How to Start a Franchise
Business is good, the industry is good, the economy is good, finance is readily available and therefore to sum it all up, the future looks good. What’s the next challenge? Perhaps continuing to grow your business by franchising? How do you start a franchise?
How to start a franchise?
1. Register Trademark:
If your business concept is sound you will be building a brand. If you are building a brand you need protection as there is no point expanding what you do for someone else to simply copy and move into your market.
Recently I had a client on Clarity ask what he should do to protect his business. His business was selling and distributing a unique brand of jewelry globally. His gross sales were over $3 million and margins were great. At first I was a little confused why he didn’t file Trademark applications to protect what he was doing and then he explained the problem. He was able to sell this product anywhere in the world except Canada because the designer of the jewelry lived and distributed the jewelry in Canada. That is, my client did own the intellectual property. He said there was no problem creating other products and expanding the range of jewelry however he was not the creator. Worse for him, the creator was in his mid-fifties and saw no reason to sell as the creator was earning passive income from my client as my client was required to pay the creator a royalty on each sale.
2. Create marketing support
You can have the best product or service in the world but if nobody knows about it, your sales will be limited. Therefore build the best marketing support material you can even if it is just initially to use to make presentations to attract marketing professionals and other professional help you need such as investors, lenders, attorney’s, CPA’s, landlords and maybe even some initial franchisees. Creating the marketing material will force you to develop your concept and by presenting what you have built to others, get some constructive feedback.
3. Register with the States
In the US there are 14 states that will not allow you to sell a franchise concept unless it is registered and approved by the state. That can be a mix of good news and bad news. The good news is that you could skip these states as it will save you some money and time to navigate their process. Conversely, you could approach these states before you take your concept to franchisees as the state requirements will make your presentation stronger. The fee to register with a state is about $500 plus time. Your time will vary depending on how many iterations you need to make to get your application approved.
Next steps to build your franchise:
There are three steps to take to get the approval of your franchise concept going. You can take these steps yourself or you can have a third-party do them for you. If you want a third-party to help with these steps give me a call on (916) 570-2674 and I will introduce some options for you.
There are many factors other than the above to build and grow a franchise brand. This list is not exhaustive, but here are some other things to consider:
1. Authentic: The franchise brand and system must be authentic or at its simplest, something that everyone believes in. When you think of McDonald’s, Carl’s Junior, Maaco, Dunkin Donuts and Massage Green Spa if you have heard of the name you have a positive or negative opinion. For a consumer, that’s as complicated as it gets. As a franchisor and franchisee there are so many moving pieces be they the size of the franchise in both number of units and total gross revenue. It also includes the number of years in operation, how the corporate office presents, good and bad public image including the brand, the strength of the owners, it’s management, training and many items in its operating system to state just a few.
2. Differences: Whether we like it or not, we vote for a politician be it for the party they are affiliated or for something we like that we don’t like as much in other candidates. The same applies to a franchise. The end user buys from a brand they like and are willing to support be it due to proximity, price, service, a different product or a strong marketing message that highlights a difference be it real or imagined.
3. Training: The success of a franchise and its brand depends on its ability to repeat the best customer experience each time. This is why customers keep coming back. The training not only needs to be strong but relatively short. A complex franchise is not only hard to maintain standards, but it is also hard to train. This is why you don’t see any franchises for attorneys, CPA’s or doctors.
4. Repeatable: A good franchise is able to be successfully repeated over different geography’s be they in the same country or in different countries around the world. Australia has a very high adoption rate for franchise concepts. However, the US market has different consumer taste and preferences.
5. Prototype: The franchisor typically builds the first model to perfect its operation. A strong prototype then provides the foundations of the franchise, partly because potential franchisees can come to see and decide if this franchise is right for them and provides a positive experience. Plus the product or service continuously evolves and this is where all the refining takes place.
6. Systems: All successful businesses have systems. All successful franchises have systems and what makes them successful is that everything is written down including policies, procedures, forms, and business practices in a comprehensive and user‐friendly operations manual and/or computer‐based training module. If you need to check this any further simply read the books from Michael Gerber called the E-Myth and the E-Myth revisited.
7. Affordable: We’d all like to drive an Aston Martin and be like James Bond or a Lamborghini to impress our neighbors but there is a reason there is a complete range of cars with different price points. The same applies to franchises. A franchise has to be affordable by the potential franchisees the concept targets.
8. ROI: A franchise buyer is making an investment in the concept. They are therefore looking for a Return on Investment. It is as simple as that. This is not set in stone but a good rule of thumb is for the franchisee to achieve a ROI of at least 20 per cent by the second or third year of operation.
9. Sustainable: The economy and the market are constantly changing be it due to different tastes, changes in demographics, competition or new and improved technologies. A successful franchise brand has to adapt so it is sustainable over the long haul.
10. Capital: Franchising can be a lower cost option to expand and grow a business. That doesn’t mean it comes with a need not to have the necessary capital to fund and grow the franchise. Like all business concepts that wish to grow, the amount of capital needs to be available or the efforts will be unsuccessful. This therefore requires careful budgeting and execution.
11. Win-Win: A good franchise is not only a success for the franchisor but also the franchisee. Many franchisors don’t focus on the success of the system especially the franchisees and the brand falls away. A franchisee is allowed by law to talk to any franchisee in the system and understand their success or lack of it. Successful franchisors focus on a win-win so it is mutually rewarding for the franchisor and the franchisees.
12. Leadership: Possibly the most important factor in any franchise is the leadership. A good leader understands what is happening at all levels of the franchise system and making the necessary adjustments. A good leader also understands they need to build a team around them that will reflect and reinforce the quality of the brand and for what it stands. There are so many moving pieces in a good business including legal, accounting, tax, franchise marketing, sales opening and closing, technology, training and operations management.
Once again, there are many steps to take a franchise concept to market. You can take these steps yourself or you can have a third-party do them for you and more. If you want a third-party to help with these steps give me a call on (916) 570-2674 and I will introduce some options for you.
For more immediate help with buying a franchise, send an email to Andrew Rogerson or give me a call on 916 570-2674.