16.04 – Franchise-to-Growth Model

If your business concept has the potential to be replicated in multiple locations, franchising can be an effective growth strategy. This approach allows you to expand quickly while sharing the risk with others.

Franchising is a proven way to grow a business. With over 700 different types of franchises available worldwide, you can find one that suits your needs and aspirations.

As a franchiser, you provide a product or teach a service to a franchisee, who then sells your product or service to the public. In return, the franchisee pays you a fee and ongoing royalties based on turnover. Additional revenue can also come from supplying materials or ingredients to the franchisee.

There are two main strategies for leveraging franchising in your business:

Bolting on A Franchise

Adding a franchise to your existing business can be a safer growth strategy than franchising your own concept. Established franchises have already ironed out many of the unknowns associated with new ventures. Here are two ways to approach this strategy:

Adding A Franchise

For example, Harrods added a Krispy Kreme Doughnuts franchise to its food and beverage sales, generating additional revenue. This strategy leverages your existing customer base or resources to increase sales. If your customers already buy similar products from you, adding a complementary product like ice cream can boost sales without significant additional effort.

Taking Out A Master Franchise

Another option is to take on a master franchise for a region or country, which allows you to roll out a chain of franchises. This strategy can also be used to expand your own business if it can be put into a franchise format. For more information on master franchises, visit Franchise UK.

Weighing the advantages and disadvantages

From a franchiser’s perspective, one significant advantage is the lack of direct investment in each franchise, as the franchisee owns the inventory and equipment. However, there are substantial start-up costs for piloting the franchise and setting up training programs. Ongoing costs include research and development, promotion, administrative support, and maintaining communication within the franchise network.

A potential downside is the reliance on franchisees to adhere to the rules and maintain standards. Any failure by a franchisee can negatively impact the franchiser and other franchisees.

Doing the Pilot

Before launching a full-scale franchise, run a pilot operation for at least a year. The pilot should be managed by someone similar to the intended franchisees. The goal is to test the business concept and ensure that the operating systems are clearly documented and easily followed.

For example, suppose you have a fast-food outlet called Calorie Counter, offering healthy meals with detailed nutritional information. You’ve standardized everything from recipes to staff uniforms and documented all operational procedures. Running a pilot franchise allows you to test whether an outsider can successfully operate the business using your manual and systems.

Use the pilot to refine your franchise manual, charging, and support systems. This preparation sets the stage for a successful roll-out.

Finding Franchisees

The biggest challenge in growing a franchise network is finding suitable franchisees. While there is no shortage of interest, not all applicants will be a good fit. Successful franchisees are typically motivated, hardworking, have some management skills, and possess good communication abilities. They should not be too entrepreneurial, as they need to follow the established formula.

Rolling Out the Franchise

With a proven formula and a pool of suitable candidates, you are ready to roll out the franchise. Select locations that fit your business model. For example, Hard Rock Cafe targets capital cities, while Prontaprint can thrive in business areas or towns with a population of around 30,000 people.

The key is understanding your customer profile and choosing locations that align with your business strategy.

Conclusion

Franchising can be a powerful growth model for expanding your business. Whether adding a franchise to complement your existing operations or franchising your own concept, careful planning and execution are crucial. By selecting the right franchisees and locations, you can achieve sustainable growth and long-term success.