bottom line. When your pricing is reasonable, they won’t need much convincing to make the purchase at your franchise instead of your competitor’s.
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