To Be Or Not To Be?
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We've had several business owners ask how they can tell if their business can be franchised.
Legally, all that's required to offer a franchise is the preparation of documents in compliance with the FTC rule and adherence to the additional legal and registration requirements of some states. However, having legal documents, while necessary to offer a franchise, isn't sufficient to be a franchisor.
The more telling question is not can a business be franchised, but should a business be franchised? To answer the question of should a business be franchised requires a careful examination of the concept, the economics of the business, the marketplace(s) in which the concept will be offered, and the business culture and temperament of the potential franchisor.
Space won't permit a thorough discussion of each of the above areas. However, our company conducts a franchise feasibility examination for clients. Here are three of the first things we look for:
1. Does the concept have a broad enough consumer appeal to allow for the development of a network of franchisees? A product with limited geographic or demographic appeal doesn't easily lend itself to franchising. The classic example of consumer appeal is a company in Hawaii that makes the leis used to greet visitors to the island. While the business does well in Hawaii, the demand for leis in other parts of the country is virtually nonexistent. Therefore, it's highly unlikely the concept would succeed as a franchise.
2. Does the concept operate according to an established and proven operating system? Can this system be taught to franchisees, and will those franchisees be able to produce results consistent with those produced by the parent company? One key to a successful franchise is the ability to deliver a consistent customer experience to the public. Whether or not you like the Big Mac, we all know exactly what to expect--from the décor to the service to the quality of the food--each time we stop at a McDonald's anywhere around the globe. The ability to deliver a consistent customer experience has made the golden arches one of the most recognized logos in the world.
3. Is the trademark registered in the markets targeted for expansion? If not, is the trademark distinctive enough to be able to be registered, or can a new name and/or design be developed and registered? Having a registered trademark ensures franchisors will be able to protect their brand name from imitators as they build their franchise network.
While these are only three of the criteria we look at in helping a client determine whether they should franchise, they are a primary indication of whether the examination process should be taken to the next level, which includes a closer look at the system, the economics of the business and the culture of the parent company. If these three elements aren't in place and can't be put in place, then it's unlikely franchising is the correct method of distribution for the business.
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Michael H. Seid, founder and managing director of franchise advisory firm Michael H. Seid & Associates, has more than 20 years' experience as a senior operations and financial executive and a consultant for franchise, retail, restaurant and service companies. He is co-author of the book Franchising for Dummies and a former member of the International Franchise Association's Board of Directors and Executive Committee. Kay Marie Ainsley, managing director of Michael H. Seid & Associates, consults with companies on the appropriateness of franchising; assists franchisors with systems, manuals and training programs; and is a frequent speaker and author of numerous articles on franchising.
The opinions expressed in this column are those of the author, not of Entrepreneur.com. All answers are intended to be general in nature, without regard to specific geographical areas or circumstances, and should only be relied upon after consulting an appropriate expert, such as an attorney or accountant.