Franchising’s historic success, coupled with current economic triumphs and technological advancements, continues to create opportunities for the introduction and expansion of new franchise brands.
In the United States alone, there are some 400 emerging brands appearing annually, and hundreds more popping up across the globe. This is great news for business owners who want to use franchising as their method of distribution, whether they can afford to or not!
Developing a franchise brand, then selling franchises, then supporting franchisees while continuing to sell more franchises is a daunting if not impossible task, yet there are countless entrepreneurs willing to try.
The word is out that franchising is an ideal way to expand a business using other people’s resources, including time, talent and money! Many, many emerging franchisors are under-capitalized, but they hope to compete with established brands despite a shoestring budget.
How many will succeed may be determined by how well they pay attention to those things that matter most in franchise development.
If you’re launching a franchise brand, here’s a plan of action that will help you compete even on a shoestring budget.
Cheap doesn’t always save money
“Emerging brands come in different sizes, shapes and colors today,” says Ben Litalien, who has helped a couple dozen emerging brands come to life through his business, Franchise Well. “It’s no longer just someone working out of the garage who decides to franchise; it’s established corporations, including some with plenty of capital, that choose franchising.” However, Litalien points out that many start-ups under-estimate the costs to develop an emerging franchise brand.
“If you cannot invest $250,000, I would not recommend franchising your business,” Litalien continues. “The costs for legal, branding, learning management systems, manuals, marketing, and selling and supporting franchises – it will cost $250,000, and if you do it right you will have your first ten franchisees.”
There are consultants who will do it for less, much less. “Franchising is so popular now that you can find someone who will create a ‘turnkey franchise package’ for as little as $12,000,” Litalien explains,” but I would not recommend it.”
At best “you will get a cookie cutter version” of another client’s package. “I’ve had to salvage some of those packages,” says Litalien. “Sometimes the consultants don’t even spellcheck their product to change the name of the client, so what do you get for $12,000?” Nothing that can translate into a successful franchise program.
It will likely take six months to develop a franchise concept including preparing the required disclosure documents, the legal agreements, and operating manuals. You can spend another six months setting up accounting procedures, identifying, and negotiating with vendors for your supply chain, developing your website and social media, and then launching the marketing to sell the first franchises. “It takes about six months to get your first franchise candidates,” says Litalien, and just one mistake at this point could cost you your business.
Franchisor Tom Boehm, who founded the emerging Montessori Kids Universe, urges neophytes to get recommendations from existing franchisors before hiring consultants. “The cheapest attorney,” he says,” usually turns out in the long run to be the most expensive.”
If you’re planning to turn your business into the next behemoth franchise network, save yourself some money and agony by budgeting appropriately.
Identify your market
Success for an emerging brand begins long before signing the first franchisee. No doubt it’s important to find the right franchisees, but it’s more important to understand where to find them – and why they exist. That’s why Litalien recommends creating a brand that appeals to an existing set of franchisees.
“Franchising is a powerful strategy,” he explains, “but it’s no longer the same old idea of selling a franchise at a time to Mr. and Mrs. Jones on a government-sponsored loan. That’s why most franchise brands have less than 100 franchisees. They don’t have a market to sell to and they can’t scale.”
Even before drafting a disclosure document, you need to identify a pool of potential franchisees. Build your business to be sold to a specific population. Your pool may exist with another franchisor’s brand or brands.
“Go after multi-unit and multi-concept franchisees,” recommends Litalien. “Find other franchise brands that are complementary to your concept and sell to those franchisees.” What you don’t want to do is sell to people who will open one franchise. “Today,” continues Litalien,” that’s not the way to build a franchise network.”
In the long run, your best marketing move as an emerging franchisor may be to sell your concept to a conglomerate. Rob Weddle, CEO of Authority Brands, which includes ten service brands, thinks like Litalien. Weddle oversees a network of nearly 1,000 franchisees who own one or more concepts offered by Authority Brands. The company is looking to acquire additional brands and as it does Weddle knows he has a market of nearly 1,000 franchise minded individuals to sell to.
Invest in technology
Conventional wisdom suggests you budget generously for technology. The emerging franchisor’s competitive edge is its technology package. Litalien says technology has leveled the playing field in franchising. “Older brands have outdated technology and they fight change,” he explains. “Their legacy systems make them less competitive.” This is an opportunity for emerging brands to use technology platforms to beat the established brands.
“Everyone is data-driven,” says Weddle,” and they want visibility and digital consumer engagement – it’s not cheap.” On the other hand, Litalien says the emerging franchisor can subscribe to powerful software for just $100 a month. “It used to cost hundreds of thousands of dollars to get an app created,” he explains, “but now you can spend $10,000 and in ten days get your new app.”
There’s technology for POS, customer experience, and marketing, and using it will disrupt the status quo brands in franchising. While many mature brands continue to argue about the value of technology, they miss the significance of the digital footprint that’s making an impression universally.
“The emerging brand that comes out of the box with better technology than their established competitors is on the path to success,” emphasizes Litalien.
Focus on selling franchises
Ultimately, the emerging franchisor must sell franchises. That’s your priority. “Focus on selling franchises to the right people and they will help you grow your business,” explains Austin Titus, president of Network Lead Exchange. Resist the temptation to sell to the wrong people.
“It’s important to bring the right people into the system so they will become your validators,” adds Aaron Rose, operations manager at the emerging SuperGreen Solutions.
Should you sell franchises yourself, or use brokers? Opinions vary. “I’m not an advocate of brokers,” says Litalien. “I think a franchisor that sells franchises makes a long-term connection with franchisees. Brokers sell and they are gone; they have no vested interest.”
Boehm says, “No one can represent your brand with the knowledge and passion the owner provides.”
Titus, on the other hand, recommends working with brokers to save money, initially. He prefers building an in-house sales team that can “grow with the brand” but “brokers don’t incur large expenses until the deal is done and they are paid a commission.”
Many franchisors argue broker commissions are too costly. Weddle suggests you get over that hurdle. “If you think selling cheap is a good idea you attract cheap buyers.”Even Litalien admits that “emerging brands that work with brokers can have a robust development program from day one.”
There’s been a proliferation of franchise brokers in recent years so it’s easier to find one or several to build your emerging brand. Weddle says it’s a small percentage of brokers that drive sales. Find several who have figured out your market. Boehm says you should do what you must to sell your first five franchises “even if it puts you in a negative cash flow.”
Focus on franchisee satisfaction
“As a founder,” says Weddle, “you need to understand you’ve got to hire and train people to support franchisees. The first 50 franchisees buy you, but after that they need to buy the system, and this is where emerging franchisors fall short. The first 30 units, you and your brother-in-law can provide the support, but beyond that you must invest in people and that’s the inflection point – brands get stuck.”Budget to invest in people because they help franchisees grow and without growth your franchisees will not validate your system.
Titus insists on a quality training program even if you’ve only got a shoestring budget. “You can easily create a training program by building a library of videos that cover all the different topics of importance to a franchisee.” Some in-person training is essential, however. Titus recommends delivering 60 per cent of the training in person and the balance via video and online platforms.
Rose recommends that in addition to training you “carve out 30 minutes every week as a touchpoint with franchisees to discuss what’s going well and what’s not working.” It’s part of your service to a franchisee and without that it’s impossible to build a lasting, prosperous relationship.
Get a bigger budget
Should you decide that despite your dream to franchise your business you don’t have enough budget to do it – not even a shoestring budget – then consider getting a bigger budget!
Franchising has become immensely popular worldwide. “Today,” says Litalien, “emerging brands are coming to market better capitalized than ever before due to all the investment money that’s going into the sector.”
From direct investments to platform opportunities such as Authority Brands, if your idea is solid there’s likely a capital investment opportunity for you. “Resources are plentiful, and you just need to know which option makes sense for you,” explains Weddle.
The author
Dr. John P. Hayes, CFE, leads the Titus Center for Franchising at Palm Beach Atlantic University where 50 undergraduate students are earning a Concentration in Franchising. To date, 23 students have graduated from the program; several have become franchisees; one is a franchisor, and others are employed by franchise companies
