Most Franchises Fail to Scale — But The Ones That Do Succeed All Have These 3 Essential Qualities in Common. The success rate of franchise expansion is low. Beat the odds by harnessing these three franchising habits that are overwhelmingly present in franchises that succeed.
By John DeHart Edited by Maria Bailey
Opinions expressed by Entrepreneur contributors are their own.
Here is a common problem I often see in franchising: You launch a franchise system after building a successful business in your specific industry. You get a few locations launched — all sold to people from your personal network — and the franchise sales stall.
You aren't selling franchise locations fast enough. The franchises you do sell don't grow as fast as you think they should. Your royalties barely make a dent. You don't have enough money to continue marketing to sell more locations. You find yourself on a path where it will take over 10 years to reach 25 franchise units.
I've written a lot about the low success rate of franchise expansion. Did you know that 60% of franchisors never sell a single location in their first two years of franchising?
My team and I have expanded our brand to hundreds of units in under ten years. We've also been instrumental in the start-up and growth of some of the fastest-growing franchise brands in the country. With this experience, we developed what we call the Science of Scale in franchising, compiling our insights into the 10 Habits of Best-in-Class Franchisors, a template to help you build a best-in-class franchise system.
Related: Considering franchise ownership? Get started now and take this quiz to find your personalized list of franchises that match your lifestyle, interests and budget.
When we reflected on why we grew and scaled so quickly and investigated why some emerging brands scaled well and most don't, we uncovered three specific franchising habits that were overwhelmingly present in successful new franchises:
1. Next-level brand and marketing
This comes first for a reason: You must nail your marketing out of the gate to grow your franchise and scale your operations quickly. Marketing is also something those emerging franchisors rarely get right.
In our experience evaluating and coaching hundreds of start-up franchisors, the odd founder is a branding genius, but most aren't. If you are going to franchise, then you need to look like you are a 100-unit brand even when you only have one. I can't tell you how many brands I see that simply don't look professional. And if you don't look like a sophisticated brand (even when you aren't yet actually a sophisticated brand), you will face two big challenges:
- You will have a much more difficult time selling franchises.
- Your franchisees will have a harder time getting traction in their local market where no one is familiar with your brand.
I learned my personal lesson in this when we expanded our own system from Canada into the U.S. We had dominated our category and the competition in Canada in terms of size, revenues and number of franchises, so we thought it would be the same in the U.S. How wrong I was! Competing with 4,000 franchise competitors and over 40 direct competitors who all did exactly the same thing in our space was eye-opening. After a few years of momentous growth in Canada, all of a sudden, we were having trouble selling locations.
What did I do? I spent most of my time figuring out how to differentiate our brand in the American marketplace. How to look different, how to sound different and how to actually provide a different service from the rest of our competitors. Six months later, we had it: a completely refreshed brand. And guess what? In no time, we were once again selling franchises. "I'm choosing your franchise because of how refreshing you are in a sea of 'sameness," we heard. We went on to sell 40 franchises per year, year over year, which was the perfect growth speed for our system at the time.
Related: The 5 Marketing Strategies You Should Implement Into Your Franchise to Make It Flourish
A sophisticated-looking brand will cut through the clutter in the market. It will stand out and help differentiate your business, even when no one knows who you are. To become a national force, you need to nail your brand.
2. Become a franchise sales machine
Another system that most emerging franchisors do not understand is how to sell a franchise.
Very few franchisors have mastered the art and science of franchise sales, but if you want to scale your franchise system, you must become an expert in franchise sales as fast as you possibly can.
Early in our franchising journey, I had a franchise sales mentor, and the first thing he told me was that franchise sales are one of the most complex sales you can make.
For example, you are no longer selling a $1,500 homecare service. You are selling a $150,000 product: a franchise location. That's a huge difference. Do you know how to sell a $150,000 product? Chances are, you don't.
Next, realize that you are asking someone to:
- Commit their life savings and go into debt to invest in something they have very little visibility into. Prospects don't really know how much money they are going to make and how long it will take for them to get to profitability.
- Sign a daunting 243-page legal document that a) they don't understand and b) the parts they do understand make it very clear that if they break the rules in any way, you will take their invested life savings away from them.
- Commit more of their time than they are currently spending on their job and sign on for 7 or 10 years, which is longer than the duration of most marriages.
On top of that, you need to find someone to choose your company and commit to all of this over the other 4,000 brands that are also trying to get them to buy a location.
That is a hard sale.
Once I understood this, it all made sense. I had an epiphany: Franchise sales aren't about getting someone through the process as fast as possible. Instead, they are about making someone feel comfortable and safe and building trust. Trust is the holy grail of franchise sales, and your franchise sales process better reflect this.
Related: How Franchisees and Franchisors Can Master Their Relationship
3. Have your onboarding process locked and loaded
Here is what happens with most emerging franchisors (I blame this on McDonald's, who kind of messed up franchising for all of us). We think we have to train our franchisees on every detail to a "T." We expect new franchisees to know everything before they launch their location. So, we firehose them with all of the information we can possibly squeeze into pre-launch training sessions. We teach them everything we have ever learned about building and running this business.
What happens? New franchisees soon get overwhelmed. They don't focus on the important things. They miss stuff that is vital to you and to the health of their location. And they don't perform as well as you did. We see this pattern over and over again.
One important learning from years spent doing this and not getting it right: The faster your franchisees succeed, the easier and more fun franchising becomes — for you and for them. It is as simple as that.
If you want your franchisees to perform and execute from day one, then you need to put a lot of work into crafting your franchisee onboarding system.
The first thing you must get right with onboarding? You need to train new franchisees on only the key things that matter in the early days of running their business. We spend a lot of time with our new franchisor clients getting them to answer this important question: "What are the five things your franchisee must have or do to be successful?"
Related: 3 Tips on How to Empower Your Franchisees to Acquire Local Customers
Of course, the three habits we've discussed here aren't the only systems new franchisors need to get right. But if you do, they will definitely help accelerate your growth to sell more locations more quickly.
