Franchising is touted as a solid way to beat the long-shot odds of succeeding in business. Many people like this form of business, and why not? You basically get a “system in a box.”
Further, business owners who want to expand look to franchising as an easy way to grow. After all, if you can open additional locations with franchisees, then you have committed people running your branches, rather than employees who might quit and leave you high and dry. The best part is that they bring the money to the table to fund this growth.
Sounds great, right?
From those endorsing or selling franchises and franchising systems, they are the “best thing since sliced bread.” From others, however, franchising has mixed reviews.
In 2006 more than 14,500 Subway restaurant operators sued the parent company. Starbucks went public, but they refused to franchise. United Furniture Warehouse started to franchise in the early 1990s, but then backed right off and went with corporate locations after their early experiences. What did these companies learn, and how does it affect you?
When looking into franchising, here are a few things to consider.
A number of small business owners want to franchise their operations, especially after reading The E-Myth Revisited by Michael Gerber. Gerber talks very eloquently about treating your business like the prototype of a major franchise chain. That is a very effective approach to making your systems more robust. However, that doesn’t mean you are ready to go ahead and sell your system to others through franchising.
Not all businesses are the same, in terms of franchise-ability. Some are more conducive than others to systemize and sell. While franchising looks like a great idea and a fairly easy way to expand, there is much more to consider than meets the eye.
You have to build out the system for franchisees. But that’s just the start. Then you have to build out the second business. You know, the one that handles all of the other aspects of chain store management. From tracking and monitoring systems to ensure compliance and quality control, to regional and national marketing campaigns.
Further, levels of support for franchisees need to be considered. These are people who have written cheques and expect support on anything and everything. Keep in mind that while you get a number of educated investors buying franchises, you also get people who have never operated a business before, who expect the franchisor to teach and address all aspects of the business – from sales to operations, to hiring, training, handling people issues, handling the money, and on it goes.
Having unsophisticated new business owners bring their money can be a very expensive source of capital, as it often comes with a higher level of anxiety, with much hand-holding needed to keep new entrepreneurs settled as they learn the new system you are providing.
There are a few organizations that will help you to franchise your business. Some focus on the legal aspects and documentation needed. Others focus on the system for the franchisee. While many franchise specialists purport to handle all aspects of setting up a franchise system, I have yet to find one that handles all aspects at the level of depth required.
In non-franchised businesses, people usually get stuck when seeking to go to either their second or third locations. The level of complexity expands dramatically during this step. If you have already managed to grow to three locations or more, then the idea of franchising your operation may be a viable alternative to adding corporate locations.
If you are looking to grow through franchising, you may want to gain the experience of building and operating a chain of locations first.
Then you will be able to grow your company consistent with, and in support of, your life’s goals and commitments.
Michael Walsh, founder and president of Kaizen Consulting, a Vancouver-based company with offices in Canada and the USA, has been helping small business owners achieve business growth since 1995. In that time, Michael has helped more than 200 business owners reach their personal goals by doubling, tripling and quadrupling their revenues. Kaizen Consulting can be reached at www.kaizenconsulting.com or info@kaizenconsulting.com. Our extensive genealogical research has found that Michael, though blessed with the same name, is not related to Fiona Walsh.