Thursday, May 12, 2016

3 Critical Franchise Benefits

Are you considering investing in a franchise business?


Investing in a franchise business may make sense for you, particularly if it’s your initial move into business ownership. By selecting the right franchise, you can reduce some of the common challenges associated with small business startups. Leveraging the franchisor’s proven model and systems, you should ideally be able to mitigate many of the risks associated with opening a new business. From initial site selection through ongoing day-to-day operational best practices, a strong franchise will provide significant benefits to help you achieve success. 



There are three critical benefits, however, that I believe you should consider when evaluating and selecting a franchise that’s right for you: the brand, the leverage, and the systems. 


The Brand:
What is the value of the franchise brand in your target geographic market? Perhaps the brand has a great presence in the Northeast, but that may have little to no value for you if you are considering opening the first unit in the Southwest. A big part of what you are paying for is the brand recognition that the franchisor has ideally already invested in and developed. 

A strong, positive and established brand is one of the biggest advantages of franchising.  It would be extremely difficult to build a brand by yourself to the level that a successful franchise can achieve. A great brand should have positive value in the eyes of the customers or clients you're trying to attract. Important considerations on this point include:
  • What is the value of the brand in your market? 
  • Does it have a positive reputation, or have there been issues in the past that have tarnished it?
  • Is it a tired and dated brand, or is it fresh and relevant?
  • If the franchise you are considering is just getting started, or has limited to no presence in your area, then you should evaluate their ability to execute. What are their plans for building a brand that will benefit your location over time?
  • As other franchise locations open in the same area, is there a budget and plan for marketing the brand image specifically? 
  • What is your monthly cost to participate in developing and maintaining the brand (this is typically the marketing component of the monthly dues to the franchisor)?
Franchise Leverage:
A successful franchise system should provide opportunities to leverage economies of scale that would simply not be possible or available to an independent small business. These points of leverage may include everything from preferential access to lending, to the combined buying power of the entire system.

When I owned several units of a local pizza franchise in the 1990’s, for example, I was able to buy cheese and other ingredients at a much lower price through the franchisor than I would have been able to negotiate as an independent operator. Advertisement is another area where franchise leverage can provide an advantage. You may be able to budget for an effective radio or television campaign as a franchise group, for example, that you would not be able to afford as a stand-alone business. The opportunities for leverage offered by a franchise may include:
  • Preferred access to lending (banks may prefer to lend to established franchises with whom they have experience).
  • Lower operating costs through group purchasing (for raw materials, equipment, and other operating supplies).
  • Cooperative and leveraged advertising campaigns.
  • Lead generation through websites or call centers.
  • More favorable consideration by landlords who value the reputation and historical success of the franchise. 
  • Network of fellow franchisees to provide advice and moral support.
The Systems:
The quality of the systems offered by the franchisor should be the most important consideration in your selection of a franchise. The systems include everything that is used to operate the business in a standard and repeatable fashion. It includes the initial startup and training, the operations manuals, and the on-going best-practices that drive continuous improvement in the business model. A comprehensive and proven system is what enables a self-managed company, as opposed to an operation that is dependent on a few key people who have all of the knowledge in their heads. 

The systems are the core of any successful franchise. Without effective, proven and repeatable systems there is no franchise. The benefits of a great franchise system typically include:
  • A proven and repeatable business model.
  • Shorter time to opening your business (including assistance with site selection and design).
  • Comprehensive initial training (including operations and marketing).
  • Little to no direct experience required (the franchisor teaches you how to bake the cookies).
  • Ongoing support & innovation (including improvements to the systems).

There are certainly other important benefits and criteria to consider when evaluating a franchise, including their history and track record, their management and support team, protected territories, and how the business concept fits with your lifestyle and vision. 

As with any business opportunity, there is no guarantee of success and there are trade-offs. When you own a franchise you must adhere to their policies and structure, and you are committed to the franchise for the length of the franchise agreement – often 10 years or more. This can create a conflict with your desire to be your own boss, and to have complete control over how you run your business. You are also exposed and affected to some extent by how other fellow franchise owners operate their units and their potential impact on the brand’s reputation. 

There are no definitive or reputable data on the success rate for franchises, despite the often cited and debunked statistics to the contrary. That’s due, in large part, to the fact that franchises vary widely across many industries. There are thousands of franchise models available today. You must carefully consider the value you may be able to derive from a franchise, versus building your own independent business. With the correct expectations and planning, a franchise that meets your needs may well be the best option for you. A franchise that offers a strong brand, an opportunity for collective leverage, and comprehensive and proven systems can help you realize your dreams of successful business ownership.

Want to learn more about Franchising?
We invite you to listen to these podcast episodes:

> 016: Three Benefits of Franchising
> 011: Interview with Kit Vinson - Franchising Expert
> 006: Interview with Earsa Jackson - Franchise Attorney
> 018: Interview with Sara Waskow - Franchise Consultant
> 023: Interview with Nick Neonakis - Franchise Consultant


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