PLAYLive Lesson: Validating the Business Model

May 17, 2016

When your business reaches a certain size, it’s only natural to explore options for extensive growth and scale. With PLAYLive, we chose the franchising model. The ability to scale without fronting the capital for each unit and the ease of spreading to different regions combined with the other benefits of franchising made it the best route.

To date, we have sold 64 franchise units.

Needless to say, I believe we made the right decision. That being said, franchising doesn’t work for every business. One crucial step is to validate the business model and evaluate it against the nuances of franchising. Below are the key steps we took to validate PLAYLive’s business model.

Ensure the Model Can Be Duplicated

At its core, franchising is duplicating a business in different locations and regions around the country. Think copy and paste. That’s why people appreciate frequenting a franchise restaurant. They know the service, menu, and characteristics of the business will be the exact same as the location they visited three states over. 

If you’ve ever visited a McDonald’s oversees, you’ll feel right at home.

Your franchise needs to have the same consistency and quality in each subsequent unit. Some models don’t work within the franchising spectrum. This could include an agency, something that requires a specific license, or any business that hinges solely on the expertise of the owner. For example, it wouldn’t make sense for me to franchise my law practice.

Replication is only half the equation. Once you determine that it can, in fact, be duplicated, you measure if it can be successful in other markets as well. 

With PLAYLive, we tested out the duplicability and profitability in other regions by expanding our corporate locations. We opened 5 stores in various markets in Washington and Idaho. This proved that when duplicated, our model could succeed in both urban and rural areas.

Evaluate Current and Potential Revenue Streams

A good business doesn’t have one source of revenue. You need to diversify and have multiple streams of revenue. In the world of franchising, this means creating different revenue streams for your franchisees. This is crucial in building a strong platform for future operators to succeed on. The more revenue streams, the better likelihood for success and happy franchisees. 

There’s not a magical number for revenue streams to achieve. You can’t guarantee that implementing six means you are in the clear, where with four your business is toast. It varies by business. 

With PLAYLive we are diligent about exploring as many as possible. When we discovered potential options, we dedicated energy to developing them. First, we have streams from playing games. This includes hourly rates, membership rates, parties, and hosting tournaments. Then we have a repair service that works on cell phones, tablets, and gaming stations. We also sell food, including some operators who sell alcohol. We’re currently exploring options to sell advertising as well.

That way, if the repair services see a slump, the franchisee can work to generate revenue through memberships or catering.

Understand Business Confines

This is where you dig into the details. You need to know the numbers and have the bugs worked out. If you’re like most business owners, you developed a lot of what you have from trial and error. A franchisee is purchasing your model to skip that step. 

You need to have the business operations buttoned up.

Here are some starter elements to consider:

  • Costs necessary for a franchisee to open the business (including rent, supplies, and marketing);
  • Anticipated timeframe to create return on investments;
  • Number of employees to start out;
  • Complementary businesses to be located next too.

Through opening our corporate locations, we were able to monitor and test different variables. We explored how many employees a location needed to have working while remaining profitable. We fine tuned marketing practices. We tested pricing options, aesthetics, menus, and more. For example, we know units located in malls do very well. Knowing our model and demographic, we are confident that PLAYLive would do well near a college campus.

Now we can accurately give franchisees a playbook to successfully run and operate their own PLAYLive.

Market Analysis and Demographics

Know your market.

As simple as it sounds, this is a comprehensive step. Start with fully knowing your demographics. Who is your ideal customer? At PLAYLive, we know our demographic is individuals aged 10-39.

Since you are growing out of your region, you also need to understand the market trends across the country.

For example, here are some different areas to consider:

  • What type of economic region will your business do best in?
  • How many units can a city with 50,000 people sustain compared to a city with closer to a million people?
  • Is it a geography-based industry, such as surfing or skiing?
  • What are market trends for your particular industry?

Knowing and understating these variables give you a better foundation to sell units and set a franchisee up for success. You also don’t want to invest into franchising your business model if the industry only has a five to ten-year life span on it. For example, you wouldn’t invest in a video store anymore.

As for the gaming industry, it’s gaining popularity across the Unites States. In the next five years, it’s forecasted to reach a $93.18 billion industry. In combination with that, social and casual gaming is on the rise. Virtual reality products are starting to be introduced to the market, which may provide unique opportunities for PLAYLive in the future.

We are confident in the gaming industry longevity.  

Automation and Systems

Evaluate what components of the business can be automated and where more in-depth systems need to be in place.

Fundamentally, a franchisee needs to cater to any individual on the street. That’s part of the value of purchasing a proven model over starting your own business. Building systems to accomplish the day-to-day tasks makes your business easier to run. This makes a wider pool of potential franchisees. Automation helps reduce the number of staff needed, decreasing overhead.

One of the most fundamental aspects is the Point of Sales system. (“POS”) A franchisor can purchase a ready-made system or create their own. At PLAYLive, we created our own proprietary POS. This gives us the ability to measure specific metrics and gives our operators the exact functions necessary to manage the business.

Commit to the Franchising Business

By franchising your business, you are changing the type of business you operate.

For example, if you run a bagel shop, you make and sell bagels. Once you franchise, your role now is to teach others to make and sell bagels.

That’s oversimplified, but you can start to see the difference. It changes your role in the business. If you want to franchise, you need to realize that you are changing your role in the company to overseeing franchising.

Often, I have clients who leverage franchising as their business exit. They no longer wish to run the day to day of the business, so they transition to running the franchise operations. Others integrate succession plans where generation two or three step in to manage the expansion.

There is a lot of flexibility and freedom to how you structure this process for your particular business. 

Putting Your Team in Place

Just as running a franchise is a different model than your current business, the skills to successfully turn your business into a franchise are different than the ones you leveraged to create your current business. If you are ready to commit to the franchising model, it’s time to assemble your team to get you there.

Your team will include professionals to consult on operations, legal, accounting, and building infrastructure.

As a part owner in a franchise and an experienced franchise lawyer, my expertise can help you create a solid legal foundation for your business. It’s important to have a trusted franchise lawyer create the Franchise Disclosure Document. Additionally, I work with clients to help validate the business model, review franchisee lease agreements, and more.

Contact me today to start your journey toward franchising.