Definition: A business that has the potential to be sold as a franchise
opportunity, generally having the following characteristics: It is
established, offers a unique concept, is teachable and can provide
an adequate return to potential franchisees.
In general, companies decide to begin franchising for one of three
reasons: lack of money, people or time.
The primary barrier to expansion that today's entrepreneur faces
is lack of capital. And franchising allows companies to expand
without the risk of debt or the cost of equity. Since franchisees
provide the initial investment at the unit level, franchising
allows for expansion with minimal capital investment on the part of
the franchisor. In addition, since it's the franchisee, and not the
franchisor, who signs the lease and commits to various service
contracts, franchising allows for expansion with virtually no
contingent liability, thus greatly reducing a franchisor's
risk.
The second barrier to expansion is finding and retaining good
unit managers. All too often, a business owner spends months
looking for and training a new manager only to see that manager
leave--or worse yet, get hired away by a competitor.
Franchising allows entrepreneurs to overcome many of these
problems by substituting a motivated franchisee for a unit manager.
Interestingly enough, since the franchisee has both an investment
in the unit and a stake in the profits, unit performance will often
improve. And since a franchisor's income is based on the
franchisee's gross sales--and not profitability--monitoring
unit-level expenses becomes significantly less cumbersome.
Finally, opening another location takes time. Hunt for sites.
Negotiate leases. Arrange for design and build-out. Secure
financing. Hire and train staff. Purchase equipment and inventory.
The end result is that the number of units you can open in any
given period of time is limited by the amount of time it takes to
do it properly.
For companies with too little time (or too little staff),
franchising is often the fastest way to grow. That's because it's
the franchisee who performs most of these growth tasks. The
franchisor provides the guidance, of course, but the franchisee
does the legwork. Thus franchising not only allows the franchisor
financial leverage, but it allows him to leverage his resources as
well.
No matter how successful your business is, it will not work as a
franchise unless it appears to be a good business opportunity. The
franchise should be based on a concept with pizzazz, such as a new
kind of fast food or a patented technology for repairing automobile
finishes. That's because to really be successful, a franchise has
to capture the imaginations of would-be business owners. It's much
easier to market a franchise with built-in appeal than one that
sounds like some humdrum business.
Needless to say, your franchise must produce a superior product
or service. Nobody wants to purchase and run a franchise whose
success is based on being the lowest-cost producer. That doesn't
necessarily mean that all successful franchises cater to the
silk-stocking trade, but it does mean that you need some clearly
distinguishing, positive characteristics in the marketplace.
If you produce a superior product or service, it also has to be
possible for you to control the quality of that product or service.
Much of the appeal of a franchise system to consumers lies in the
fact that, no matter where they go, if they patronize one of that
system's franchises, they will get the same quality of service and
product they would get anywhere else. Unless your product or
service is one that lends itself to that kind of standardization,
you are going to have trouble franchising your concept.
If you have a good product, a good market and plenty of pizzazz,
you need to look for some security. Specifically, you should
have-or try to develop a strong trademark. Most of the best
franchises, such as Subway and ServiceMaster, have spent lots of
time and money creating strong trademarks that convey a consistent
and appropriate message about the product and the franchise. Of
course, to be effective, any trademark you have has to be yours and
yours alone--meaning it can't be too similar to ones other
businesses are using. It also has to be one that is--or could
be--registered for federal trademark protection.
A good franchise concept has to be teachable. That means it has
to be something you can explain to other people and that they can
be expected to grasp readily. To accomplish that, your franchisable
business should be thoroughly systemized and its operations
documented so it can be copied by others. In addition, it must be a
business that can be run in a non-centralized way.
If your business is run on the basis of knowledge that exists
only in your head and requires your personal involvement every step
of the way, you'll have trouble franchising it. Successful
franchisors create detailed operating manuals that set standards
and describe procedures for every facet of the business. They also
create training programs for franchise owners, managers and
employees.
Repeatibility is an essential component of a franchisable
business. That means your business must be one that can be
replicated over and over in many places by many people. If it can
only work in one location. A business offering tours of the Grand
Canyon, for instance, is not repeatable and not franchisable. The
same is true if the business can only be run successfully by one
person.
Obviously, incorporating all these features into your business
is going to take time and energy. In fact, franchising is a very
different business from whatever business you're in now. Instead of
the customers you are used to dealing with, once you franchise,
your customers will be your franchisees. Franchisees invest time
and money in your concept, and they can be demanding when it comes
to training and support. Make sure you have the time and
inclination to support multiple franchisees before you commit to
franchising.