All Systems Grow

Franchising, Merging and Going Global

5. Turn Your Business Into a Franchise

Who wouldn't love the idea of collecting fees and royalties while fellow entrepreneurs expand your business? Once you get past the startup costs--on average, between $125,000 and $150,000 for moderate initial growth of five to 10 franchises per year-franchising is an efficient way to expand brand awareness while pooling the business acumen, financial resources and buying power of multiple owners.

Don't expect a motivated franchisee to make up for existing shortfalls, however. "Make sure there's a market for your product, do your competitive analysis and be sufficiently capitalized," says Andrew Loewinger, an international franchise attorney with law firm Nixon Peabody LLP in Washington, DC. Otherwise, franchisees can be a prickly bunch to deal with. "You might have franchisees who don't want to follow the program, who want to break out on their own or don't want to pay their royalties because they think you're not delivering value," Loewinger says. "It can be a challenge."

Joe Barbat, 29, founder and CEO of Wireless Toyz Ltd., a cellular retailer in Farmington Hills, Michigan, keeps in touch with franchisees through store visits and a company-wide intranet detailing new cellular plans and promotions. These contacts remind franchisees that the company is always there to help, says Barbat. It also helps the company, which brought in over $50 million in revenue last year, maintain sales and service standards.

For more on franchising your business, see "Franchising Your Business" in the Growing Your Business section of our website.

6. Join Forces

A merger or acquisition combines the best of two companies, expands your customer base, increases intellectual capital and delivers operational efficiencies. The trick is finding the right partner. "You have to share the same vision of what it is you're trying to build," says Davis.

Such a step is usually the domain of established companies, but acquisitions are how Thought Equity Inc. got off the ground. When Thought Equity's CEO, Kevin Schaff, started his Denver business providing stock footage and production-ready commercials to media companies, he first acquired a nearly bankrupt company selling similar ready-to-use commercials. "We wanted to [increase] the size of our library and provide a critical mass for people when they came to search our libraries," Schaff, 30, says.

The next target, an advertising agency, supplied the expertise of professionals steeped in TV advertising sales. With this "plug and play team," as Schaff calls the agency, Schaff estimates the company got up and running with its first customers 18 months earlier than it could have had it tried to create these resources in-house. Both acquisitions were completed in 2002, the year Thought Equity was founded. Sales in 2004 reached $3 million.

7. Go Global

Growing markets, rising consumer spending, improved business climate--sometimes the only place to find these things is overseas. Doing business internationally can take the form of exporting, licensing, a joint venture or manufacturing, but whatever form you choose, the same basic business rules of assessing customer demand, gaining legal and accounting assistance, protecting intellectual property and obeying regulations apply.

What don't come so easily are the nuances of cultural differences. In some countries, particularly those in Asia, a local partner is virtually a requirement. Your first stop should be your target country's economic development agency, which can help marshal local resources to get you on your way, possibly with a small financial boost.

Melody Brenna, 48, co-founder and CEO of Milestone Architectural Ornamentation Inc. in Amarillo, Texas, emphasizes the importance of the internet in growing an international business. That's how overseas customers first found out about her construction technology firm, which specializes in historic reproductions. Today, Milestone's international business includes exporting product machinery, materials and molds to Thailand, and deals with other countries are in the works. To streamline service, the company creates a project-specific website with regularly updated project news, photos and scheduling information.

Online access also helps businesses overcome the delays of time zone differences. "If there's something I forgot to tell a client," says Brenna, "I throw it on the web and it's there when they get to work in the morning."

Pre-Expansion Checkup

Answer these questions before you make your move.

  • Do employees have the necessary skills to support your growth strategy? Will you need to hire new staff or provide additional training?
  • Can existing operations handle a sudden boost in demand? How will you maintain service levels while reaching for new business?
  • Are current operations, including order management, customer service, record keeping and inventory control, running smoothly and ready to take on more?
  • Where's the money coming from? Will cash flow from sales be enough to support your expansion, or will you need lender or investor financing?
  • What will you need the money for? Study historical cash-flow statements as a guideline, then determine cash-flow needs on a weekly, monthly and annual basis to plan your funding strategies.
  • Are you ready to delegate more tasks and give managers more control?
  • Does expansion rest on a reliable mix of intuition, solid competitive analysis and customer research?
  • Do you have a time-defined exit strategy if expansion plans fail?

Source: Office of Women's Business Ownership, SBA

Julie Monahan is a writer in Seattle whose articles on small business and emerging technology have appeared in numerous consumer and trade magazines.

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This article was originally published in the March 2005 print edition of Entrepreneur with the headline: All Systems Grow.

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