How New Franchisors Can Dodge Common Mistakes
Launching a new franchise is exciting but comes with an overwhelming set of new tasks and considerations. Franchising can help a brand reach new markets more quickly and economically than by owning and operating every unit themselves, a Forbes Business Development Council member points out.
Every franchisor will make a misstep or two, and some never recover. Two-thirds of franchisors sell no franchises during their first two years, according to an Entrepreneur.com article, and after 10 years, franchisors sell an average of 10 units. Only 5% of franchises ever exceed 100 units.
To beat those odds, a brand must excel at satisfying the needs and wants of their franchisees along with those of their customers. During my time with REP’M, a full-service franchise development company, I’ve helped our brands successfully prepare to add scale. REP’M is all about franchising responsibly, and I – along with the rest of our team – have helped correct mistakes with scaling and developed a to-do list for getting it right.
Know Who You Are, How You Will Support Franchisees, and How Your FDD Will Tell Your Story
One mistake many new franchisors make is failing to distinguish between a successful company and a successful model. Plenty of companies are profitable, popular and beloved, but that doesn’t mean they have a true business system that is differentiated, repeatable and capable of being executed in a new market by someone who’s not the charismatic founder. Taking time to fully understand your differentiation versus other brands and the underlying elements of your operating system is always, always a good decision.
Franchisors also struggle if they lack solid foundations for marketing and support. A growing brand needs a detailed marketing plan for new franchisees, especially if the corporate locations grew organically over time and haven’t recently needed traditional marketing. Additionally, the brand needs to be ready with proper support throughout the growth process – what works for five franchisees won’t work for 50, and change takes time, so it’s critical to be proactive.
Another misstep is lack of a well-crafted Franchise Disclosure Document. Good FDDs protect the brand, educate franchisee candidates, serve as vital sales tools and position the brand favorably among franchise competitors. Unfortunately, too many brands view their FDDs as a chore or an afterthought, and they couldn’t be more wrong. Your FDD deserves as much time, attention, and strategic thinking as your ops manual or marketing plan.
Make Changes as Needed
Finally, I see many brands wanting to stick with what they know and what’s brought them success up until now. To sustain growth, they may need to move on from their small local vendors/suppliers, improve their support teams or upgrade their technology from the low-budget platforms they used as start-up companies. No brand wants to take on unnecessary expenses in advance, and changes mean friction and opportunity cost. But failing to make hard changes when it’s time can lead to overworked or overloaded vendor partners; a support staff that can’t service a nationwide network; inadequate technology and training… and more.
Of course, not all changes can or should happen at once. But brand leadership must look down the road at the whole system (operations, marketing, onboarding, training, construction, project management, suppliers, call centers, franchise support, etc.) and understand “How will this work when we have 20 more franchisees? 100 more? What’s the failure point of this component? What’s the lead time on a change? How will we know when it’s time? What will the next solution look like?” This readiness is often the difference between a system that collapses and one that goes the distance, between frustrated franchisees and great validators.
Franchisor To-Do List
Franchisors set themselves up for success by taking these steps:
- Take the time to really understand your business system, not just your company.
- Be ready to answer the question, “How will I drive leads and help franchisees grow their businesses?”
- Brick-and-mortar business must have a plan for real estate and construction. If they’re not equipped to manage the process well internally – and most new franchisors are not – they should work with a reputable partner who can help get doors open.
- Focus relentlessly on franchisee revenue growth and profitability. Everything, and I mean everything, comes second to franchisee unit-level economics.
- Review P&Ls and your pro forma often to make sure you and everyone in your system understands the key revenue and expense drivers in your business and can clearly articulate the model and targets.
- When developing tools, technology and platforms, always consider whether you’re making it easier or harder for your franchisees and their teams to execute at a high level. Putting barriers in their way, adding steps and increasing complexity will nearly always reduce both compliance and goodwill.
How REP’M Aids Franchisor Partners
REP’M helps emerging and established franchises, tailoring our services and support to each brand’s requirements. For example, in my division, SCALE’M, some need more direct assistance creating tools and processes, while others are looking more for advice and guidance as new issues arise. We listen carefully to our brand partners’ wants and needs so we can help them achieve their goals – not ours.
There are no magic shortcuts to scaling. Sustainable growth always comes from putting in the work and getting the basics right. The franchise development experts at REP’M believe there’s no long-term success for us without success for our partner brands.
