From Point B to Point C: Franchising for the Serious Entrepreneur
July 20, 2014
You’ve already gone from Point A to Point B. You’ve been in business five or ten years, now. You know your industry. You have credentials, awards, a decade of experience, employees that rely on you. By any measure, your business is a success. What about Point C? What’s the next step? The idea of continuing to see your business grow appeals to you, but scaling up responsibly and at a reasonable rate of speed is important. One of the best ways to see your brand expand is by turning your business into a franchise.
In 2007, franchises accounted for almost 11 percent of businesses from 295 industries, $1.3 trillion in revenue, and $153.7 billion in payroll disbursed to 7.9 million workers, according to data from 2010 released by the U.S. Census Bureau. That’s a big pie, and your slice of it probably looks delicious, but what considerations do you face when considering whether to franchise out your brand?
You need to be able to answer any question about your business. Any. Question. That means you need to know what your company does, how it does it, why, when, where, and for whom. You cannot run a franchise on intuition, because you need to be able to give very precise instructions to franchisees about what your company does, how it does it, why, when, where, and for whom. You need to outline each step of each process that is involved in taking your goods and services from conception to consumption. In many ways, you will be revisiting the experience of operating your company for the first time.
You also need an attorney, and perhaps a franchising consultant, as well as an accountant. Along with legal and accounting hurdles that are usually too high for even a business-savvy layperson, there are specific aspects of becoming a franchisor that are uniquely complex. Being capable of successfully operating your business may not fully prepare you for the business of operating a franchise. You’re going to need professional help.
Consider how big and how fast you want to grow. Letting the process happen organically—not forcing growth, but allowing it to happen as opportunities naturally arise—is often the best way to grow. Also, consider the unexpected. Sometimes, a business might work really well farther away than right next door. The ideal market for your franchise business might be in another country or even on another continent, while the geographic areas closer to your original location might actually be less-than-ideal.
Know who your franchisees are. Enthusiasm, while necessary, is not sufficient, and too much of it can actually be an indicator that the interested party is enamored with the concept of the business, but does not actually understand all the hard work and sacrifice that accompanies its long-term successful operation. Apply the 80/20 rule to approval of applications for a franchise, and you’re likely to have good results.
Even after determining your franchisees have what it takes and after giving them precise instructions about how to hire & train employees and run the franchisee’s business more-or-less as you, yourself, would run it, you’re still going to need to define the extent of the freedoms and the discretion they will have. Balancing the preservation of your brand identity with the idiosyncrasies of each franchise owner is difficult, but absolutely essential. Ultimately, promoting brand strength and growth should be the goal both a franchisor and a franchisee share. Whenever approaching such balance questions, then, as a franchisor, always make sure you’re putting the brand first and do all you can to ensure your franchise owners do the same.
Getting a franchise up and running and signing a few franchisees isn’t the end of the story, though. As Matthew Deluca of Inc. magazine says:
“A franchisee is unlike other types of small business owners. He or she has opened a new store or service provider and is responsible for its performance within a designated area. He or she derives a livelihood from the business, and oversees all daily operations. Yet, there is always a larger corporate structure overhead, and how the franchisee works within that structure varies from franchise to franchise.”
Creating systems and processes that enable you to outsource decision-making at or below a certain threshold will become necessary. To some extent, that will mean compartmentalizing certain functions and organizing them according to a hierarchy that is ultimately accountable to you. Perhaps more importantly, however, it will mean there is a constant, seamlessly integrated flow of communication along the chain of command in your company. You need to know how to build a team and how to lead them.
Building the team that will launch your franchise should start with the right lawyer and the right accountant. If you would like assistance taking your business to the next level by starting a franchise, Executive Legal Professionals would like to be part of your team. Drop us a line or give us a call at (615) 669-6566. We look forward to helping you reach Point C.
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