Australia is per capita the most franchised nation in the world. Relative to our population size, we actually have three times more franchising outlets than the USA, the birthplace of McDonald’s, Budget Rent A Car and H&R Block¹.
So, isn’t it time you made like Ray Kroc with your own brilliant business idea? After all, you’re never going to get seriously wealthy with just one outlet, and if you don’t seize the day, then who knows how long it will be until some opportunist rips off your idea?
Is your business expandable?
Despite the fact that even powerhouse global brands such as Starbucks periodically get into financial difficulties, it’s commonly believed that franchising is a licence to print money for all involved. This isn’t necessarily the case. For your business to multiply itself, it has to be ‘franchisable’. That means it needs to possess the following characteristics:
No one is going to risk their life savings opening up a copy of your business if the original isn’t performing impressively. Before you even consider franchising, your business should be kicking goals and, ideally, generating some industry buzz.
Unique selling point:
While it’s true that there are many chains offering much the same product, especially when it comes to food, it’s still the case that you need something that differentiates you from the competition. Are you confident you know exactly what your competitive advantage is?
If customers are queuing up at your coffee stand chiefly because of the sexy barista, chances are they won’t be queuing up at any other coffee stands you lend your name to unless they also feature a similarly attractive barista. Before launching into the world of franchising, give careful thought to the feasibility of replicating what made the original business a success.
Operations manuals are treated with the reverence usually reserved for religious texts in chains such as KFC and Curves for good reason – they seek to guarantee customers will receive a consistent experience at whatever franchise outlet they deal with and hence have clarity about what a particular brand stands for. To go back to the above example, is it feasible to train people to make coffee as well as your good-looking barista? Is it possible to train them to have the people skills that come naturally to him? Can you document down to the second how long he froths the milk to go in cappuccinos? To be able to successfully franchise your business, you need to have operating procedures documented and systems in place and be able to teach someone how to operate the franchise business in, ideally, three months or less.
This is the deal-breaker. Even if your business model meets all the other criteria, if it isn’t making money, you’ll soon have dramas with any existing franchisees and difficulty attracting quality new ones. As a general rule, presuming you’re taking the standard 4 to 8 per cent cut of the franchisee’s sales, they still need to be seeing a 15 to 20 per cent return on their investment, before they’ll be convinced they’re being appropriately rewarded for the risk they’ve taken and the hard work they’re putting in.
Have you ticked all the above? If you’re thinking of going down this path, it may be a worthwhile investment to engage a consultant who can advise on the feasibility of and processes involved in franchising your business. Do it right and there’s no limit to your success.
This article represents the views of the author only and not those of American Express.