3 Key Questions That Will Help You Decide If Your Business Can Be Franchised
The following excerpt is from Rick Grossman’s book Franchise Bible. Buy it now from Amazon | Barnes & Noble | iTunes | IndieBound
If you have a successful business that’s susceptible to a regional or national system of marketing and you don’t want to share control or risk the personality conflicts that come with bringing in investors who would become your equals in making business decisions, then franchising may be your best course of action. To help you determine whether your business could be franchised, review the three qualifiers and considerations described below.
1. Are you franchisor material?
Before you evaluate your business as a potential franchise, be sure to evaluate yourself as a potential franchisor. Often, a person who might successfully operate a business that’s susceptible to franchising may not be cut out to be a franchisor. Consider your qualities, and remember that franchising is more than the business of selling services and/or products to a consumer. In addition, as a franchisor, you’ll be an educator, trainer, psychologist, minister and perpetual hand-holder to your franchisees. You’ll also be a fee collector, extracting an initial fee for the franchisee to begin business and then collecting royalties for the life of the franchise.
You’ll need to be aware of the franchisee-franchisor relationship and always remember to allow your individual franchisees the flexibility to manage their own businesses. Always treat them as independent business owners, not employees. It’s important you carefully set forth the guidelines of this independent contractor relationship in the initial contract, the disclosure document and all further communications to franchisees.
2. Is there a market for your particular product or service?
Don’t consider franchising your business unless you have a known, local market for your product or service. Marketability is determined by need, and need is determined by competition.
For example, if you’re running a hamburger stand, your chances of finding a market for your franchise and a market for your franchisees are relatively small in today’s business community. However, if you have a unique way of running a hamburger stand, it’s entirely possible to franchise it. Take the Wendy’s operation, for example, which gained steam by introducing the system of in-line preparation of hamburgers as the consumer watches and waits for his or her order. This is in contrast with the traditional method of preparing fast-food hamburgers out of view and then setting them on a warming tray until someone places an order. Wendy’s catered to consumers who wanted to see their hamburgers made to order right before their eyes.
Demand is the crucial force here. It’s just as important as uniqueness. Your unique product or service must be desired not only by the people who want to buy franchises from you, but also by the people who will buy products or services from the franchisees.
3. What market research must you do?
If your product or service is relatively new and not extensively offered by anyone else but has proven to be in demand, your first task is to determine those sections of the country that would most likely buy your products or services, based on needs similar to those of your present customers. For example, a new type of thermal underwear would not go over well with residents of California’s Palm Springs area; however, a successful gas-saving device might take hold anywhere in the world.
If your product or service isn’t relatively new, you can retain market research firms to prepare extensive reports concerning the types of consumers in various regions and their needs and buying power. This could be rather expensive, so an alternative is to do your own research by visiting the reference department of your local library and by searching on the internet.
You can study the yellow pages of phone books of the various cities in which you’d like to offer your product or service to determine if any competition exists in those areas. You can also conduct an internet search and review online business directories and business review sites (such as Yelp!) to get information on potential competitors.
You’ll also want to interview existing franchisors and franchisees for their insights on franchising. People like telling others of their business accomplishments, so this should be a particularly enjoyable aspect of researching the franchising potential of your business.
Government agencies are also very helpful in providing demographic information and market research data. In particular, the U.S. Department of Commerce, Bureau of Economic Analysis and the U.S. Department of Labor’s Bureau of Labor Statistics have conducted extensive studies on the regional consumer habits of Americans. Search for “consumer habits” on these government websites, and you can obtain useful data for your research.
It’s always necessary to do an initial study of the existing demand for the products or services you’re thinking of offering through a franchise system. A more extensive study can be conducted by potential franchisees. If you feel an initial market is out there, utilize potential franchisees by encouraging them to make their own market study as a prerequisite to receiving a license from you.