When a company first decides to franchise, they’ll rapidly learn that this decision is only the first in a series of decisions that’ll ultimately affect their success or failure as a franchisor. Even before getting to the crucial issues of fee determination, the questions will fly fast and furious. How fast should I grow? Where should I expand? Should I sell franchises close to my existing company-owned operations? What support should I provide? What will it cost me?
What many neophyte franchisors fail to realise is that the answers to these and other related questions will ultimately determine the success or failure of the franchise company.
It Starts With the Goals
Any new franchisor should begin the process by gaining an understanding of what specific goals you’re hoping to accomplish through franchising. You can get so wound up in the day-to-day operations of the business that you fail to realise the business is there to serve your needs, not the other way around. So you should take a step back and ask yourself where you want to be at some point in the future. Do you want to sell the business or pass it on to your heirs? If you want to hold on to it, do you want to achieve some specific financial goals, and if so, when? If you want to sell it, when, and for how much?
Let’s say you want to sell your company in five years and you know the price. Start by subtracting an estimate of the current value of your existing business from your desired selling price, and that’ll tell you the growth in valuation that you need to achieve your ultimate goal.
Armed with this information, you can then work backward into a game plan. To do this, you divide your required growth in valuation by an assumed multiple of earnings (based on the selling price of ‘comparable’ businesses) to learn the earnings your business will need to generate to achieve that goal. Then, based on a variety of factors, you would make assumptions relative to overall profitability to provide you with an indication of what revenue level will allow you to achieve that selling price. Then look at estimated unit level performance, back out an estimated royalty, and divide royalties per unit into that revenue level to achieve a rough approximation of the number of franchises that’ll need to be operating to achieve your goals.
You then develop a game plan based on staging that number of franchise sales over your five-year planning horizon. And, voila! Everything starts to fall into place. Once you know how many franchises you need to sell each year, you can set your marketing budget based on an assumed marketing cost per franchise sale. You can develop a hiring plan based on staffing ratios relative to franchise sales person effectiveness, field support ratios and other measures of an efficiently run franchise organisation. In fact, this process will tell you virtually everything you need to know in order to develop a successful franchise development programme.
Of course, the process outlined above has been vastly oversimplified for this article. We haven’t made provisions to account for franchise fees, product sales and other sources of revenue. We haven’t discussed the complexities of properly establishing an earnings multiple or estimating franchisor profitability. The truth of the matter is that this process, in practice, requires a substantial amount of forethought, planning and financial analysis – and often in numerous iterations – before a reasonable game plan can be established. But in every instance, it starts with goals and ends with strategy and tactics.
And while goals should drive strategy and strategy should drive tactics, there are some rules of thumb that apply to virtually all new franchisors.
Don’t Try to Eat the Entire Cow With One Bite
You’re generally well advised to get your feet under you as a franchisor before stomping down on the accelerator. The problem is many people get into franchising in the first place as a means of leveraging their assets. They don’t have the people or the capital to develop company-owned units as fast as they would otherwise like, and so franchising provides the magic pill for low-cost growth.
Unfortunately, one of the biggest advantages of franchising – the relatively ‘unfettered’ nature of the franchise growth process itself – can be one of its biggest problems. Without capital constraints, a franchisor can literally sell itself into a position in which it can’t provide adequate support to its new franchisees. This can lead to franchisees who fail, franchisees who don’t open or franchisees who feel disaffected. This initial burst of speed can ultimately be responsible for locking up the brakes a year or two down the road.
My advice: Don’t grow faster than your ability to support your franchisees. And until you know just how much and what type of support they’ll need based on practical experience, you should err on the side of conservatism.
Over-support your initial franchisees. Make sure your first franchises are wildly successful, even at the expense of more rapid growth, because franchise marketing is driven by word of mouth. Remember: If your franchisees fail, you fail. But nothing drives franchise sales as well as wildly successful franchisees. Nothing.
Stay Close to Home
A corollary to this first rule is that the new franchisor should stay as close to home as possible. Getting back to the previous rule urging you to over-support your initial franchisees, I advocate initial marketing efforts that’ll limit franchise growth to within about a three-hour drive time of your franchise’s headquarters. That way, if an initial franchisee is in need of assistance, you (or your staff) can get up in the morning, be at the franchisee’s operation by the start of business, and still be home at the end of the day.
But more important, it means you can respond instantly to a franchisee’s problems or requests. You don’t need to book a flight and a hotel room, and will never have to wait two weeks to get an advance booking discount with an airline.
This local approach will provide you with economies when it comes to the franchise side of the business. Franchise marketing can be done more effectively. Rather than relying on national publications that may be too expensive for the new franchise, you can focus on less costly local media. The support will not only be easier to provide, but it can be provided more economically – not only from a transportation perspective, but from a staffing perspective as well. Clustered support allows fewer field support staff to handle more units, thus producing reduced cost combined with more ‘face time’ with your franchisees.
Likewise, this more local approach offers you a number of advantages with your consumers. Consumer advertising can be clustered, as can the operations themselves, leading to a bigger brand presence. A franchisor with units spread across the country can never obtain any brand dominance, whereas a franchisor with units only in Johannesburg will have a significant footprint, and can achieve economies of scale in both purchasing and in advertising. And since you have already built a reputation locally, your franchisees will be better able to take advantage of your existing goodwill.
Rules, Like Thumbs, are Meant to be Broken
Ultimately, however, all the decisions relative to a ‘best practices’ growth plan relate back to goals and the marketplace in which you’re operating. Conservative growth carries its own risk – the risk that while you’re growing slow and steady, you’re possibly losing the race to a more aggressive competitor.
And thus, while the easiest and most reliable growth plans will be conservative and local, risk tolerance and an assessment of your market’s direction must also play a role in the assessment of the most appropriate growth strategy.
Ultimately, it’s a balancing act. You need to provide adequate support to your franchisees to help ensure their success. But the faster you intend to grow, the more people you’ll need to hire in anticipation of providing that support. This leads us back to the basic risk-reward equation – it’ll be the franchisors that best manage this equation that’ll ultimately enjoy the greatest success.
How Strong Is Your Franchise’s Quality Control?
Your key objective as a franchisor is ensuring every one of your locations maintain the same quality standards. Why?
If you’re concerned about brand consistency as your footprint grows and you acquire more franchisees, listen up. While growth is good, keeping tabs on the quality franchisees are providing versus your company-owned locations’ efforts is difficult, but not impossible.
“McDonald’s is among the world’s most quality-oriented brands, but the value proposition and price point aren’t appropriate for steak and lobster,” says Mark Siebert CEO and Senior Franchise Consultant at iFranchise Group, an author of Franchise Your Business, The Guide to Employing the Greatest Growth Strategy Ever.
“There are, however, high-end franchise brands known for detailed attention to quality. Quality is not about what’s on the menu; it’s about consistency of the operation.”
Inconsistency ruins things
Many franchise brands risk failure by not establishing and maintaining quality for each outlet under the network’s guidelines. Regardless of whether a store is run by your company or a franchisee, if there’s glaring inconsistency in service and product quality between different locations, it’s likely to harm your brand’s reputation.
To establish the strength of your quality control standard, ask yourself the following questions:
1. Is your operational training procedure customisable?
Acquiring new franchisees is a chance to cement your training and quality processes and establish if these can be standardised, or if customisation is necessary.
“Training is equally as important as franchisee selection when it comes to maintaining the brand. The best franchisors routinely provide the most – and the most comprehensive – training to their franchisees,” says Siebert. “If standards aren’t rigorously enforced from day one, chances are these standards will continue to slip, and in the process, they’ll become more and more difficult to maintain.”
Because different locations present varying climates and market preferences, remember to customise your training materials based on respective franchisees’ markets, keeping in mind to remain consistent with your brand’s core identity.
2. Have you provided the right tools in the franchisee manual?
Duplicating your franchise’s success relies heavily on mapping out the roadmap for your franchisees and their employees to follow. The right tools will most likely yield the same results you have achieved.
“Documenting systems of operation lend a big hand in a quality control,” says Siebert. “A robust manual has multi-fold benefits and not only serves as a blueprint for operation, but as an ongoing piece of reference for even the most established franchisee, becoming the default go-to in most every scenario.”
3. Do you understand the role of supporting each franchisee?
Whether you choose to conduct on-site field visits, offer master classes like Nando’s, or check in via email or phone monthly, the ultimate goal should be aiming for higher-quality and more profitable franchisees through ongoing support and reinforcement of brand standards.
Quality control is all about commitment. For a good franchisee, that commitment comes naturally. For the franchisor, it comes at a price. But franchisors who are willing to pay that price will find their ability to build a quality brand greatly enhanced,” says Siebert.
Could Semi-Absentee Franchise Ownership Be For You?
Ready to become your own boss…for only 15 hours a week? Yes, you can become a franchisee while still clocking into work. Here’s how.
If you want to keep your current job while owning your own franchise, you may want to look into semi-absentee franchising.
“A semi-absentee model allows you to work on the franchise for ten to 15 hours per week while continuing full-time employment. Then when the time is right, you can exit your day job to focus entirely on your business,” explains Jim Judy, a consultant at Franchoice.
When you have a capable manager to oversee the daily operations of the business, you have the flexibility to work your full-time job and ownership of a fully-fledged business. But first, the following considerations need to be made:
How will the decision affect your finances?
While being a semi-absentee franchise owner may require less from you in terms of time, the financial commitment is the same as investing in a franchise as an owner-operator. The decision to become a semi-absentee franchisee should not be made before examining your needs, goals and expectations of the business. Asking yourself the following:
- Do I want to become a franchise empire builder?
- Would I like to build numerous concepts?
- How much capital do I have to invest?
Keep in mind that semi-absentee models may take longer to turn a stable profit if you’re not giving it your full attention due to spending less time working on the business.
“Semi-absentee business models are also expensive,” says Heather Rosen, president of FranNet of Virginia, a franchise advisory firm. “Because the owner must not only rent the space but hire a competent manager.”
Do you have the necessary skillset?
The key to managing a franchise while at you have a full-time corporate job is having impeccable people management skills. This is because having a manager run your business while you oversee them requires you to be comfortable with delegating and trusting that they will handle the day-to-day operations of your business.
In addition to people skills, you may think certain talents are required before calling yourself a business owner, but each franchise is different.
“Some franchisees find that the available training and the business concept allows them to use their particular talents and skills to enter semi-absentee franchising without management or business ownership experience,” say experts at Franchise Direct.
Can you balance your schedule adequately?
Even if your plan is to one day leave your job and become an owner-operator of your franchise, while you’re still on your employer’s payroll, you will need to work out ways to handle your nine-to-five tasks with your business’ success. This is an important aspect of choosing the kind of franchise to purchase. While most semi-franchisee suitable options are in retail or the service industry, ensure you’re able to keep track of the business remotely and can periodically check in on how things are going.
Insights On Recruitment That Could Affect Franchise Performance
A critical aspect of operating any successful franchise chain is getting the right franchisees on board.
You’re facing a lot of competition as the franchising industry continues to grow. International brands, local giants, and new innovative entrants to the market require you to step up your game. Not only are you geared for growth, but you need your new locations to compete with the best.
“One of the success factors for franchise systems is market penetration which is often achieved through expansion, by opening new stores with quality standards that match the brand – through franchisees,” says Ethel Nyembe, Head: Sales Optimisation and Planning at Standard Bank Group. “The wrong fit, however, can seriously set a franchise’s growth back many years or cause irreparable damage to its reputation.”
Besides the challenge of trying to make your brand more appealing to franchisees in a competitive market, acquiring the right candidates to join your franchise requires the following:
1. Draw up (and adhere to) a checklist
Not all franchisees are created equal, and even a candidate with previous franchising experience may not be the right fit for your particular brand. Alternatively, you can decide to train a potential franchisee if you see potential.
When narrowing down your list of franchisee candidates, consider the importance of this:
- How important is prior experience in terms of the franchisee’s ability to become profitable in their first year?
- Does he or she have the necessary resources to train and support the franchise?
“You need to be clear about what you want; don’t compromise on your required skills, priority traits and qualifying requirements,” advises Nyembe. “There’s too much at stake financially and reputation-wise to settle for second best.”
2. Network in the right circles
Sometimes, if the talent doesn’t come to you, it’s beneficial to seek it out physically. Industry events are a great place to come into contact with people aiming to own and run their own franchise. If not, your presence at these functions will expose your brand to more potential people to do business with.
“During key annual industry conferences and trade shows (such as The International Franchise Expo), make a point to send attendees, to sponsor or to exhibit in order to increase brand visibility,” advises Nyembe. “Also consider participating in panel discussions.”
3. Get to know your new brand representatives
While personality tests and numerous meetings can give you an idea of whether you’re choosing the right candidate, it’s important to consider taking a more advanced approach to franchisee recruitment.
“Selecting the right candidates to represent your brand is critical to your operation’s ongoing success,” says Sue McConnachie, Vice President, Quality Credit Services Limited. “These franchisees will be the face of your company and you need to trust that they will maintain your brand image.”
The selection of franchisees is crucial because, as it carries both long- and short-term implications, including:
- Reducing franchisee failure and turnover, while increasing success and profitability
- Protecting and developing your brand’s reputation
- Focusing your resources on business planning and management instead of problem-solving
- Decreasing exposure to legal implications when a franchisee’s conduct is negative or their franchise is unsuccessful
- Minimising legal and collection claims against delinquent franchisees.
Selecting your next set of franchisees requires establishing a checklist before viewing any CVs, dedicating time to seek out potential franchisees, and ensure you’re choosing people who will take as much pride in your brand as you do.
- New Fund For Small Businesses To Be Developed
- How To Think Like A Billionaire
- Relax Spas Founder Noli Mini Shares Her Insights On Building A Business Of Value
- What It Will Really Take For South Africa’s Businesses To Scale And Create Jobs
- Silver Linings For Smaller Businesses In Budget 2018
- Leadership: What Is Your Why? (Read Purpose)
- Start-Up Law: I’m A Start-up Founder. Can I Pay Employees With Shares?
Sign-up for Daily Newsletters
Start-up Industry Specific3 months ago
How Do I Start A Transport Or Logistics Business?
Company Posts1 month ago
Enhance Your Entrepreneurial Flair With An Online Postgraduate Diploma From The University Of Pretoria
Start-up Advice1 month ago
9 Quotes Every Entrepreneur Should Live By
Lessons Learnt1 month ago
15 Wise Insights From 15 Entrepreneurial Icons