I have worked as a lawyer specialising in franchising for 10 years. In that time, I have seen and worked with my fair share of franchise networks, including many brands entering the world of franchising for the first time. Some of those franchise systems have flourished. Others have gotten off to a roaring start then petered out. Some, however, have not performed so well. Having worked with so many brands, I have noticed some common factors among the successful ones. Here are our ingredients for a successful franchise:
1. Successful franchisors are picky with whom they grant franchises to
I once had the privilege of sitting down to lunch with the CEO and founder of one of Australia’s most well-known franchise brands. One comment that he made has always stuck with me. “Of the applications we receive from prospective franchisees, we interview about 2% and of that 2%, we grant 1 in 4 a franchise”. While such selectiveness may seem limiting, the simple fact is franchisees will be ambassadors for your brand. Having franchisees that do not have the required skills, drive, attitude and/or qualifications could lead to franchisee failure and potential disputes.
Franchisors should have clear selection criteria, undertake due diligence on their prospects, and meet with prospects to ensure they are a good fit. Even if this results in slower growth, having a network of happy and successful franchisees will be worthwhile in the long run.
2. Successful franchisors are not fad-driven
We all remember the cronut phase, right? Once the treat of the moment, I can’t remember the last time I saw these for sale, let alone ate one. It’s fair to say any cronut-based franchise may not be trading as well now as they did at the height of the phase. For a franchise to work, it needs to have longevity. That means offering a product or service that will be needed or wanted in the long term. Franchisors aiming for sustained success should be cautious about embracing short-lived trends. Instead, they should focus on providing goods or services that have enduring appeal.
3. Successful franchisors listen to and collaborate with their franchisees
Franchisors should view the franchise arrangement as a partnership, and not a master-and-servant-style relationship. While, in reality, franchise agreements typically yield a lot more power to the franchisor than the franchisee, franchisee feedback and suggestions can be invaluable to a network. As the ‘people on the ground’, franchisees are seeing what works and what doesn’t. They can provide extremely valuable feedback. Additionally, collaboration with your franchisees should be embraced because keeping franchisees happy is important. No one is happy if they feel ignored.
4. Successful franchisors embrace change
The world is ever-evolving. Franchisors need to continually review their offering and processes to ensure they remain up to date. Franchisors also need to embrace technology. Could you imagine if Pizza Hut had remained available only by going in-store or dialling 9481 11 11? No doubt the business would be failing or, at least, losing market share. On the flip side, brands like Domino’s who have invested heavily in technology (a drone delivering my pizza, who would have thought it!) often reap the rewards of such investments. Product or service development should be a continental focus.
5. Successful franchisors crunch numbers and show financial acumen
I can’t count the number of times new franchisors have asked me ‘What initial fee should I charge?’ or ‘What percentage sounds good for an ongoing royalty?’. In response to those questions, my response is always the same. “I can guide you as to the range that is market standard, but you need to do the numbers. You should prepare detailed cash-flow forecasts and financial plans. You need to ensure your fee model means everyone wins in a range of variables”.
Preparing detailed financial models, and continually revising those models, is absolutely 100% essential. Ideally, franchisors want to ensure their model means franchisees will be breaking even in a reasonable period having regard to the franchise term. They also want to ensure franchisees derive a good income from the franchised business and that there is a buffer for an increase in base costs. Of course, franchisors should ensure their model means they will benefit financially as well.
Importantly, after crunching those numbers and preparing financial models, franchisors should not just put them in the drawer. Instead, the numbers should be continually revised and cross-referenced against actual data collected from franchise operations. An experienced franchise accountant is an invaluable resource to franchisors in this regard.
6. Successful franchisors understand the importance of kindness
I have seen some shocking behaviour on the part of franchisors in my time as a lawyer (not by my clients, of course!). Examples include promising the world, but never having the ability to deliver, increasing fees without regard to the financial ramifications on franchisees, and issuing breach notices for minute or trivial matters, simply to exert pressure on franchisees to exit the system. Ultimately, people are at the heart of every business. All people experience ups and downs. All people appreciate when others show them empathy. Franchisors should never underestimate the impact of being fair and decent and showing understanding when a franchisee may be facing an issue. A franchisee going through hard times now may be your biggest ambassador in years to come.
7. Successful franchisors prioritise process and systemisation
Implementing processes and focusing on systemisation will help your brand scale. Processes and systems will also ensure consistency across the network. There is no doubt McDonalds is such the ultimate franchise success story, and process and systemisation have a lot to do with that.
How do I make my franchise a success?
There is no single secret herbs and spices mix for franchise success. Having a great product or service offering is not enough. By combining these key 7 ingredients, pickiness, fad-avoidance, collaboration, flexibility, financial acumen, kindness and systemisation, however, you will go a long way on the road to franchise success. It’s important to include all of these ingredients in your franchise business plan.
What’s next?
So, you have included these ingredients and written up your franchise plan. If you are a franchisor who believes your brand will be successful and would benefit from a highly experienced and commercially savvy franchise lawyer, we would love to help – please contact us for an obligation free chat to explore how we can assist on your path to franchising success.