June 14, 2016
Evolving your current business into a thriving franchise is a more comprehensive process than most business owners realize. At its core, you are transitioning from selling your current products, such as bagels, to selling and training individuals on the dream of running your current business model. That’s a dramatic shift from your current role.
Additionally, it’s a radically different price tag. You are now asking potential franchisees to invest thousands, if not hundreds of thousands, of dollars with you.
When you are first starting out, it’s important to invest your time, money, and energy wisely. After successfully helping to grow PLAYLive (the franchise I am a co-owner of) to 64 units sold, here are my recommendations to start growing your franchise business.
The most crucial component to franchising your business is vetting the model. You need to be confident that your current business will thrive in other geographical locations, with different operators and in varying market demographics.
This hinges on expanding corporate locations.
It’s unwise to franchise a business you only have one location of. You haven’t tested the market enough to fully understand all the variables impacting the success of the business. When a potential franchisee explores your business model, they will want confidence that it will succeed in their specific market.
This means you need to have a strong understanding of who your ideal customer is and the market conditions necessary to succeed.
Your business needs to be an efficient running machine when you bring in your first franchisee. All the bugs need to be worked out. Systems need to be in place. You need to build automation where it makes sense.
The more efficient your business model is, the easier it will be for a new operator to come in and run it. Automation cuts down on the number of employees necessary to operate. That removes overhead.
Systems and automation ultimately remove barriers for the franchisee. This helps them build success faster. The faster they reach success, the faster you start seeing the royalty checks you have been working so hard to achieve.
Putting the time and energy here early on will go far in your long-term success.
You’ll notice that up until now the majority of the steps to successfully grow a franchise have been completed prior to actually franchising. The more buttoned up your business model is to start with, the more success you will see once you start advertising.
As the old saying goes, “Great marketing only makes a bad product fail faster.”
Put in the work upfront to ensure the quality of the product, and you will drastically improve the likelihood of success for franchisees.
Once you are ready to attract your first franchisees, you will only have the results from corporate locations to discuss when showcasing the model to prospective franchisees. They are taking a risk with you. A more established franchise is able to demonstrate the results from units all over the country.
A lower franchisee fee helps them agree to take a risk on a new franchise.
When starting out, our franchise fee at PLAYLive was $15,000. The low fee combined with the corporate success in various markets gave several franchisees the confidence to adopt our model even though we were a young franchise. After the first or second year, provided you have operating franchisees, you can raise the initial franchise fee.
Using brokers is a great strategy to help attract your first few franchisees. When first launching PLAYLive, we were able to convert several of our corporate locations to franchises to start our momentum and have a compelling story to tell. This allowed us to then utilized brokers as one of our primary marketing systems. We incentivized the brokers by offering a high commission. This helped motivate them to find us franchisees.
Brokers are paid when a franchisee buys one of our units. Through the lens of a marketing budget, we only pay when we see results. It’s a very efficient use of funds, since the franchise fee is what is paying the brokers.
If you have limited resources starting out, using this model is a strong strategy for getting the ball rolling. The trade off is the balance of the franchise fee is allocated to brokerage commissions.
As we’ve grown the number of units across several states, we have seen more and more internal leads come in directly to us. To some extent each unit is marketing the model to their clientele. The more units opened helps create more awareness and makes it easier to sell more units.
As I’ve mentioned, the majority of factors defining your success in franchising are developing a strong foundation. It’s as important to ensure you have a strong legal foundation as well as a sound business model.
Especially in the current legal landscape, states are tightening regulations in the franchising world. It’s essential to ensure you have it done right from the beginning.
In my experience, I have seen many business owners opt for discounted services, or worse, downloading templates online. Do it yourself doesn’t work when it comes to franchise law. It will cost you thousands of dollars in legal fees down the road to correct faulty contracts or other legal liabilities.
Several years ago I helped a franchisee terminate their franchise agreement with the franchisor because the franchisor sold the franchise territory when their registration with the state of California had lapsed. The franchisee was able to recover the initial franchise fee, royalties, and advertising expenditures and terminate the franchise agreement.
Faulty legal work is extremely costly long term. As an experienced franchise lawyer, as well as a co-franchise owner, I can help you build a strong foundation to grow your business. Contact me today to get started.