How To Determine When To Franchise And When Not To

If a business brand is hoping to expand , franchising is a great model. But it's not the only (or always the best) option. For many business owners, franchising can appear to be an ideal form of business expansion.
After all, franchisees are responsible for the entire investment in opening locations and, because of that investment, are highly-motivated to perform well. That allows franchisors to grow far faster than they might otherwise.

But not all businesses are cut out to franchise. Before you dive into franchising, as yourself this compulsory question, "am I ready?"


Step 1: Finding the right way to expand.

Upgrading from a small business to a chain is a big leap. So before choosing how a company will grow, owners should figure out their management style and ultimate goals. We tell our clients, You really don't want to make a decision to franchise. You want to make a decision about how to run your business.“From a business perspective, there is very little difference between establishing a good franchise program and establishing a good dealer program. The tools and the strategies are largely the same.”


Step 2: Picking a path, then adjusting.

Whenever you allow a third party to use your brand, you need to exercise some control over how that brand is represented to the public. “Any increase in control always carries costs for the franchisor or the licensor.”
Sure, they thought, the downsides of licensing would always be with them. If an owner of a company ever wants to sell the company, for example, it would be worth less than a franchise with a recurring revenue stream. And he knew that, as opposed to franchising, licensing would always leave him in the dark about his company’s health: He can’t look at his licensees’ books for financial trouble. But there were also positives.
Licensing involves less expensive legal paperwork (both here and overseas), and it avoids any complications or animosity created by disputes over discrepancies with royalties, which are quite common in franchising.


Step 3: Now it's all about growing bigger.

Once a franchisor or licensor (or any entrepreneur) is committed to a direction, success hinges on the same basic things. One of the biggest roles a franchisor must have is to create a corporate culture by whom they hire, the priorities they set, and the actions they take.

There are six basics that can help you decide if your business has what it takes.


1. Is it working?

In order to franchise a business, the business model must first be proven. There’s no law, of course, requiring that a franchisor demonstrate competence, but there’s a certain number of practical considerations. In order to establish credibility to sell franchises, you’ll need to show you’ve got a successful operating prototype.


2. Can you sell it?

 In order to be franchisable, the business model also needs to be attractive to potential franchisees. While it is difficult to quantify “salability,” factors such as credibility, uniqueness, and brand “sizzle” all contribute.


3. Can you replicate it?

The key to success in franchising is making sure that your franchisees are easy to replicate. If the concept only works because of a unique location, a superstar salesperson, or because an owner is working 80-hour weeks, it is going to be difficult to repeat the magic. Ideally, a franchise concept should be relatively simple to operate and should be able to work in a variety of markets. Of course, potential franchisees can certainly bring some special skills or qualifications to the game – but that shouldn't necessarily be counted on.


4. Can you provide the franchisee with an adequate return?

 A franchisee who is an owner-operator will expect to get a return, both for the time that they spend in the business as well as their investment in the franchise.


5. Are you committed to providing value?

 The franchise business is largely about maintaining relationships. The most successful franchisors are typically those that are the most committed to making sure that their franchisees are successful.


6. Do you have the capital?

While franchising is a low-cost means of expansion, it is not a “no cost” strategy. A new franchisor will need capital to develop legal documents, manuals, training programs and marketing materials, not to mention a marketing budget for franchise lead generation. The most important reason why the leading franchisors in Nigeria today are doing great(NNPC and Fort Oi) is because, they have the capital and are ready for it.


Keep in mind, even the best-laid plans will result in failure if the underlying business is not ready for prime time. If you're considering franchising, take a step back and ask yourself, “Am I ready?”



Contributor: J. Daley, M. Siebert and T. Mgbeahurike