Can You Franchise your business concept?
There is no doubt that Franchising is a proven growth strategy, but can any business be franchised?
As a rule, a concept can be considered “franchisable” if it meets four basic criteria:
- It can be reproduced
- It is profitable
- There is an added-value to the potential franchisee
- You have the financial resources to support a franchise system
It is important to understand that, in most cases, potential franchisees are not entrepreneurs themselves. Typically, they are employees of other businesses wishing to improve their current situation and want to own their own business but realize they do not have required business or industry experience. They join a franchise system to provide them with guidance and support to achieve their goals.
Criteria #1: The business can be reproduced
Don’t launch an unproven business and certainly don’t expect a franchisee to do what you are either unwilling or financially incapable of doing yourself.
As a rule, before considering franchising to expand, your concept should be operational for at least three years with a second unit opened with similar success as the first one. It must be able to be wholly replicated
Criteria #2: The business is profitable
The second criterion is about return on investment and profits. It is extremely difficult to franchise a business that is not profitable.
Before launching a franchise system, careful analysis must be made to ensure that there is enough profit for both parties. The balance of profitability for the franchisor and franchisee is a fine line but franchising is a symbiotic relationship and one party cannot take advantage of the other one and expect to survive.
Criteria #3: Added-value to potential franchisees
Some franchise offers seem to suggest a franchise is something that anyone with a reasonable mind can do by themselves. The problem with that is, of course, perception. Why would a franchisee pay an initial fee and ongoing royalties for a business that they can start themselves?
The “added value” can be training, support, brand value, pricing, marketing or consumer experience. You may think a doughnut is a doughnut but there are key differentiators: so what attracts potential franchisees to one brand as opposed to others?
Criteria #4: Are you the right fit as a franchisor?
Another common misconception that would-be franchisors have is that capital will come entirely from franchisees. This perception is incorrect. There will be a requirement to get your ‘franchise act’ together before attracting people to your concept. You will need to invest in analysis, legal documentation, marketing documents to present your concept, advertising to promote your franchise, and resources to handle inquiries, training and support. When candidates come to you and before they are willing to invest, they will expect that you have everything set up to run this business.
So having met all the above criteria do you launch your business as a franchise? A couple of more questions to ask yourself first:
Are you the type of person that needs to be in complete control all the time?
Are you the type that cannot stand to share anything with anyone else?
If, in your mind, people are a necessity that you could do without and you dream of the day when you could clone yourself, franchising may not be your thing.
Franchisees are partners in your business. They have invested their time and, in most cases, a lot of their own money to own a business. If you cannot accept that franchising is about relationships, sharing ideas and working together, this business model is not for you.
As for what type of business can be franchised, there is great news. Franchising has expanded over the years from restaurants to a large segment of retail and services. Today, there are “bricks and mortar” systems in areas such as food, retail, automotive, business-to-businesses, pets, beauty and more. Home-based franchises provide “blue collar” and “white collar” services ranging from maintenance, cleaning and accounting to teaching, training and internet services. The Canadian Franchise Association (CFA) website lists over 46 categories of franchise offerings in addition to an “Other” category!
The bottom line is that franchising is now a worldwide industry with 17,500 franchise systems, 1.2 million franchisees and 12.5 million employees generating US $1.4 trillion annually.
It is definitely worth considering franchising as a growth strategy for businesses in Canada, provided of course that you meet the criteria.