Before you franchise: five pillars for a strong and responsible start

Franchising is one of the most powerful ways to grow a multi-location business – and leaders across many industry sectors have used it to scale locations and market penetration in ways they could not have otherwise achieved. Industries such as accommodation, retail, food and beverage, trade services, home building, financial services, education, and home and commercial services have all seen businesses expand nationally and internationally using the franchise model.

Franchising works because it can enable a business to expand by leveraging capital, capability and local knowledge from franchisees – who are typically more motivated and invested in business success than traditional employees. Alongside other potential advantages, it also allows for rapid scale, bulk purchasing, group marketing and the multiplication of a proven business model across territories.

But franchising is not a shortcut to business growth and performance. Franchising will not grow sustainable profit and value from an existing business that is inherently weak, lacks systems or leadership and market experience. Poorly planned or rushed franchising is dangerous. It can jeopardise the quality of what potential franchisees are actually purchasing and the long-term viability of the whole business for the would-be franchisor. And thus, while the franchising model can be highly scalable, it is only as strong as the foundations it is built upon.

Sustainability

At Franchize Consultants, when we consider our long-standing work, including revitalising already nationwide franchise networks, we believe the best franchise systems are built well before the first franchisee is signed. Sustainable franchising starts with strong business foundations, a robust feasibility assessment, great business and aligned franchise structure (including agreements and manuals), excellent management (including franchising training) and a clear strategy.

This article introduces five essential pillars that help ensure businesses contemplating a franchise growth journey start from a position of strength and responsibility.

And while not every element need be 100% complete from day one, these pillars represent critical foundations that should be well underway by the time you make the final decision to embark on franchising your business. Many aspects – such as finalising trademarks or fully documenting operational systems – can be refined and tested during the franchise development process. What’s essential is that the underlying business is strong, and the leadership is committed to responsible preparation and continuous improvement.

Why Pre-Franchising Foundations Matter

Franchising is not simply expanding a business – it is transforming it. Becoming a franchisor means shifting from operating a business to supporting others to do so. That role comes with new responsibilities, new systems and structure, and a fundamentally different mindset.

Building the right foundations enables you to:

• Ensure your business is truly franchise-ready and replicable
• Establish realistic expectations for both franchisor and franchisees
• Create clear, consistent systems franchisees can follow
• Attract higher quality franchisees and build trust from the outset
• Provide for a long-term sustainable franchise system
• Undertake a comprehensive franchising feasibility study

This is at the heart of what the International Franchise Association refers to as Responsible Franchising – practices that ensure long-term franchisor and franchisee alignment, profitability, and collaboration.

We believe Responsible Franchising starts with responsible preparation. Without a strong base, even the best marketing or franchise sales efforts can lead to fragile long-term outcomes.

The Five Pillars of Pre-Franchising Foundations

Pillar 1: Strong business performance and validation

Fundamentally, for a potential franchise system to succeed, there should first be a strong underlying business model that works reliably, profitably, and repeatably. The business needs to be able to provide for a strong profit and return on investment to the franchisee after paying franchise fees to the franchisor. And these fees should be sufficient that the franchisor, in turn, can project a suitably viable and profitable return once ‘critical mass’ has been achieved. Critical mass refers to the viable minimum number of unit franchises that will sustain the normal operations of a franchisor business without additional cash injections.

Although franchised outlets often perform better than managed outlets, franchising is not a silver bullet for improving poor profitability at unit-level. Whether you have a single pilot operation, or an existing chain of business units, performance levels and business strength need to be there from the outset.  Remember that these existing levels of business returns will also be what potential franchise buyers and their advisors will/should be looking to validate.

Examples of indicators of strong performance include:

• Consistent and growing sales, margins, and returns.
• Strong unit-level profit and return on investment.
• Performance that has been validated sufficiently over time.
• Ideally, existing business model proof across multiple locations.
• In-depth understanding of customer segments and buying behaviour.
• Winning local business/industry awards.

For the business owner looking to expand, ensuring that you have strong performance indicators will be an important contributor to a comprehensive and valid franchising feasibility study.

Our 2024 New Zealand Prospective Franchisee Research survey also found that having a proven business model and an established brand are amongst the top three reasons prospective franchisees give for buying a franchise. If the business isn’t yet delivering reliable returns – or if its success relies heavily on you, the founder – more work is likely needed.

Pillar 2: Strong brand with distinctive competitive advantage

Our research shows that franchisees want to align with something recognisable, respected, and clearly differentiated – but this is also important for ...

 

This article is published in full on page 56 of the Winter 2025 (Year 34 Issue 2) issue of Franchise New Zealand magazine.

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