While it is impossible to determine the franchisability of a business concept
without a significant amount of analysis, AT Franchise Consultants has identified
a series of 12 predictive criteria that assess the readiness of a company for
franchising and the likelihood that it will achieve success as a franchisor.
1. Credibility - To sell franchises, a company must first be credible in the eyes
of its prospective franchisees. Credibility can be reflected in a number of ways:
organization size, number of units, years in operation, look of the prototype
unit, publicity, consumer awareness of the brand, and strength of management,
to name the most prominent.
2. Differentiation - In addition to credibility, a franchise organization
must be adequately differentiated from its franchised competitors. This can
come in the form of a differentiated product or service, a reduced investment
cost, a unique marketing strategy, or different target markets.
3. Transferability of knowledge - The next criteria of franchisability
is the ability to teach a system to others. To franchise, a business must generally
be able to thoroughly educate a prospective franchisee in a relatively short
period of time. Generally speaking, if a business is so complex that it cannot
be taught to a franchisee in three months, a company will have difficulty franchising.
Some more complex franchisors offset this handicap by targeting only franchise
prospects that are already "educated"; in their field (e.g., a medical
franchise targeting only doctors).
4. Adaptability - Next, measure how well a concept can be adapted from
one market to the next. Some concepts (e.g., barbecue) do not adapt well over
large geographic areas because of regional variations in consumer tastes or
preferences. Others (e.g., medical practices) are constrained by varying state
laws. Still other concepts work only because they are in a very unique location.
And some work because of the unique abilities or talents of the individual behind
the concept. Finally, some concepts are only successful based on years of perseverance
and relationship building.
5. Refined and successful prototype operations - A refined prototype is
necessary to demonstrate that the system is proven, and is generally instrumental
in the training of franchisees. The prototype also acts as a testing ground
for new products, new services, marketing techniques, merchandising, and operational
efficiencies.
6. Documented systems - All successful businesses have systems. But in
order to be franchisable, these systems must be documented in a manner that
communicates them effectively to franchisees. Generally speaking, a franchisor
will need to document its policies, procedures, systems, forms, and business
practices in a comprehensive and user-friendly operations manual and/or computer-based
training module.
7. Affordability - Affordability merely reflects a prospective franchisee's
ability to pay for the franchise in question. This criterion is as much a reflection
of the prospective franchisee as it is of the actual cost of opening a franchise.
For example, a multi-million dollar hotel franchise is affordable to real estate
developers, whereas a franchise with a $100,000 start-up cost that targets prospects
with clerical experience might not be.
8. Return on Investment - This is the real acid test of franchisability.
A franchised business must, of course, be profitable. But more than that, a
franchised business must allow enough profit after a royalty for the franchisees
to earn an adequate return on their investment of time and money. Profitability
is always relative. It must be measured against investment to provide a meaningful
number. In this way, the franchise investment can be measured against other
investments of comparable risk that compete for the franchisee's dollar.
9. Market trends and conditions - While not an indicator of franchisability
as much as a general indicator of the success of any business, these trends
are key to long-term planning. Is the market growing or consolidating? How will
that affect your business in the future? What impact will the Internet have?
Will the franchisee's products and services remain relevant in the years
ahead? What are other franchised and non-franchised competitors doing? And how
will the competitive environment affect your franchisee's likelihood of
long-term success.
10. Capital - While franchising is a low-cost means of expanding a business,
it is not a "no cost" means of expansion. A franchisor needs the capital
and resources to implement a franchise program. The resources required to initially
implement a franchise program will vary depending on the scope of the expansion
plan. If a company is looking to sell one or two franchised units, the necessary
legal documentation may be completed at costs as low as $15,000. For franchisors
targeting aggressive expansion, however, start-up costs can run $100,000 or
more. And once the costs of printing, audits, marketing, and personnel are added
to the mix, a franchisor may require a budget of $250,000 or more to reach its
expansion goals.
11. Commitment to relationships -Successful franchisors focus on building
long-term relationships with their franchisees that are mutually rewarding.
Unfortunately, not all franchise organizations understand the link that exists
between relationships and profits. Strong franchisee relationships enable the
franchisor to sell franchises more effectively, introduce needed changes into
the system more easily, and motivate franchisees and their managers to provide
a consistent level of products and services to their customers.
12. Strength of management - Finally, the single most important aspect
contributing to the success of any franchise program is the strength of its
management. AT Franchise Consultants has found that the single most common contributor
to the failure of start-up franchisors is understaffing or a lack of experience
at the management level. Oftentimes, new franchisors will try to take everything
on themselves. In addition to absorbing several new jobs for which the franchisor
has little to no time, the franchisor needs to exhibit expertise in fields in
which he or she may have little or no experience: franchise marketing, lead
handling, franchise sales, ad fund management, training, and multi-unit operations
management.
An appropriate first step in the decision to franchise is an examination of
the question of whether or not a business concept is actually "franchisable".
Any organization seriously considering franchising should undertake this analysis
before implementing a franchise strategy. For further information on whether
your business is franchisable, request a free consultation with one of our Senior
Consultants.
