Franchising is a long term growth model which has been proven to effectively duplicate business models the world over. In 2018, it is expected that the franchise industry will add a new 11,500 locations and outlets across all of the brands in the market, that’s a lot of new burger, fitness, tax and burrito joints popping up on street corners. Franchising has for a long time now been one of the primary ways to take a brand to market in as many towns and with as much exposure as possible. Three totally different businesses in completely different markets exemplify the amazing effectiveness of franchising done right. Orange Theory, a new fitness brand on the market just surpassed 1,000 units in a five year time frame, Creamistry, an ice cream model exceeded 300 units in only three years and Restoration 1 was able hit 200 units in six years. What makes the franchise model so appealing to business owners is the concept of scale and leverage. There are typically several key factors that limit a business’ growth and franchising can address each of them.
So many times, great ideas never get the opportunity to be shared with a broader market as the owner/operator doesn’t let go of enough control to allow the business to grow without their hands all over it. Business owners great concepts die on the vine because the owner is too afraid to the let the idea blossom. Like a grumpy old man they fire employees because no one can do it as well as they can, they don’t teach others what makes the brand special for fear of someone taking the idea and the business dies along with the owner over time. Franchising is a marketing mechanism that allows a business to leverage independent ownership through franchise investors. Franchisees put their own money into the business and work in the location they own in most cases. This vested owner operator mentality gives the brand a dedication and commitment you only get from someone who has their own skin in the game. Franchisees operate the business with the same intensity and focus that the original entrepreneur would have in their own market. The customer gets a better, more consistent experience that only comes from someone with passion and fear with everything riding on the success of the business. Franchisees, unlike W-2’d managers, watch Yelp reviews like a hawk and respond diligently to keep their customer base coming back for more.
Franchise growth also allows a business owner to bring capital into the business through franchise investment. This can also be true with traditional investors, but then the downside is an owner ends up giving out the equity they have in the business and losing long term gains and control of the business. When franchisees invest in a franchise, they own 100% of their business, but 0% of the Franchisor. Although the two entities are tied together and share intellectual property, the franchisor has ultimate decision making power in how the business is managed. Franchisees invest in the business knowing that they are owning a separate entity from the franchisor and must abide by the rules and conditions of the franchise to be part of the brand.
This combination of allowing vested talent and money to flow into a brand is the fuel that powers so many of these companies forward and into the lives of all of us consumers. But when is the right time to consider franchising a business? It certainly isn’t when the business is an idea, the concept needs to be proven and put into practice so that you know what you are selling to franchise investors works and gives them a high likelihood of success in their town. Franchising also requires great systems so that you can replicate the model and then provide support to the franchisees after they open. If you are still taking paper orders over the counter at your restaurant, it might be time to look into a solid POS system before you franchise your business.
What about new customer acquisition, do you have a way to help franchisees get business and customers coming to their location? Some businesses rest on their laurels and customers come just because the place has always been there, a franchisee needs a solid franchise marketing system to generate awareness and drive revenues. Generally, the market will tell you when it’s time to franchise your business model. People will ask you about opening a location in their area, investing in the business or flat out if they can buy a franchise, that is when you know it’s time to look into the franchise model seriously.