Are you an entrepreneur with a business you are ready to expand? Looking for different strategies and approaches that might be worth consideration. Have you thought about franchising?
Franchising can be a very effective way to expand a business into multiple locations, markets, and countries. There are several advantages and, of course, disadvantages that you need to consider. In this article, I'll provide several essential considerations for expanding your business by franchising.
Franchising has been around for a long time in the United States, and has seen explosive growth in the past ten years, with more and more brands coming online every year; of course, it looks easy, but it never is.
How Does it Work?
Franchising allows a business and brand to grow and expand but does not require the same amount of capital, demands, and talent needed if you were to do it yourself. Using a franchise model, your carefully selected franchisees invest their money, time, and attention as an operating owner of your business brand at the unit level, usually in their local home market. They provide the capital, talent, and commitment as an owner, separate from you as the franchisor. These local franchisees, as owners, have a high level of commitment, typically more than any employee might have. Because the franchisees are making a significant investment and committing, they are motivated for success in a way that most employees never would be.
Franchising is regulated by the Federal Trade Commission and also has state-level regulation in 14 different states. What does this mean? One way to put it is that you need lawyers and accountants, and they naturally have a cost. Audited financial statements are a part of franchising, and annual updates and disclosure filings are required; that means specific legal and financial commitments must be maintained every year, whether or not you ever sell a franchise. You will need to pay for these audits, disclosure documents and related filings to be valid and able to offer a franchise available to a franchisee. The key takeaway is that you need to be prepared for these complexities and costs on an ongoing basis, regardless of if you develop any franchisee units.
If you are considering franchising your business, you must understand that it is a different business than the one you are coming from. Franchising has complexities unique to itself. Knowing that the skill sets, experience, and best practices in franchising may differ greatly from the business you are trying to expand is imperative. Franchising is not easy. Franchising is significantly based on relationships, people, communication, and trust; working to develop mutual benefit is required. There are many factors and aspects of franchising that you'll want to consider carefully before making any commitments.
Related Read: A Simple Way to Avoid Failure as a Franchisor
Another advantage of franchising is that it is comparatively less risky than growing your brand on your own, because the success or failure of each unit is only incremental to the franchisor. Nobody sells a franchise or buys a franchise thinking they won't make it; however, it's a reality that some will fail. Unfortunately, the franchisees bear most of this risk at the unit level. The real risk to the franchisor is if you develop too early or provide inadequate systems or support, your franchisees and brand may not survive. It is estimated that 84% of franchise systems never make it to open a hundred units. The 16% that do make it, are the ones that have established systems and programs and people and more, all that help build the momentum and create the success that drives future growth. Generally speaking, I call franchising economic Darwinism. It's the brands that adapt to the realities and compete successfully through their franchisees being the focus of success. Those brands are generally the ones that make it and grow beyond 100 open units.
The Franchising Difference
Franchising can be a great way to expand into other markets and other areas of the country and worldwide because the local owner franchisee will be responsible for the execution of that business model in their local area. The franchisor provides the systems and support, and the local franchisee is responsible for the outcome at the unit level. By using franchising carefully, you can enter many markets faster or simultaneously than you would likely be able to afford or manage if you were to develop your brand independently.
Franchising gives a point of leverage, which is powerful and needs to be managed intentionally. If you grow too fast, you may experience a decline in quality and damage to your brand's image. If you grow too slowly, competitors will likely come along, innovate faster than you can, and take away market share. In today's fast-paced business environment, it is without a doubt that for every successful brand, five more will be coming right behind it, trying to beat them at their game.
Finding More Information
There are many resources available for those considering franchising. From books, conferences, magazines, courses and educational degrees, you can set a foundation to foster success in franchising. The International Franchise Association based in Washington DC is an excellent resource for all things franchising. I have been a member for most of my life and find it a beneficial and welcoming organization for people interested in the franchise business model.
You can find many other blog articles on JohnnyFranchise.com that can help you at any stage of the franchising journey. If you or someone you know is interested in franchising their business, please consider me a resource. I'm happy to help and share ideas whenever possible.
John Francis of Johnny Franchise is an enthusiastic, engaging, and entertaining public speaker, advisor and franchise coach; he speaks from experience and the heart. He is the creator of the successful Franchise Lifecycle Program that will take your franchise to the next level. Franchising is in his blood, and his parents were true pioneers in the industry, turning their family haircutting business into a 1,000-salon franchise empire. He has been a franchisee and a franchisor and has a deep understanding of the issues both face. Connect with John, and you and your franchisees will learn how to look at your business in new, positive, and profitable ways.