Franchising is an ideal way to grow a business. It also allows for rapid, low-cost roll-out of products and services, while spreading the risk across a network of operating units. What makes franchising so attractive to those looking to franchise their business concept, is that each franchisee foots the bill for developing the franchise at a new location. As a result, franchisees are usually highly motivated, because their own capital is at risk. Franchising, as opposed to company owned units, does not require a business owner to find and retain qualified managers. Nor does it require extensive capital on the part of a franchiser. So when a franchise system works and works well, a franchiser reaps the rewards of maximum profitability.
The International Franchise Association reports that there are more than 75 various industries that use the franchising method of expansion, ranging from cleaning services to fast food restaurants and everything in between. But, believe it or not, not all businesses have the potential to be successfully franchised. A local success story does not guarantee a national phenomenon. Certain criteria must be met. Let's see if your business has what it takes.
Criteria for Franchising
A Proven Concept and Track Record for Success: Before handing over a large sum of money, investors look for a history of operating success. Franchisees are investors, so they will be scrutinizing every aspect of your business. You will need to demonstrate that your concept and methodologies are proven from both a financial and an operational perspective. If you are still fine tuning your systems or if your profit margin hasn't shown a steady increase, you are not in a position to consider franchising. You will not be taken seriously and will be viewed as a risk, not an opportunity.
Long-Term Market Potential
The product or service that you are offering must address a specific market need and have long-term market potential. Would-be franchisees will be looking for opportunities that take advantage of emerging trends. They will shy away from those that follow fads or those that are based on a whim. You must provide sufficient market research to back up your claims of market size and demand. Demonstrate to potential buyers that the market is increasing or that you are operating in an evergreen industry - one with a never ending supply of customers, because there will always be a need for your product or service.
A Positive Reputation and Brand Identity
Okay. If you were considering franchise opportunities, would you be more apt to buy a McDonald's franchise or a McHarry's franchise? The answer to that question is obvious. You recognize the brand name McDonald's therefore, you believe it would be a more profitable choice because its identity has been established. It's a no-brainer. Franchisees will be looking for franchise concepts that have the ability to generate sales because its reputation and brand are well-known. If your identity has not been established, all is not lost. Make sure you are taking the appropriate measures to protect your identity (i.e. trademarks and service marks) and that your concept has distinguishing features to give it distinctiveness in the marketplace.
A “Portable” Business Model
It is important that your franchise concept be portable and require no prior experience on the part of a franchisee. You must be able show new franchisees how to easily set up and operate the business using the systems that you have in place. If there are certain aspects of your business that are not portable, such as requiring a special degree, artistic ability or talent, your prospects will be limited.
Operating Experience and a Skilled Management Team
It is absolutely necessary that you have solid experience starting up and operating the business that your franchisees will be buying into. Operating experience demonstrates that your concept is viable. If you have a larger management team, they should also possess franchise related experience. Your franchisees will need initial and ongoing support. They will look to you and your management team to provide this support. Your team will also need to periodically inspect each franchised unit to ensure that all franchisees are following operating guidelines and procedures.
A Knack for Opening New Channels and Closing a Sale
You have to be able to sell - sell yourself and sell your concept to others. Consequently, you will a detailed plan that outlines how you plan to sell your franchise to would-be entrepreneurs. The plan should highlight the marketing and advertising techniques that you intend to use. Keep in mind your budget and target audience.
Franchising is about creating a systematic way of doing business that results in a unified network of individuals working to towards the same goal: maximum profitability. In summary, if you are considering franchising your concept, make sure that you have the following criteria in place:
- A successful business and operating history
- A proven system that generates a profit
- Market research findings that verify a large market to support ongoing efforts
- A favorable reputation in the marketplace
- An easy to operate, transferable business model
- Operating experience to prove your credibility
- An experienced management team that can meet the needs of franchisees
- Ability to sell to others effortlessly
Even if you have met all the criteria, be prepared to invest both time and money to develop your franchise system. Many people have met success taking the franchise route. If your business is truly “franchisable” and you're willing to work hard, you too might build great fortune with franchising. Have fun and good luck!
