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FRANCHISES

Getting Ready to Franchise

Can any business be turned into a franchise? No. Know what makes a strong franchising prospect.
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At the end of one of the frequent seminars I give about franchising to business owners and executives, I was asked, "What can I do to better prepare my business for franchising?"

I was tempted to reply, "That's worth an entire seminar in itself," but instead I offered a short list of suggestions. Here it is:

  • Be Profitable

You'd be surprised how many owners of new businesses say, "We're doing terrific volume. Pretty soon we'll start making money." That's not good enough. In order to be both viable for the franchisor and attractive to franchisees, a business must be capable of generating enough profit to provide a 15% return on the franchisee's investment plus a respectable salary for the owner/manager. And there must be enough left to pay a royalty (usually around 5%) to the franchisor and another 1% for marketing and advertising. This goal doesn't have to be met in the franchisee's first year; but the franchisee must see that it can be done.

  • Be Systematic

"We've got the greatest cup of coffee in the world. Everyone says it's better than Starbucks'!" I heard that remark at a recent seminar from a coffee shop operator. "Great," I replied. "And how's your operating system?" Many business owners rhapsodize over their products or services, and great products or services can help a franchise. But they're not likely to make a franchise. What makes a franchise is the systematic delivery of those products or services day-in, day-out smoothly and cost-effectively. I don't think that everyone would say that McDonald's offers the world's greatest hamburger. But I defy anyone to name a more efficient operating system.

Step back and take a hard look at how your business works. (Or better yet, get someone who knows something about operating systems to do it for you.) Are you offering any unprofitable products or services? Are your ads working? Are some of your personnel overqualified or underqualified? Are peak customer hours anticipated and provided for? Do you have a system for maintaining total control over finances? These are just a few of the questions that should be answered to your satisfaction as a prerequisite to franchising.

  • Be Outstanding

By "outstanding" I don't simply mean accomplished. I mean standing out from the crowd, having a point of difference from competitors. You don't have to be the only pizza parlor in town, but to be franchiseable your business should have some feature that catches the eye. Of course, it's always good to have a new business concept. Curves is one of the hottest new franchises in the country. It takes an old concept (physical exercise) and limits it to a specific -- but huge -- market (females). And it anoints that concept with a perfect name. Still, you don't need the perfect concept. And you don't need the perfect name. But if people perceive something special about your business -- even if the difference is primarily in how your business is marketed -- your prospects for successful franchising are greatly enhanced.

  • Be Simple

If you look at businesses that have been successfully franchised, you won't find many that are highly complicated. (The exceptions, of course, are conversions such as real estate franchises, where the owners are usually in the business already.) You'll find no department stores. No supermarkets. No manufacturers. You must be able to sit down with a franchisee and over a reasonable period of time (a month at the minimum) teach that franchisee everything he or she needs to know about how to operate that business. And you can't expect your franchisees to be PhDs. At the most, they'll have some business experience. So if, over the years, your business has acquired baggage in the form of products, services or procedures not essential to the bottom line, get rid of them -- or at least scale them back so that they can be fully justified.

Once you have established in your own mind that your business has a concept worthy of franchising, a profile worthy of franchising and a system worthy of franchising, then you must decide whether or not you should franchise.

But that's another subject for another day.




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