You started your own business, and it was an exciting affair, especially since nothing could beat the thrill of being your boss. You have then set the systems in place and figured out what works and what doesn’t. Your business is now bringing in regular returns, and people are knocking on your door asking to franchise your business.
You want to grow your business but are unsure of the best direction. There are various ways to go about growing your business.
- You could raise your funds and open more outlets by yourself
- You could invite other parties to invest in a more aggressive growth strategy
- You could knuckle down and build more value into your brand by franchising your brand before inviting more investors.
What is franchising?
Franchising can be defined as giving the right to use your business’ successful functional model and brand for a prescribed period to a second party while receiving payment. It is also a recognised cost-effective business development approach that delivers fast growth with debatably reduced risk. Franchising also lets you maintain operational control of all your franchised outlets for consistency.
There are three main benefits to growing your business via franchising.
Compared to expanding via corporate-owned outlets, franchising out will not involve investing to build every outlet. Franchisees will invest their capital to fund the investment. They will pay a franchise fee to gain your know-how and will also be paying a recurring royalty fee over the franchise term.
There is a time for building growth momentum, and opening corporate outlets may take longer than desired. Franchising is a great way to grow your business quickly because various parties (franchisees) are working on developing the business in different territories. The daily operations of the outlet are left to the franchisees.
Although, as a franchisor, you need to offer management support to the franchisee to set up the business, training to run it, and regular audits to ensure compliance, it still allows you to focus energies on developing the brand across various territories simultaneously.
3. Vested Stakeholders
As the franchisor, you only need a small core organisation with a few highly experienced personnel to manage the franchise. The staff that is needed for the day-to-day operations of the outlets are the responsibility of the franchisee. In countries where hiring qualified staff is challenging, or micromanaging is important, having franchisees manage the human resources locally is far more efficient and cost-effective.
When is the Right Time to develop your Franchise System?
Franchising as a growth strategy can apply to many sectors and be implemented during business growth. A business must attain no minimum number of outlets or revenue before deciding on the franchise. However, there are some specific criteria a business should achieve before deciding to leverage franchises as a growth strategy. Here are some criteria business owners should take note of before deciding on the franchise as a growth strategy.
- Brand Identity: The brand’s identity is at the centre of any good franchise operation. Franchisors must develop the brand well enough to gain market recognition because people buy a product or a service depending on how much they can relate to it. There must also be a proven track record of the brand’s success in the market.
- Attractive Sales Proposition: You must ensure that your business has a clear and easily communicable sales proposition before you start to look for franchisees. Price, quality, service, logistics, operations, and anything else you want to include in the proposition must be reliably deliverable.
- Healthy Revenue Model: Franchising is NOT a Hail Mary for failing business owners seeking a last-ditch effort to grow their business. A franchise is only attractive if the business is making a healthy Revenue and Net Profit. Building a franchise costs money, time, and effort.
- Documented Operations Processes: One of the key reasons franchisees are willing to invest in a franchise is to expedite their business growth by leveraging on the know-how of a franchisor through clearly documented and proven business operations processes for creating or delivering the service or product. Therefore, having a professionally documented Standard Operations Protocol (SOP) is critical for successful franchising.
- Replicable Business Model: Your company must already be making decisions and implementing activities consistently based on agreed business process management methods. This is important because, in the end, franchisees are not buying your product or service but buying a process by which your brand can be run. To this end, franchisors must include effective franchise operations management processes as a key driver in their franchise strategy.
Each business has its key success drivers. To scale through franchising, each business needs to develop its unique franchise strategy. Developing a successful franchise strategy for any company to become a successful franchisor can be complex and requires a value-driven approach to encourage sustainable implementation. The franchise system’s success relies on a well-strategized franchise business strategy that balances the interests of the entire ecosystem of the Franchisee, Master Franchisee and Franchisor. Too often, Franchisors choose to focus on franchisee acquisition, become overly reliant on legal documentation, and underestimate the importance of a sustainable franchise strategy. Without a robust franchise strategy for sustainable scalability, even a franchisor with a large network can fall apart, lose its franchisees, and adversely impact its brand value.
The franchise strategy used in structuring the franchise offering is the foundation for every successful franchise system. This strategy considers everything from building the brand equity of the business, its intellectual property exploitation, revenue sources, supply chain, customer base development, and speed of market penetration. The challenge is knowing the right balance for your company so that you can create a marketable franchise offering to the franchisees you want to target.
Investing careful thought, research and franchise strategy modelling can be all the difference between a franchise that adds exponential value to the business and one that has given away intellectual property without maximising its returns.
At Astreem, our franchise strategy development includes the following:
Deep dive to develop a franchising strategy for your specific brand. We systematically invest time and effort to conduct an initial audit of your specific business system. After uncovering the value chain and exploitable Intellectual property, Astreem will develop and distil the Franchise Business Strategy. This Franchise Strategy development includes:
- Concept review & model enhancement
- Protection and Exploitation of Intellectual Property
- Franchisor’s continual support and field support offered to franchisees for the franchise system sustainability
- Identification of a suitable franchise model
- Valuation and franchise structure at every level of the franchise system
- Determination of appropriate territorial grants
- Desired expansion rate per year
Beyond a successful franchise, strategy is absolute to manage the franchise system successfully. This requires aspiring franchisors to commit to developing a robust franchise operations management system.
A franchisor with a successful franchise operations system will typically have invested time and resources to develop the following key drivers:
- A well-documented Standard Operations Manual.
- A training programme designed to successfully implement the various training requirements and assessments by roles.
- An audit program that helps the franchisor ensure system compliance by both the corporate and franchised outlets.
- Useful onboarding programs to help new employees, new franchisees, and suppliers quickly embark on the brand operations for greater efficiency and productivity.