Why Franchising Depends on Systems The magic behind what makes a franchise a franchise.
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Independent Businesses vs. Franchises
Franchising is unique in that its business models depend on systems to function correctly. A business opportunity that isn't a franchised operation does not have the luxury of a structured operating system set forth by a parent brand that offers ongoing support. Components of such systems include an operations manual, training, continuous support and a protected territory in which to do business. Franchises are based on an exchange – a fee that gives the user the rights to all trademarks and systems of the franchisor. They also require strict adherence to rules and regulations set forth by the franchisor. Some entrepreneurs are a good fit for franchising, but not everyone fits the bill. If you like order, structure, and the dependability of systems and procedures, you'll thrive with franchising. If you're a rebel who marches to the beat of their own drum? Not so much.
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Good Systems Allow for Multiplying
The magic behind a successful franchise is the proven business model. Perfected over time to optimize all aspects of running the business, the model serves as a roadmap for the franchisee to follow to achieve success. A proven system is something that can be replicated elsewhere – the very livelihood of the franchising concept. Furthermore, franchises are companies who rely on proven systems to multiply operations elsewhere. According to Mark Siebert's book, The Multiplier Model, Siebert educates readers that well-built business systems and processes give franchised companies a modicum of control and scalability. The franchise brands who do this best have what Siebert describes as a "systems mindset."
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Calculating the Financial Probability of Success
Franchised systems are set up to be purchased with an initial fee, but there's also a monthly royalty payment, typically between 4-10% of the gross sales revenue. So, if you're interested in determining a business model's fit for franchising, the calculation of any potential ROI must include a potential breakeven period, along with a market-rate salary for managing the owner-operated business.
Examples of Franchise Systems in Action
In The Multiplier Model, Siebert explains that the operations manual is at the heart of any successful franchise system. The details included within cover roles, responsibilities, procurement, operating procedures and how the business will be supported by the brand. Training is also another vital component to a successful system. Some franchises go all-out, providing "university" style onsite training that lasts anywhere between a few days or a couple of weeks. After training concludes, another system – ongoing support – kicks in. Many franchises have detailed plans for grand opening procedures. Some go as far as assigning a franchise development representative to new franchisees, while others set up onsite visits to check on a franchisee's progress. Another system not to be ignored is the advantage of having a peer network of other franchisees in the system, all of whom have a collective interest in maintaining successful operations on behalf of the brand.
Combined, all of these systems are designed to manage and maintain the day-to-day operations of the business for the franchisees in the system. These systems have been refined over time, setting the stage for continual efficiencies within the franchisor's operations. Ultimately, these systems will create value for franchise customers. The end result of which, according to Siebert, is "superior to the value provided by competitors."
Franchise systems are the lifeblood of the business model. The benefits are many, but in one form or another, these systems contribute to lower risk, costs, and resources in the business' operations. These systems are both the backbone and a roadmap, designed to help individual franchisees become successful acolytes of powerful franchise brands.
Mark Siebert is CEO of the leading franchise consulting firm iFranchise Group and author of The Multiplier Model. Buy it now.
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