Is Your Business Franchisable?

Is Your Business Franchisable?

In theory, any established business that can be expanded can also be franchised. But to be successful as a franchise, a concept requires additional qualities. So what are the criteria that set a franchisable business apart? Here are the most important:

  • In almost every instance, it needs to have at least one viableprototype to show that the concept works.
  • It must be marketable as a business opportunity. It must appeal to pro­spective investors who can readily see its potential for themselves. A franchisable business is adequately differentiated from its competitors so that it has a genuine competitive advantage.
  • It needs to be “cloneable.” Could someone of average competence learn to operate the business in three months or less? Are systems in place that can accommodate rapid growth? Are all operating procedures documented? It won’t work if the business requires the technical brilliance or artistry of the founder.
  • It needs to provide an adequate return on investment. In today’s demanding marketplace, if a business cannot generate a 15 to 20 percent ROI after deduct­ing a royalty (which typi­cally runs between 4 and 8 percent), it is going to have difficulty keeping franchi­sees happy and motivated.
  • It needs to be supported. It is one thing to sell fran­chises; it’s quite another to train and support them over the long haul. Is the man­agement team experienced, knowledgeable, and com­mitted to franchisee suc­cess?

If your business meets these criteria, it may be a good candidate for franchising.

Now let’s take a look at the two most important criteria.

Is Your Business Marketable?

Clearly, you must start by creating a business that people will want to buy, own, and operate. A franchise should have some quality that makes it appealing to the potential buyer — a “value proposition.” Sometimes the value proposition is created by a marketing campaign, sometimes by the look of an operation, and sometimes because it is in a rapidly growing market. It can be created based on the nature of the work involved (like the flexibility offered by a homebased business), the taste of a recipe at a restaurant, or by pure return on investment.

Often, the value proposition is created by the nature of the prospective franchisee — like the appeal an optical franchise has to an optician, a sales franchise to a salesperson, or even a pet waste removal franchise to a pet lover. Regardless of how you create your value proposition, as a future franchisor you must develop a business that people want to purchase. One great indicator that you have a salable business comes from the unsolicited franchise inquiries you may receive — even if you only get two or three a year. While many successful franchisors never receive these unsolicited leads, for those who do, they are a great indicator of potential franchise sales success.

A business must be differentiated from its major franchise competitors. This can come in the form of a unique product or service, a reduced investment cost, an exclusive marketing strategy, a different franchise structure or target markets, or any of a number of other factors. However differentiation is achieved, it is imperative that your franchise stands out from its competitors, or it will be difficult to succeed in today’s franchise marketplace.

Finally, in order to be salable, the franchise has to offer the prospective franchisee something of value. In some cases, this can be as simple as the brand name and the systems of operation. But the best franchisors will find additional ways to provide their franchisees with ongoing value. Whether it is advertising support; initial training; negotiated purchasing discounts; proprietary software, products, or recipes; or any of a variety of backroom services the franchisor can provide on behalf of its franchisees, the stronger the value proposition, the easier a franchise will be to sell.

Is Your Business “Cloneable”?

Franchising starts with a successful concept. But not every successful concept can be duplicated. Some businesses are too complex. Some are too regional. Some are too regulated. So the ability to duplicate your success is vital to a franchisor with aspirations of rapid growth.

First and foremost, a business must be readily teachable. In order to franchise, a franchisor must be able to thoroughly educate a prospective franchisee in a relatively short period of time. If your business is so complex that it cannot be taught to a franchisee in three months, you may have difficulty franchising. Franchisees want to be taught the business quickly, as they’ll be burning through their working capital while waiting for their doors to open.

Never was the “keep it simple” principle more important than in the franchise environment. Your franchisees will come to you from very different backgrounds. Many won’t have the requisite skills or experience to run a business when they first start with you. In fact, it’s just this lack of experience that will bring them to your door in the first place.

A second measure of concept duplicability is the degree to which a concept can be adapted from one market to the next. Some concepts, for example, are successful only after years of perseverance and relationship building. Some work only because of the unique abilities or talents of the individual behind the concept. Still others work only because they have found a unique location — such as an Elvis memorabilia store near Graceland, a waterfront dining concept, or a business that succeeds because of an once in a lifetime lease.

Some concepts will have significant regional variations in demand due to taste or geography. For example, a lawn care or pool cleaning franchise will have a shorter season in the North than in the South. Some restaurant concepts are constrained by regional tastes. Barbecue, for example, tends to be prepared very differently from region to region. In South Carolina, barbecue means pulled pork with a mustard-based sauce. Try to sell that in Texas, where barbecue means beef, and you might be hanged from the nearest mesquite tree.

Concepts with these types of adaptability constraints can still be expanded through franchising as long as the business model can be made to work from a financial perspective. There are numerous lawn care franchises with locations in colder climates (Spring-Green, TruGreen, etc.) despite the shorter lawn-care season. There are barbecue chains (Sonny’s BBQ, Famous Dave’s) that have expanded despite the regionalism of their core product.

Another important factor is the degree to which the business has developed systems to help ensure the franchisee’s success. In order to be franchisable, the systems integral to the operation of a business must be documented in a way that communicates these systems effectively to franchisees. This form of documentation should minimally come in the form of a user-friendly operations manual that includes policies, procedures, forms, performance standards, compliance checklists, and business best practices. And, for franchisors looking to grow more aggressively, this documentation will often include formal training programs, training videos, train-the-trainer programs, and online training programs (often referred to as learning management systems).

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