You’re a self-made business owner with a great product/service to sell and a brand you can be proud of. You’ve been in business long enough that you think it’s time to expand your operations. Sure, there’s always the option to just open more stores/outlets of your own. But then you somehow have to find the time to own and operate them.
Own and operate…wouldn’t it be nice if that meant you could hire good people and things would just about run themselves? You know better. The effort it takes to own and operate anything is considerable. Just finding the “right” people and making sure they’re doing everything as well as you would, keeping everyday tabs on how things are going and ensuring your employees are motivated and happy is more than a full-time job. Running the one business you’ve already put your blood, sweat and tears into to get this far means you already have one of those, thank you very much.
Then there’s the “holy grail” of business success that many entrepreneurs aspire to...franchising. Unlimited expansion potential, residual profits, a mostly hands-off, day-to-day management scenario ― once your franchisees are properly trained and you’ve imparted all of your hard-earned wisdom on how things should and must be done, of course. It’s the logical next step. It’s what you’ve always dreamed of and wanted. It’s the perfect solution to meet your goals when it comes to growth, profit and your overall picture of success.
Oh, if only that were all true and everything so simple!
Basics of Franchising
Ask any businessperson to sum up in one word what the purpose of marketing is and you’ll likely get one answer more than any other ― profit. Marketing is about making money. And guess what, so is franchising. But franchising is more than just another marketing strategy ― and make no mistake, that’s exactly what it is ― it’s also a whole and different business operation unto itself, apart from the business you’re already in. Just because you have the skills to run your own successful business does not for one moment mean you have the skillset to be a franchisor. Not only that, but just because your product/service has done well in one place and under a certain set of circumstances does not mean it will thrive and grow elsewhere. Just ask the countless number of franchise operators who thought they had a concept that just couldn’t lose, no matter where it was implemented, and who paid a hefty price finding out they were wrong.
If you’re the owner of a home-based or other small business in particular, franchising might not be your best option. You may want to explore expanding your operations via another route, such as a home-based or other business opportunity, licensee opportunity or distributorship. Whatever the case may be, there are still some things here that you may find helpful ― not because all points apply necessarily, although a number of them do, but because what follows may prompt you to ask questions you never thought of before.
The simple truth is that business and licensee opportunities, distributorships and franchises of all sizes operate very differently depending on the nature of their structure and contractual agreements. The critical point to be made here is that if you are considering any one of them, it’s important to explore and think carefully through the pros and cons before you jump.
The Pros and Cons of Franchising
When it comes to franchising in particular, any business owner who’s thinking about it would do well to consider the following:
There are some key positives to franchising, that’s for sure. Here are just some of them:
- You can maximize your business’ growth with relatively minimum expenditure.
- Day-to-day management is the responsibility of your franchisees.
- A stable, networked organization allows for greater brand recognition, purchasing power and synergistic implementation of best practices.
- Marketing dollars can be pooled together for maximum efficiency and ROI.
- You enjoy a fairly steady cash flow once franchisees are up and running.
For every upside to anything, there is always a downside. When it comes to franchising, here are just some of the potential pitfalls:
Deciding to Franchise Your Business: The Necessary Elements for Success
- It can be 6 months to a year before franchisees break even, so the capital necessary to account for any shortfalls must be available; you must be financially prepared for this lag time and know how to manage it.
- Franchisee contracts can be very complex, requiring the hands-on expertise of only the most qualified legal and financial counsel. Suffice it to say, not all attorneys and accountants are well-versed in “all things franchise”…it takes people who know exactly what they’re doing. Additionally, contracts can vary greatly by state. Added up, all of this can be downright cost- prohibitive.
- Again, the skills needed to run a franchised business operation are NOT the same as those you use to run your own business. Sure there will be some degree of overlap, but franchising requires skills, knowledge and even basic personality characteristics that you may or may not possess. It’s really important to find out what those are and assess yourself honestly before you get into a serious personal, professional and financial quagmire. Trust us when we say that you would not be the first, not by a long shot.
- Franchisees are independent business owners, and they need to be treated as such. For them and for you, that’s half the appeal, right? Well, you need to know that franchisees’ independence can backfire. Unhappy franchisees can withhold fees if they’re not satisfied with something, and they’ve been known to ban together to make a point as well. As the franchisor, keeping your franchisees content, productive and informed, as individuals and collectively, is a monumental task. To do it right, if not at all, you must remember that your focus in particular and theirs as well is on selling products/services, NOT just selling more franchises.
Once you’ve done your homework and leveled with yourself about the potential ups and downs of franchising, you’re not even halfway to making the decision to actually pull the trigger. Before you do that, there are some firmly established basics that must be in place if you’re going to even have a shot at making things work. They are:
- Your product/service offers something new and different enough that it is in demand; you offer something that is truly marketable.
- Your current business is profitable and can be replicated in a systemic way across various geographic and other settings.
- You’ve got what it takes in the way of investment capital for everything from start-up and contracts to training and ongoing marketing activities ― and everything in between.
- You’re product/service has a trademark that is already registered or that can be.
- You’ve established a mutually beneficial financial model that will keep you as the franchisor and your franchisees motivated and profitable.
- You’ve done your homework on the knowledge, skills and characteristics it takes to franchise a business like yours and do it well. You’ve got it all covered, either by you or some very carefully selected and trusted partners and/or associates.
- You know IN ADVANCE who your ideal franchisee is; you’ve crafted a basic profile from which you will not waver, at least to any significant degree. You know that this kind of preparation is critical to your success.
- You’ve explored and secured the financing options you may want to make available to qualified, potential franchisees.
- You’ve put a training process, manual and/or program in place that more than adequately prepares franchisees to do what you do, as well as you do it ― if not even better!
- And, last but not least, you’re willing to do whatever it takes. Your commitment is for the long-term. You know it, and you’re determined that your franchisees will know it too. For any one and therefore all of you, failure is not an option.