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 The daunting process of getting a franchise off the ground

 

 Franchising is a great way for an ambitious entrepreneur to expand a business fast through harnessing the energy, hard work and buy-in, quite literally, of lots of smaller-scale entrepreneurs.

​But, says Business Partners Limited regional general manager Byron Jeacocks, you are going to need far more than just a profitable business with an operations manual to make it work. “Those things are a given. They just get you into the room to start thinking about franchising. To pull it off, you are going to need a lot more.”

Jeacocks, who through his years at Business Partners Limited (BUSINESS/PARTNERS) has seen some great small businesses built by talented entrepreneurs crash and burn after taking the leap into franchising, warns that franchising a business is too risky and too complicated for a lone entrepreneur to tackle, or even a set of partners.

The single most important step an entrepreneur can take towards franchising is getting a mentor – an experienced business person who has been through the process of franchising a business at least once. Even if his or her track record includes failed attempts, a mentor with enough experience of franchising a business is key to your success.

Jeacocks says the mentor's first task is to help you think carefully about whether your business is at all franchisable. The more the success of a business is based on a niche talent of the entrepreneur, such as a textile design house, the more difficult it will be to replicate. On the other hand, the more a business requires a broad personality type rather than specific talents, such as a fast-food business, the more it lends itself to franchising.

Another way of thinking about it is to consider whether the business can be controlled remotely, without the constant presence of the entrepreneur. That is why, says Jeacocks, it is advisable for a prospective franchisor to build more than one branch of the business before launching into franchising. If an entrepreneur can successfully run a string of his or her own outlets, the business will almost certainly be franchisable.

For franchising success, a business also needs a very clear target market and competitive advantage – a special recipe, speed, convenience, or affordability. Prospective franchisors would do well to think carefully about what exactly it is that has made their business successful, because it clarifies a lot of the complicated strategy work that lies ahead.

Once the basics are in place – a solid set of accounts that shows profit across more than one branch, an operations manual, a clear competitive advantage and, most importantly, an experienced mentor – the entrepreneur is ready to taxi down the runway of launching a franchise.

A huge amount of planning and tough decision making still lies ahead before lift-off, says Jeacocks, most of which is beyond the scope of ordinary business management and decision making. The planning and strategy horizon has to stretch beyond a decade, and hundreds of strategic decisions must be made.

These include everything from the ownership structure of the franchise (Will the franchisor retain controlling shareholding, minority shareholding or no shareholding in the franchised outlets?), the stage at which outlets will be sold (In the form of an already operating outlet or straight from the box?), territorial exclusivity, the franchise fee, the amount of unencumbered cash contribution from the franchisee required, royalties, marketing and management fees that will be charged by the franchisor and many, many more crucial issues.

Decisions that seem relatively small in the beginning can make a huge difference later on, says Jeacocks. The difference between charging a 5.5% and 6% royalty seems small at the start, but ten years and dozens of franchise outlets later it represents a huge amount of money.

Clearly, getting ready for franchising is not the same as starting an ordinary business, and the entrepreneur needs to hire a set of top-quality advisers, including a lawyer, an accountant, as well as industry specialists that can help to develop the operations manual in sufficient detail to make sure that anyone implementing it will produce the same result - “right down to the size of the dollop of tomato sauce on each burger”, says Jeacocks. Again, the key appointment is the experienced mentor, who can help assemble a good team of experts.

If the preparation for franchising is daunting, the launch itself is even scarier. Just like an aircraft needs a certain speed for take-off, a franchise needs to grow fast in the beginning in order to reach a turnover high enough to carry the heavy costs of the launch, and to justify the franchise fees and royalties through the group's branding, marketing and purchasing clout.

But the speed of growth must be carefully balanced with choosing the right franchisees, says Jeacocks. Franchisors must be very picky about the applications they approve, not only with regard to management experience, business skills and credit worthiness of the franchisee, but also their enthusiasm, attitude and personality fit. One franchisee who whinges about the brand or fails to follow the operations manual can do a huge amount of damage to a young franchise group.

Careful attention must also be given to finding the right location for each outlet. A bad position, chosen in haste in order to speed up growth, will lead to the failure of the outlet no matter how competent and dedicated the unfortunate franchisee is, and will damage the brand.

A franchise group does not fly on autopilot, says Jeacocks. Once it is launched, the brand must be protected jealously, not only against people who try to exploit it without permission, but through the careful maintenance of the quality of the product, customer service and the look and feel of every outlet. Franchisees need constant support and acknowledgement in order to maintain their motivation and to keep them committed to improving the brand.

Franchising a business is clearly not for every entrepreneur, but if it is done properly and the concept takes off, the sky is the limit.

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