Franchisors: What to Do. What Not To Do.
Consider these concepts if you feel that franchising may be a path for your future growth, or if you are franchising now, but concerned about the direction.
You must have an established brand and an operating model that is both compelling and able to be duplicated at scale.
The brand, products, and services must be resonate with customers, be operationally-viable, scalable, and financially-compelling.
Never franchise too early in your brand/business growth cycle.
Fine-tuning an immature business is difficult. It is, therefore, exponentially more challenging to “tweak” your operating business model and brand while simultaneously working with franchised partners. Not only will you confuse your franchisees, but you run the risk of backlash against continuous change efforts.
You will need many support services to ensure the success of your franchisees and to maintain the integrity of your brand.
Numerous support services should be in place prior to the commencement of your franchise effort (see "infrastructure essentials" later in this franchise section). These services will add to your administrative expenses. Better franchisors provide all, or at least most, of the following: operational field consultations, training systems and training teams, centralized purchasing and procurement, marketing (particularly digital), advanced technological platforms (including software and apps that add value to both the customer experience and overall operations), financial guidance, real estate support, prototype construction plans and project management assistance, and more.
The more complex your business model may be, the more unlikely it is that franchising will be a good fit.
If the complexity of your business is vast, then relying upon others to execute flawlessly could be risky. Ask yourself if the operating model is easily transferable in terms of the skillsets required to operate with precision.
You will give up a degree of control and must be psychologically willing to do so.
As you scale upwards, you are bringing on-board independent franchisees that will interpret your operating guidelines, policies, and procedures every single day. You are not 100% in control, no matter how tightly-structured your franchise agreement may be. Do you have the psychological and physical stamina to lead a business that includes large numbers of franchisee partners, each with their own personality styles and challenges?
Your capital investment and ROI must be enticing.
Only franchise models with highly-favorable ROI’s (returns on investment) will attract smart investor/operators. If you have not yet fully worked through your economics, and are still not assured of outstanding returns on the required investment, then franchising may hamper your expansion and damage your brand. Conversely, what if the economics of your business are so strong? If that is the case, you may conclude that your returns are at such a favorable level that it may not be necessary or even desirable to franchise. Do the math!
Get your tech stack right!
Technology and SaaS are greens fees in today's world of commerce. Your technology stack must provide structure, seamless integration, stability, security, and a simplified, yet rewarding customer journey. Your website and apps must also be "on-brand," and integrated to help build your overall business. If done correctly, your technology stack will create synergistic brand-building.
Your Franchise Strategy
Once you understand your objectives for franchising, you must build out the system, rigorously documenting every step of your process. This includes your development of a legally-mandated Franchise Disclosure Document (FDD). Many neophyte franchisors do not understand the importance or the overall messaging within their own FDD. They believe that it is purely a legal document, when in fact, it defines their brand and the entirety of the franchise system. Your FDD not only protects both franchisor and franchisee, but when properly designed, it presents a clear and thoughtful blueprint of a cogent, sophisticated, and professional franchise system .
Exercise Careful Judgment.
Many other decisions surrounding franchising must be made, such as defining geographical expansion areas, single-unit and multi-unit development approaches, royalty rates, franchise fees, marketing funds, brand funds, prototype design mandates, investment criteria, and much, much more. Importantly, there are many legal issues (federal and state) to be considered in franchising, as franchising is regulated by numerous laws. So, once you have addressed all of the above issues, and if you still believe that franchising is right for you, be certain that you have capable and enlightened professionals to guide you in the critical, strategic, decision-making that will impact the future of all aspects of your business.
Are you a restaurant brand? Here are important additional considerations.
- Products and services should be highly-differentiated, recognized as such by the consumer, and “craveable” in a manner that would create consumer demand on a return cadence that supports ample purchase pattern frequency
- Your financial model must be sustainable and must produce a restaurant level operating profit margin > 20% (after all franchise fees and payments); and a sales to capital investment ratio (investment turnover) of > 2.5: 1
- Geographical clustering should be disciplined as your first-phase of franchise development, to create efficiencies of operations, marketing, and a brand-halo impact
- Significant takeout and delivery component should be achievable
- Culinary operations must be manageable and replicable with consistency (consider co-packing and/or central commissary production approaches for various complex food products)
