Is My Business Ready to Franchise? If you're looking to expand, franchising can be ideal -- as long as you've got these six basics covered.
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For many business owners, franchising can appear to be an ideal form of business expansion.
After all, franchisees are responsible for the entire investment in opening locations and, because of that investment, are highly-motivated to perform well. That allows franchisors to grow far faster than they might otherwise.
But not all businesses are cut out to franchise.
If you're considering franchising, one of the most important questions to ask is simply, "Am I ready?" A few years back, one of my clients, John Leonesio from Massage Envy, a Scottsdale, Ariz., provider of affordable spa services, asked my franchise-consulting firm that very question – and we went through the same analysis that we do for any business thinking about franchising.
While the space in this column doesn't allow for a comprehensive discussion of this analysis, there are six basics that can help you decide if your business has what it takes.
1. Is it working? In order to franchise a business, the business model must first be proven. There's no law, of course, requiring that a franchisor demonstrate competence, but there's a certain number of practical considerations. In order to establish credibility to sell franchises, you'll need to show you've got a successful operating prototype. Massage Envy came to us in 2002 with only two prototype locations operating a bit less than one year, but the business model was already demonstrating consistently strong unit performance and consumer acceptance. Additionally, John's past experience as an owner and operator of various health clubs meant his learning curve was substantially lower than most new business owners would be.
2. Can you sell it? In order to be franchisable, the business model also needs to be attractive to potential franchisees. While it is difficult to quantify "salability," factors such as credibility, uniqueness, and brand "sizzle" all contribute. Though a young business, Massage Envy's management team had good credibility and the concept had "sizzle" by the bucketful. Moreover, they already had a handful of unsolicited franchise inquiries – always a good sign when it comes to salability.
3. Can you clone it? The key to success in franchising is making sure that your franchisees are easy to replicate. If the concept only works because of a unique location, a superstar salesperson, or because an owner is working 80-hour weeks, it is going to be difficult to repeat the magic. Ideally, a franchise concept should be relatively simple to operate and should be able to work in a variety of markets. Of course, potential franchisees can certainly bring some special skills or qualifications to the game – but that shouldn't necessarily be counted on. In Massage Envy's case, simplicity was a strength. The business model was easily teachable and readily duplicated.
4. Can you provide the franchisee with an adequate return? A franchisee who is an owner-operator will expect to get a return, both for the time that they spend in the business as well as their investment in the franchise. While Massage Envy had only a brief operating history, we projected that franchisee returns would be well above those of comparable investment opportunities, even after deducting a royalty.
5. Are you committed to providing value? The franchise business is largely about maintaining relationships. The most successful franchisors are typically those that are the most committed to making sure that their franchisees are successful. It was clear from the start that John and his team wanted to create a first-class franchise organization that would do everything within their power to ensure franchisee success. They created state-of-the-art training programs, hired a top-flight consumer ad agency, and ultimately staffed their organization so that they could provide frequent franchisee interaction.
6. Do you have the capital? While franchising is a low-cost means of expansion, it is not a "no cost" strategy. A new franchisor will need capital to develop legal documents, manuals, training programs and marketing materials, not to mention a marketing budget for franchise lead generation. Massage Envy was a young brand when it made the decision to franchise, so a great deal of care was taken to design a franchise strategy that would succeed without exceeding its budget.
Armed with this understanding of its "franchisability," Massage Envy began franchising in early 2003. Today, the company has more than 1,100 locations in across the United States – success that is the result of a strong concept, sound planning and well-timed execution.
But keep in mind, even the best-laid plans will result in failure if the underlying business is not ready for prime time. If you're considering franchising, take a step back…and ask yourself, "Am I ready?"