At the Globe and Mail's Small Business Summit last week in Vancouver, one of the attendees pulled me aside and asked a question about franchising, which was the topic I was covering.
In my experience, people are more inclined to ask questions on a one-on-one basis than in a crowded room during a presentation. She asked a simple but fundamental question: “Why would I franchise my business?”
Before I answered I asked, in the abstract, whether the business was inherently “franchisable.” There’s a reason why franchising is a regular method of expansion in the restaurant and retail sectors: they are made up of businesses that can be “replicated” in different locations and regions. If you can standardize your operational systems and “manualize” them so they can be taught to others, you’re a good candidate for franchising.
Training franchisees and their employees in the retail and food services sectors is not a cakewalk. It takes a great deal of time to do it. But it’s arguably easier than training people to become chartered accountants, aircraft maintenance technicians or doctors. Complicated businesses, where it takes years to learn the trade, are harder to teach, and therefore harder to franchisee.
So ask yourself this: would your business model still run if you weren’t there any more? Can you teach someone how to run the company, or is it too complicated? Are your business and operational systems accessible, so that an intelligent and well-motivated stranger could learn them and run the show from another location? Is everything in your head or have you created manuals for your managers and staff? Can you adapt those manuals for others?
When I review franchise agreements for prospective franchisees, I’m always encouraged by long, extensive and rigorous training regimes and comprehensive operating manuals – either in print or on electronic media. It’s a sign the franchisor takes these things seriously and doesn’t want its franchisees to fail. One of my co-panelists at the Small Business Summit, Geoge Siu of Memphis Blues BBQ in Vancouver, told the audience that training is fundamentally important and that it never really stops with his franchise.
Second, is the business “brandable?” Does it have, or with some assistance by branding consultants could it have, a recognizable brand that will drive consumer demand? Having a brand and licensing its use is part of the reason franchisees are paying you. They want the benefit of being associated with your image and all that your brand represents.
I’m aware of a Vancouver franchisor electing to become a franchisee of a well-known national brand because of the power of recognition, and because landlords at the top retail malls were more interested in granting leases to operators of popular names.
Third, can your business fill a need that isn’t confined to one location? My other co-panelist at the summit, Richard Avis of Aussie Pet Mobile Canada, made that point about his franchise system. As a non-pet-owner myself, I would never have seen the need for a service that regularly comes to my house or apartment to groom my dog or cat. But there are millions of pet owners in Canada who appreciate the concept and who are prepared to pay for it.
Fourth, how are you financing expansion? There are really only five ways to grow. You either use your own money to build out new locations and to staff them with employees and managers until they are profitable. You could borrow from family and friends, or the banks. Or you could try to get public financing.
The fifth method is franchising, which involves using the financial resources of motivated and entrepreneurial franchisees to develop new locations and new territories and, dare I say, boldly go where no-one has gone before. Franchisees fund your expansion in return for the profit they hope to make by being associated with your brand, your know-how and your proven business systems.
Many years ago a regional manager at Starbucks told me: “Starbucks doesn’t franchise because it doesn't have to.” Starbucks had sufficient access to capital and it chose to expand corporately, rather than through franchisees.
But unless you have the financial and operational resources that Starbucks had when it conquered the world with coffee, you might want to give serious consideration to expanding by way of franchising and allowing your franchises to fund your growth
Tony Wilson is a franchising, licensing and intellectual property lawyer at Boughton Law Corp.in Vancouver, he is an adjunct professor at Simon Fraser University (SFU), and he is the author of two books: Manage Your Online Reputation, and Buying a Franchise in Canada. His opinions do not reflect those of the Law Society of British Columbia, SFU or any other organization.
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