The Profitable Path to Expansion: Is Franchising Your Business the Right Move?
Twenty-five years as an entrepreneur has afforded me some insights that I did not always have. I just got back from the International Franchise Association Convention where I sat on a stage in front of 400 other franchising professionals and “lifted my skirt” so to speak.
When I say, “lifted my skirt”, I don’t mean literally…I mean figuratively. The company that I sold in December 2022 was the subject of the Women’s Franchise Network Case Study. During the case study, they shared bits and pieces about the history of the company but kept the identity of the company secret until the final reveal. Once the company was identified at the end of the study, they invited representatives to come on stage and share more information.
I had the great honor and privilege to share the Just Between Friends story, the good, the bad and the ugly with the group alongside new JBF CEO, Tracy Panase.
Reliving 25 years of Just Between Friends, the ups and downs, wins (lots of great national media, a great team, 150+ franchises, growth of the system and growth of average unit volumes) and losses (losing $500,000 in a bad tech decision, waiting too long to delegate leaders, too much churn) were all laid before the group transparently…all in an effort to LEARN.
Oh, how I wish I would have joined the International Franchise Association (and had access to the education and networking it provides) well before I started franchising so that I could learn about the industry and determine if my jump into franchising would be the right decision.
In all honesty, I had NO IDEA what I was doing. I thought that since my business was profitable and growing that we would just give others the opportunity to do what we were doing.
I look back at my naivety and shake my head. I wish I would have had my business assessed before we jumped into the roller coaster that is franchising.
As an entrepreneur, the idea of expanding your business is both exhilarating and daunting. Growth is a clear indicator of success, yet how you choose to grow can significantly impact your future. Of course, franchising emerges as a compelling strategy for expansion, but it begs the question: is it profitable to franchise your business? I can tell you that it took me YEARS to feel like I had my head above water.
Let's dive into the factors that determine the success of franchising and how it can be a profitable venture under the right conditions.
Proven Business Model: The Foundation of Success
At the heart of a profitable franchise is a proven, replicable business model. Potential franchisees seek businesses that demonstrate success and growth potential. A model that's both profitable and scalable serves as the cornerstone for expansion through franchising.
The Power of Brand Recognition
A strong brand or a concept that resonates well in various markets significantly benefits from franchising. Having more than one location is a great step before franchising…proving the model in another area. Brand recognition not only attracts franchisees but also ensures customer loyalty, which is crucial for new franchise locations striving to establish themselves.
Systematization and Training: Replicating Success
For franchising to be profitable, having a systematic approach to all aspects of the business—from operations to employee training—is essential. These systems enable franchisees to replicate the original success formula, ensuring consistency and quality across all locations.
Systematization: The Blueprint of Success
Systematization refers to the process of creating a comprehensive, step-by-step guide for running the business. This includes detailed operations manuals, standardized procedures, and best practices. These documents serve as the foundation for every franchisee, ensuring that they understand every aspect of running the business, from day-to-day operations to handling unusual situations.
A well-developed system covers everything from product sourcing, inventory management, customer service protocols, to marketing strategies and financial reporting. This blueprint makes it possible for franchisees to replicate the business model accurately, maintaining the brand's integrity and operational efficiency across locations.
Training: Building Skilled Franchisees
Training is equally important in the franchising equation. While systematization provides the blueprint, training brings that blueprint to life by ensuring that franchisees and their employees understand and can execute the business model effectively. Comprehensive training programs cover not just the operational aspects of the business but also instill the brand's values and service standards.
Training often begins with an intensive initial program that covers everything a franchisee needs to know to open their franchise. This includes hands-on training at corporate locations or training centers, where franchisees learn by doing. But training doesn't stop there; ongoing support and education are crucial for adapting to changes in the market, introducing new products or services, and continuously improving operations. Oftentimes those individuals buying your franchises have no business training, so franchisors have to keep that in mind when training and support strategies are created.
Technology and Support Systems
In today's digital age, systematization and training are often supported by sophisticated technology platforms. These can include proprietary software for managing operations, online learning management systems for training, and centralized platforms for marketing and sales activities. Technology not only aids in maintaining consistency but also in gathering data to improve business practices and support decision-making.
The Role of Continuous Improvement
A critical component of systematization and training is the commitment to continuous improvement. Markets evolve, consumer preferences change, and new challenges arise. A franchisor must be proactive in updating systems and training programs to reflect these changes. This ensures that franchisees remain competitive and can sustain the success of their businesses over time.
The systematization and training of a franchise system are not just about replication; they're about creating a sustainable model for success that can be adapted across diverse locations and markets. This approach ensures consistency in customer experience, operational efficiency, and adherence to the brand's standards, which are essential for the profitability and longevity of the franchise. For franchisors, investing in comprehensive systems and robust training programs is not an option but a necessity for building a successful franchise network.
Financials: Fees, Royalties, and Economies of Scale
Franchising generates revenue through upfront franchise fees and ongoing royalties, which are typically a percentage of each franchisee's sales. Additionally, as the franchise network grows, the brand benefits from economies of scale in marketing and purchasing, further enhancing profitability for both franchisors and franchisees.
Expanding Markets with Reduced Risk
Franchising allows for rapid market expansion with significantly reduced financial risk and investment on the part of the franchisor. By leveraging the capital and effort of franchisees to establish new locations, franchisors can grow their brand footprint more swiftly and with fewer direct costs.
Legal Considerations and Support Infrastructure
While franchising offers numerous benefits, it also comes with regulatory, legal, and operational considerations. Creating a franchise system requires an upfront investment in legal compliance, developing support infrastructure, and establishing training programs. These initial efforts are critical to the long-term success and profitability of the franchise.
Maintaining Quality Across the Board
One of the biggest challenges in franchising is ensuring consistent quality and service across all locations. The reputation of the entire brand depends on each franchisee's adherence to standards, making quality control a top priority for franchisors. Ask me how I know this.
The Verdict on Franchising
Franchising can indeed be a profitable strategy for expanding your business. It allows for growth through leveraging the investment and efforts of franchisees, while also reducing the financial risk and operational burdens typically associated with opening new locations.
However, success in franchising requires a solid business model, a strong brand, systematic operations, and the ability to maintain high-quality standards across all franchises. If you can navigate the complexities of franchising and invest (not just the $ it takes to get the legal paperwork and operations manuals created, but upwards of 1 Million dollars) in the necessary infrastructure and legal groundwork, franchising can be a great path to business expansion.
Conclusion: Your Next Step Towards Franchising Success
If you're contemplating whether franchising is the right path for your business, or if you're unsure about how to begin, you don't have to go through it alone. As a seasoned business coach with a focus on franchising readiness, I'm here to guide you through every step of the process. I’ve been in your shoes and desperately wish I would have had a guide when I started. Together, we can assess your business's potential for franchising, develop a strategic plan for growth, and ensure that you have the systems and support in place to succeed.
Taking the leap into franchising is a bold move, but with the right preparation and guidance, it can be a profitable and rewarding venture. If you're ready to explore what franchising could mean for your business and how you can maximize your chances for success, reach out to me.
Don't let uncertainty hold you back from your expansion dreams. Let’s assess your business's readiness for franchising together. Your journey towards franchising success starts here.
Shine on!
Shannon
