Franchising Strategy & Feasibility

When to Franchise - Video Transcript

One of the questions we get very frequently at the iFranchise group is the question of when should we franchise. How many units should we have, how much operating history should we have, should we open a second unit, a third unit? And I tell people the answer to that is an individual answer. It’s not something where one size fits all.

First of all there’s the question of do you need to perfect your business before you start franchising and what I would tell you is the fact of the matter is you really shouldn’t be looking to try to perfect your business. You’re never going to be able to perfect your business. The fact of the matter is every business that is a good business is going to continuing to evolve over the years. And so make sure you’re going to keep that in mind as a perspective. When McDonalds, for example, first started franchising they had 14 items on their menu. They had hamburgers, cheeseburgers, fries, cokes, shakes, and that’s pretty much it so you’re going to evolve. They didn’t have at that time big macs, fillet-o-fish they didn’t have Ronald McDonald, or drive through windows. So understand your business is going to change.

The next question is how much experience is enough experience. It really depends on the nature of the business you’re going in. When Five Guys Burgers decided to compete in the hamburger segment they were going head to head with McDonald’s. So you take a look at Five Guys, they waited for 16 years before they began their franchise efforts. They had many units in place before they began franchising. Probably 14-16 units in place themselves before they began franchising. Because they wanted to make sure that they had all of their system refined and that they would have something that work in the head to head environment with a big established franchise competitor.

On the other hand some companies like Message Envy, when Message Envy came to us and they began their franchise efforts they were running their first unit for about 3 months and they were about to open their second location. They didn’t have a lot of operating experience, but what they did have was something that was new and unique in the marketplace and they knew they had to get out there quickly.

So the rule of thumb is if you’re going against a big established player you need to be very slick, if you’re going against a new evolving market that’s new on the market you need to be very quick. So that quick vs slick equation is something you need to take into account on what the market factors are.

And of course the last thing you need to look at when you’re looking at the question of when to franchise is what are your personal goals? Where do you want to be in 5 years from now? The more aggressive your goals are the more likely you’re going to want to franchise early. The more conservative your goals are, you’re probably going to decide it’s important to wait for a while and work on refining your operation a little further or open an additional unit before you decide to get started with franchising. So again there’s the question of goals and that really factors into as well. So goals and market conditions are the things that you should be looking at.

Now we have a DVD, it’s a 90 minute DVD on how to franchise that you can get at www.ifranchisegroup.com. So if you go to that website or call us at 708-957-2300 and you can get that DVD sent to you and it will give you a lot more information about when to franchise, franchisability and those type off franchise questions. So again www.ifranchisegroup.com.

Not every business can or should start a franchise program. Developing a successful franchise may not always be feasible.

In some instances, a business may generate good returns but, after deducting the franchisor’s royalty, that return may be inadequate in the eyes of prospective franchisees.  In other instances, a business may be successful for reasons that may be difficult to duplicate. And, of course, in order to be franchisable, a business will need to sell franchises.

In order to provide you with an idea of what we look for when screening prospective franchisors, we have developed twelve criteria of franchisability that can provide you with a preliminary assessment of your business’s potential to start franchising. While these criteria provide a general guideline, they are not a definitive guide.

Even if a business can be franchised, it does not mean that it should be franchised.  An assessment of the franchise option should properly account for how franchising fits the needs of ownership or shareholders.  It should also take into account whether or not there are other alternatives that should be considered.  Options such as the following should also be considered:

  • Company-owned growth
  • Licensing or Business Opportunities
  • Dealer Networks
  • Distributorships
  • Direct or internet distribution
  • Agency relationships

Of course, the best solution for your company may be a combination of two or more of these strategies.  And, in fact, most franchisors will also grow through other channels of distribution as well.

If you would like to receive a copy of our webinar on Alternatives to Franchising, you may receive a copy at no cost or obligation.  Bear in mind that at the iFranchise Group, we provide services not only to franchisors, but to all of the above channels, allowing us to be objective in this assessment of your options.

For companies that are interested in pursuing franchising, we encourage you to speak with one of our consultants.  Our consultants will provide you with a preliminary assessment of your franchisability and, if merited, schedule a no-cost consultation to go into greater detail on issues such as:

  • Is your business franchisable?
  • Is franchising your best strategy?
  • If not, what is the best strategy?
  • What is involved in implementing that strategy?
  • How long will it take to implement and what will it cost?

For companies with more complex distribution issues, a more formal feasibility study may be the best solution.  Especially where franchising is being used to replace or supplement an existing channel of distribution, such a feasibility study can be essential.  Some of the questions these studies address include:

  • How will franchising fit within an existing organization and is it the best option?
  • What will be done (if anything) with existing channels of distribution?
  • Can and should some of the existing channels be converted to franchising?
  • How do you best manage channel conflict?
  • Will franchising be accepted within the corporate culture?
  • How can existing resources best be leveraged?

For information on how we can help you assess your potential as a franchisor, please contact one of our consultants.  And of course, we would welcome you to obtain a complimentary copy of our video on How to Franchise Your Business.