International franchising expert, Jeff Elgin, answers some of the most common questions.
Q: How much freedom do franchisees have? What happens when I have better ideas than the franchisor? Am I able to have any sort of creative licence with a franchise?
Sometimes the price of freedom is higher than what you really want to pay and that’s the reason for the existence of business format franchises. In a good franchise you are going to have a franchisor tell you exactly what to do and how to operate the business but what you’ll get is a much lower chance that you’ll become a business failure statistic.
This is especially true in the beginning of your operation. Most franchise systems are focused on getting a new franchisee up and operating successfully as soon as they possibly can. They are not interested in your thoughts and ideas at that point. They want you to execute their proven systems as well as you can.
Franchisors are much more likely to talk about innovating and incorporating some of your ideas after your business is established and profitable. Some of the best ideas for improving franchise systems come from successful existing operators. The key is to have patience in this regard and focus first on guaranteeing that your survival is not at question before worrying about changing the system.
Q: Should I use personal funds to start a franchise?
Personal funds like savings, stocks, bonds and other assets can easily be turned into readily accessible cash. The biggest advantage to using these types of funds is that you don’t have debt service payments, you don’t have operating restrictions placed on you and you don’t have to give up a big chunk of the upside potential of the business to someone else.
The disadvantage is that if you use too much of your personal funds and then run into a situation where you need more money for the business, you may not be able to raise a loan or attract an investor at that point in time.
Q: What do I need to buy a franchise?
If you want to buy a franchise you’ll need to have three things. First, you’ll need to have the money to get the operation up and running successfully. You can use a combination of your own funds, equity you raise from other people and/or borrowed money to meet this requirement. In today’s market, borrowing is challenging so you should assume that more of the required money is going to have to come from you or your connections. Otherwise, you might have to wait until the credit markets return to a more normal position of lending.
Second, you need to have the management experience and skills that the franchise requires in order to be successful. By buying a franchise, you are contributing your time and talents to building that franchise business. Before you attempt to buy the franchise, you should make sure that your skills set matches up well with the requirements of the franchisees.
Third, you need to satisfy any other legal or regulatory requirements that are mandated by the business you have selected. Sometimes this can be as simple as acquiring a lease or getting permits for your build-out. Other times it can be more difficult because you may need to meet special licensing or educational requirements before you can begin operations. Your franchise company should be able to tell you about any of these sorts of requirements before you buy the franchise.
If you satisfy these three requirements then you are well on your way to being able to buy a franchise.
Q: How can I know if I’d be a good franchisee?
Anytime you’re investigating franchise businesses, you want to be looking at the factors that will reduce your risks and increase your chances for success. The most important of these are:
- Are you capable of owning a business?
- Can owning a business help you achieve your goals?
- Is a particular business you’re looking at going to be a good match for you?
The first step is to ask yourself whether or not you’re cut out for business ownership. Are you comfortable with being the boss? Are you comfortable with being ultimately responsible for everything that happens in your business? Are you willing to work long hours and endure anxiety during the early start-up months or years of a new business? Even though you’ve been out of the corporate world for a while, you need to make sure you’re thinking of getting a business because the characteristics are attractive to you, not just because you haven’t yet been able to find a job.
Assuming that this is the right step for you, you’ll need to decide what results you want to accomplish in your life through business ownership. What are your goals in terms of income, lifestyle and other considerations? You’ll want to have a clear idea of your end point so you can use that picture as a tool to evaluate opportunities you investigate. Can this business take you where you want to go?
Once you have a clear idea of what result you want, you can start looking at industries and then later at individual companies. Focus first on the franchisee role in any given industry to make sure it matches what you want to do. When you find roles that are interesting to you, take the time to look into the companies in more detail to see if you can achieve your ultimate dream through purchasing that business.
Q: Can I buy into a franchise with little experience and capital?
The first step for you is to take every opportunity to increase both your capital and your experience. Work as you have the opportunity to do so and save as much as you possibly can. You’ll be amazed at how much leverage you can get from a relatively small amount of capital when the right opportunity presents itself later, but it can be hard to leverage zero.
Experience is relatively easy to build. Seek every opportunity you can to gain experience in the workplace. Since you’re focused on franchising, start by getting part-time jobs at various franchise operations.
It may seem obvious to focus on fast food because those jobs are highly visible and readily available. I’d recommend against it. You’re not going to become the owner of a fast food franchise anytime soon, so working at one isn’t going to be the type of direct experience you can use toward your goal. Concentrate on the types of franchises (low investment, high return) that you have at least some chance of owning in the next few years.
Also, either initially or fairly soon after going to work, try to get a position that directly works with and/or supports the owner of the business. It’s not as important to know how to clean a toilet or make toast as it is to understand how to hire and manage employees, schedule jobs, recruit customers and other similar tasks. This is what the owner does and working directly with him or her is going to expose you to that type of work.
Q: How can I determine the success rate for a franchise?
Assuming you consider success to imply achieving both financial goals as well as personal goals, then you’ll have to visit with a number of the existing franchisees in the system to learn more about their life and experiences to get the information you’ll need.
There are many businesses that make money and don’t fail. Some might match up well with you so you’d be happy conducting the franchisee role in the business, while others might make you miserable in spite of your financial success. Think of it as a job – most people have had jobs that they succeeded in and made good money from but were not happy doing. This is the same dynamic.
Take the time to find out about a day in the life of the typical franchisee and make sure you’ll be interested and satisfied in the role they are describing. If that’s the case then you’ve found a franchise that can provide not only financial success but personal fulfilment as well.
Q: Do I need an attorney to purchase a franchise?
There is no hard and fast rule about needing an attorney in order to buy a franchise. There are three common sense questions you need to answer in order to determine if you need an attorney:
- Do you understand the franchise agreement? If you are confident that you understand what the agreement is saying then you’ll be more comfortable. If not then you may want to have legal advice from an attorney to make sure your understanding is complete and accurate.
- Is the franchise company willing to modify their contract or is it exactly the same for everyone? Many franchises will not amend their agreement for anyone. If their agreement is exactly the same for everyone and if you understand what it says, then you may think of the expense of an attorney as wasted money.
- How will you sleep at night if you don’t involve an attorney? If you are a worrier and you’ll fret about it a lot then of course it is a good use of money to involve an attorney no matter the answers to the other questions. Do it for the peace of mind and don’t worry about what it costs. Always ask for a fixed fee bid to review the documents because it may save you thousands of rands over using an attorney who racks up the hourly fees on non-critical issues.
Q: Is it risky to buy into a small franchise?
There is risk associated with any business start-up so the obvious answer to this question is yes. You’re looking at a franchise system that has only one operating unit and wondering if that is more risky than buying into a system that has hundreds of operating units. While there are many things you can do to mitigate or reduce the amount of risk you take when buying a franchise, it is far riskier to buy into an unproven franchise. You need to be much more careful evaluating such a purchase.
When any business starts franchising, the owner has usually proven that he or she can successfully run one or more units of the underlying business, and has ‘operator’ skills in this business. What they have not proven is whether or not they can take a new person (you in this example) and quickly teach him or her how to successfully operate a unit. That is a completely different skill set I’ll call ‘franchisor’ skills.
Most franchisors will readily admit that the first 10 to 20 franchisees in their systems were the ‘guinea pigs’ that they used to learn how to effectively bring someone new into their business and have them become successful. These pioneers helped the franchisor learn, often through trial and error, how to become good at their job of employing franchisor skills.
The challenge is that lots of pioneers end up buried beside the trail because they didn’t survive the journey. If you want to make sure you don’t end up with that fate, you’ll need to either find a different franchise or else wait until 10 or 20 others have become franchisees in the system you like. That way they can blaze the trail for you.
It’s not smart to be someone else’s guinea pig when your life savings are on the line.
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.
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.
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.
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.
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.
“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.
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.
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.
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.
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.
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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