Developing a Franchise System

by Simon Lord

last updated 19/08/2019

Franchising your business - in search of the golden egg

by Simon Lord

last updated 19/08/2019

New start-ups often talk of franchising their business but what can they do to prepare for it?

Glenn Baker, the editor of NZ Business magazine, visits a large number of businesses every year to talk about their experiences and plans. He once me, ‘I’m amazed by the number of new start-ups I talk to who seem to have franchising in mind as soon as you mention long-term goals. I think many see it as the golden egg.’

I was interested by Glenn’s comment because such businesses often have little real understanding of what franchising involves. The truth, if I may extend the metaphor somewhat, is that franchising is not the egg but the goose, and it must be constantly cared for if it is to lay anything more than distress and disappointment. But when you are in start-up mode, with so many other things to consider, it’s understandably hard to think about that, so here’s a franchise development checklist for new start-ups.

Plan. Set out with a clear business and marketing plan for your business. It will change, of course, but by setting out your goals and strategies from the start you will be better placed to evaluate progress. If you are serious about franchising being a long-term goal, build it into your plan from the start.

Learn. Nobody gets everything 100 percent right when they launch a new business and initially you may have as many failures as you do successes. Treasure those failures: first, they’ll help to point you in a better direction and secondly, if you’re thinking about franchising, the more barriers to entry you discover, the better – things that make it difficult for others to copy your business will make your franchise more appealing.

Systemise. As an owner/operator, you and your team will have a huge amount of information about the best way to do things. If it stays in your heads, it’s no use to franchisees. They are not like employees, who can learn from working beside you every day – they are people who will be investing in their own business and operating at some distance from you. Create systems that ensure that every possible process is carried out in the most efficient and cost-effective way every time. These will form part of your Intellectual Property (IP), which is what gives your franchise value.

Document. Write down what you do and the way that you do it – your failures as well as your successes. That will make it easier for you to analyse what works and why, and ultimately to teach it to franchisees. Writing it down will help you to create operations manuals and training courses.

Prove. Test and measure new approaches so that you are sure you have the best possible systems and can prove they work. If you can say, ‘We started going down this path and it didn’t yield the results we expected, so we tried that instead and it proved more effective,’ it will reassure everyone – consultants and financiers as well as prospective franchisees – that this really is a properly-developed business.

Repeat. Having a single successful outlet does not mean that your concept can necessarily be franchised. There may be unique factors involved, such as local market, location, rent, personal skills or many other aspects. Ideally, you will open a second outlet or service route in another area to prove your concept is replicable before appointing your first franchisee. An added benefit is that you then have a more established business to award to your first franchisee rather than a totally new start-up, thereby reducing buyer resistance.

Protect. Be careful from the start to choose a brand name that is not geographically limiting such as ‘Auckland’s Best Panelbeaters’ and not too generic to be trademarked, such as ‘The Chocolate Shop.’ You will need to register your name and trademarks to prevent others copying them, and you’ll also want to ensure that your operating systems and other IP are properly protected as well.

Profit. Finally… before I wrote this article, I asked well-respected franchise consultant Win Robinson what he considered the single most important thing that new start-ups needed to do before they started franchising. He replied, simply and forcefully, ‘They need to be making a profit.’ He then expanded upon this: ‘Ideally, they should be able to point to two or three years of results which show that they are profitable and trending in the right direction. Don’t expect franchising your business to make you profitable. Franchising can increase your profitability and market share, can bring in additional capital investment and improve buying power, but if you’re not profitable to start with, don’t franchise until you are.’

So… if you have a promising start-up company and you think there’s a chance of franchising further down the track, don’t expect it to be a golden egg that will magically appear when you’re ready. Plan to breed a goose instead – in the long run, that will be a lot more successful.

This article was first published in NZ Business magazine, April 2013

Order a Print Copy
Order a Print Copy