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Researching a Franchise

Franchise Ownership in the New Economy

Before investing in a franchise, consider how the franchisor has reacted to the recession.

Joe Lindenmayer

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A lthough the franchise business model has proven strong in tough times, franchises are not immune to the credit crunch and shrinking economy. The franchise systems that have failed or are on the verge of failing were not prepared to handle the economic challenges. They may have suffered from substantive flaws in their model, personnel, vision, financial means, or a combination of factors.

If you’re considering owning a franchise, it’s in your best interest to have a clear roadmap of how the system of your choice has fared over the last few years, and an understanding of their strategy for success in the new economy. These are the four most important questions to ask before you invest your hard-earned money in a franchise:

Q Will the consumer of today (and tomorrow) buy what you’re selling?

It’s critical to avoid getting caught up in the latest fad. While the allure of getting into a fast-growing or innovative business may be strong, consider whether it has the staying power to survive the next 10 years – or even the first one or two. Make sure your concept will hold consumer value for at least the duration of your franchise agreement. Research pending technological advances that threaten to make your product or service obsolete. If you are looking at a new concept, evaluate emerging “copycats” that can potentially undercut your price or market share.

Q Do the company leaders have what it takes to survive the challenges ahead and make great strides in prosperous times?

You’ll have to evaluate the new processes, programmes, services and products that were put in place to help the company offset the negative impact of the downturn. Furthermore, you need to examine the company’s strategies for taking advantage of the economic uptick.

Reviewing the franchisor’s disclosure documents will give you great insight into their average unit revenues, overall expenses relative to revenues and their budget – all of which will help you to determine whether they can live up to their promises and your expectations. If a system is sustaining itself primarily through revenue from franchise fees, you can surmise that it will have difficulty staying the course against competitors operating off the organic growth of their system. It’s not that investing in a franchise from a new system that may not have built up royalty or system sales is necessarily a bad decision. However, the tight credit market and delayed openings will strain a franchisor that does not have the financial cushion to retain key support programmes and staff.

Q How do existing franchisees feel about the franchisor’s response to the recession?

Ask franchisees how often they saw the corporate staff in their market. Did executives attend meetings and hold conferences where they brought value and showed their ability to make tough decisions with a long-term and strategic solution in mind? Was there an open flow of communication, idea sharing and troubleshooting when the waters got rough?

I’ve heard my share of horror stories about lack of communication and collaboration between the head office and the franchise system. When times are tough, this communication is critical. Franchisees must feel comfortable in expressing their ideas and their concerns, and when their expectations aren’t being met, they need to trust that something will be done to help. Evaluating how the franchisor responded to franchisees’ struggles and the support they provided their system over the last year and a half speaks volumes for the support you can expect to receive going forward.

Q Are there incentives being offered that will help offset your start-up costs and increase your profits?

Many franchise systems have adjusted to economic conditions by offering a variety of financial incentives to buyers. Some offer reduced franchise fees or reduced royalties for a specific timeframe, while others offer enhanced training or other discounts. These types of incentives are intended to help offset the credit crunch and allow the system to grow and push past struggling competitors. So, as a prospective franchisee, it’s important to examine what the franchisor is offering to help you become more productive and profitable in your start-up phase. However, it is even more critical to evaluate whether or not the system is in a position to sustain healthy growth despite collecting less revenues from new franchisees. Financial incentives should not come at the expense of support or innovation from the home office.

Joe Lindenmayer is a military veteran, business owner, and respected voice in franchising.

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Researching a Franchise

Maximise Your Social Media Reach This Holiday Season

Quick and cost-effective, social media is your best tool to reach target markets when it matters most – during the holidays.

Diana Albertyn

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It’s not just the end of the year that can be lucrative for businesses. School holidays and other major breaks during the year present consumers with more time to spend shopping. Why not ensure money is spent at your franchise by capitalising on the minimal cost and maximum exposure of social media?

You don’t have to create entirely new deals or promotions from what you may already have running on your store, but find a way to make it special for your social media followers, suggests Kelly Mason, marketer at Customer Paradigm.

Holiday campaigns on Twitter, benefitting from popular hashtags, streaming live content, and receiving information instead of just distributing it via social media are just some of the ways to stay ahead of the competition.

Related: Why Your Business’ Social Media Marketing Strategy Is Probably Wrong

Know your customers well

The first step to attracting customers and getting them to complete a sale is understanding their customer journey.

“Being able to document where they spend their time online, which social channels they use most, and what they’re reading or watching on those channels is a huge plus. Finding that crucial information is fairly easy to do, thanks to modern-day marketing tools and resources,” advises Paul Herman, ‎VP: Product and Solutions Enablement Group, at Sprinklr, a unified customer experience management platform for enterprises.

The better you understand your customers, the easier it is to reach them through a campaign optimised for their interests.

Master social listening

You could be using social media all wrong in the run up to all your holiday campaigns. Perhaps it’s time you used this platform to listen to your customers?

“Through social listening, marketers can identify major trends and product keywords in their industries,” says Herman. “For instance, knowing those keywords can help marketers identify which social platforms are more popular for a target audience. With that information, they can make smarter decisions about where to spend their money and which products or services to promote on each platform.”

Related: 10 Laws Of Social Media Marketing

Use the information gathered to determine what customers like about your product, what they dislike about it, and how you can improve upon it so they can buy more of it. The more of this data you collect, the better and more effective your interactions with customers will be.

Try something new

50% of consumers look for a video of the product they want to buy before going to an ecommerce store to buy it, according to a 2016 Google survey. “Video can be an extremely effective way to get your customers to take action – in this case, to make a purchase with your store,” adds Mason.

Video adverts are often used as an experimental tool in social marketing and switching it up on platforms such as Facebook Live, Instagram Live, Instagram Stories, or Snapchat – depending on your brand’s activity and your audiences’ interests – can help attract customers during seasonal periods.

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Researching a Franchise

Selling Your First Franchise? Consider These Key Pointers

You’re ready to franchise your business, but who do you sell to and how? Your first few franchisees may be the hardest to acquire, but the process will be smoother if you get some basics right.

Diana Albertyn

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Business experience gained running your independent brand will come in handy, but looking for franchisees is a different ballgame. “We have to attract the right people in enough numbers to make the difference; and, the key to more leads is to have a multi-prong strategy to marketing,” says franchise strategist and expansion expert Lizette Pirtle.

Using media (social, or otherwise), trained experts in franchise sales, and keeping in mind that whoever you sell to will become an extension of your brand, are important considerations before selling your to first franchisee:

1. Use (all) media wisely

Website marketing, print advertising and social media are just some of the many different ways to attract potential owners to your franchise. But the most cost-effect of the three may be a ‘tweet’ or ‘post’ away, says former Director of Marketing at the International Franchise Association and owner of Burris Branding and Marketing, Jack Burris.

Related: To Buy Into A Franchise Or Purchase A Licence? 3 Factors To Consider

“Three out of four people using the Internet are either on Facebook or LinkedIn or Twitter or all of them. Take advantage of social media,” he says.

“There’s typically no cost to play in the space except for the time that you need to invest to build your brand with a social media presence.”

2. Seek out franchise coaches or brokers

While this is a more traditional method of making reliable franchise sales, it’s a great way to form lasting associations that will take you beyond your first few sales. “Using broker networks is a great way to supplement your own efforts. However, you must spend time developing relationships with these people if you want to get results,” advises Pirtle. “Don’t think that just listing your opportunity with them is sufficient.”

Franchise coaches and brokers have multiple options for potential franchisees, so to put yourself high on their list of consideration when prospects enquire, you have to form memorable relationships.

Related: 3 Factors To Focus On When Opening Your First Franchise

3. Always consider the bigger picture

Out of all the people your marketing efforts attract, always keep in mind that few will check all the boxes and compromising could cost you in the long run.

“The franchise relationship is a long-term one. If you’re going to be successful as a franchisor, you should start with the attitude that every franchisee will be someone who you’ll have to live with for years to come. And nowhere is this philosophy more important than when awarding your first franchise,” says Mark Siebert, CEO of the iFranchise Group, a franchise consulting organisation.

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Researching a Franchise

3 Factors To Focus On When Opening Your First Franchise

To become a successful franchisee, there’s lots more to learn. Take notes and this will be an adventure still with its challenges, but less stress.

Diana Albertyn

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Experts and those who’ve gone through the launching, managing and successful running of a franchise will tell you that owning a franchise can be just as risky as owning an independent small business – and it doesn’t get easier after signing on the dotted line. But that doesn’t mean it isn’t worth giving franchising a shot.

“The hardest part of being a franchisee is learning and adopting all the processes that exist in the brand you’re buying into. But it’s important that a customer can walk into any franchisee’s property across the country and have the exact same experience,” says Jeff Chew, Pizza Factory franchisee.

With that in mind, remember the financial, emotional and physical investment you’ve made in this new venture and let it fuel your success, from before you even serve your first customer

1. Financial and intellectual wealth

Don’t buy into a franchise where you might be undercapitalised, advises Paul Durant, a Junk King franchisee.

Related: Expansion Funding Options For Your Growing Business

Keep in mind that running a new business isn’t challenging only mentally strenuous, but financially too, because you’re not always immediately profitable. Ensure you have enough runway for a few years at a loss or minimal profit.

“I did not do a thorough job in my initial research and discovery calls. I used a lot of my own assumptions and luckily they were fairly close,” recalls Durant.

“I would, however, suggest that you ask very detailed questions during the discovery process and listen carefully to the responses. Often what is not said is equally as important as what is said.”

2. Remember the purpose of the manual

The point of buying into the concept you’ve chosen is to ensure success based on a roadmap that’s already been drawn out for you. Straying from this plan unnecessarily is a shortcut to failure. This doesn’t mean you cannot make changes, but always ensure your growth is where it needs to be by following the system completely.

Franchisee Mark Arduino thought he was taking the advice he’d been given countless times: Just follow the system. But he quickly realised he wasn’t when all the franchise-specific training he’d been through was forgotten in favour of easier shortcuts.

“Then I realised my mistake. I came to see that it’s very user friendly. I’m sorry I didn’t use it from the start!” he says.

Related: How To Choose The Right Finance For Your Business Or Property Portfolio Expansion

If you think you have a better way of doing something detailed in the franchisee manual, do your research. Your decision should follow a discussion with your franchisor, then align to the business plan.

3. Learn at every opportunity

It’s great that you have previous experience in business. It’s a huge bonus that could put you ahead of other franchisees in your network. But, always be willing to learn and put your hand up or open a book if you’re not sure. A vast business background doesn’t guarantee automatic success as a franchisee, so be open to learning from others.

“I have learned more from two of the franchisees in my area than I could ever have imagined and I owe my early success in large part to their willingness to help,” says Jeff Steele, a CMIT Solutions franchisee.

It may sometimes seem like you can do it all on your own, but even when you feel you can do anything, you cannot do everything. That’s why you joined a franchise that (hopefully) offers good support structure.

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