There’s no neutral in business! You either grow or die. In franchising, survival is often determined by the number of units the brand has as much as it is on the product/service itself. To survive, and run with the apexes, one must optimize of the resources at hand, be resourceful; be resolute & honest; and, be hungry for growth!
Become the Apex!
The Cold, Hard Facts
Dying young – most vulnerable
If the franchisor is going to fail, most often it is in the early stages of development; when the network is small, and the brand is not well recognized. There are, however, ways to limit exposure to failure:
- Focus on core services
- Create a model that needs a small staff to operate, particularly when starting out
- Develop a system for rapid knowledge transfer-both upstream and downstream
- Diligence when granting territories, particularly when territories are exclusive
- Determine the appropriate length of the franchise contract term for model development
- Build trust with the network, and nurture that trust; and,
- Join franchise organizations (e.g. IFA) – these organizations provide a wealth of knowledge.
Often, it takes a franchisor between 2 and 3 years to build a network big enough to provide sustainable profitability from royalties, without relying on the influx of income from initial franchise fees – reaching a break-even point.
Your a franchisor: Expand by franchising, not through company-owned locations
As a new franchisor, focus should be on franchise growth. You already developed the business, so your “training center” is already in place to demonstrate the model. You don’t need more. You are franchising, so when starting out consider following the subway expansion model (one corporate location, with thousands of franchisees) vs. the Starbucks model (corporate owned, and licenses). Besides, as you grow and increase your resources, if you still desired to have more company-owned locations, you could always pick a location you’d enjoy visiting too.
Growing your brand
To be successful in any business you must create value for your customers. As a franchisor, your customers are your franchisees! And not only are they your customers, they are contractual owners representing your brand. So, if you aspire to be a nationally recognized brand, the apex, take care of your customers!
Long-term survival of your franchise model requires creating wealth for your franchisees, positive relations with your franchise network, innovation in your products and services model, and corporate efficiencies.
Ground rules for growth:
- Open at a sustainable pace – a pace you can effectively support
- Low franchise fee to start, and increase as intangible assets increase. These fees are a reflection of the service you are providing to the franchisee and the demand for your products/services
- Royalties – although representative of franchisor services, etc. provided to franchisees, royalties should not arbitrarily be reduced just because the franchisor is young. You too have to eat, to grow.
- Be “lean”, and control spending
- Focus on the bottom line, not the top. Yes, gross profits are important, and are routinely the source for royalties calculations. However, basing organization performance on gross sales is detrimental long term success.
- Sustainable development – regardless of where you stand, being environmentally conscious about your business decisions is not only practical, it’s profitable.
- “Servant Leadership” – no longer just a theory. Having a Servant Leadership mentality is becoming the norm in business; and in franchising, exemplifying a caring relationship with your franchisees is not self-serving, it’s good business.
Franchise-Specific Variables to Monitor
Franchise success can be affected by any number of factors, but from a success-rate perspective, the variables listed below have the greatest impact on your probability for success as a franchisor, and should be carefully monitored:
Developing the System
Franchisors need time to properly develop the systems, to grow up and mature. Both the franchisor and the team are learning how to engage with, onboard, train and support franchisees. In addition, there will be a lot of “first-time” issues the franchise organization will need to learn to successfully address: first franchise granting; first termination; first franchise conflict/dispute; first franchisee customer complaint; first default; first franchisee convention, to name just a few. There is a learning cure to create the systems needed to address all the different facets of being a franchisor, not just franchisee growth and success. But that alright…the corporate team will learn, improve and succeed with time and experience – gaining wisdom. And together, they will protect and nurture the young franchisees.
Expanding the Team
You don’t need a robust team to start franchising your business. Most franchisors only have a few employees – wearing multiple hats- during the formative years, only adding staff as the network grows. Often, sales and coaching positions are conducted in-house, while professional services are outsourced. Further to this franchisor “staffing” point, a large percentage of franchisors have less than 10 staff members, and the vast majority have less than 20. Like your franchisees, quality over quantity is the key to a great team.
Conserving Your Energy
Continually working to refine the franchise system, and the business model, by removing “waste” and maximizing profitability cannot be overlooked. Your model’s efficiency benefits the entire organization-your team and the franchisees. And, utilizing technology to reduce “waste” not only helps streamline your processes, it can provide insights to strategic opportunities. With today’s labor market, and your future franchisees’ need to hire staff, it is necessary for the model to be as “lean” and efficient as possible.
Growth -The Cycle
My Judo instructor frequently stated that it takes 10,000 attempts to master a throw. And just like martial arts for defense and survival, the same holds true for franchising. It will take 10,000 hours to master an activity. And like judo, there will be a lot of bruises along the way to becoming a franchisor black belt. But with hard work and dedication, you can become the sensei and be on your way toward instructing the new set of franchisor white belts that are hungry for success, and will train as hard as you did.