Franchising is a great revenue source for your brand. You get paid to actually expand your brand into new regions and territories thus opening up new market opportunities and sales channels. But as potentially lucrative as it sounds, franchising can also bring about unique challenges to a brand. You'd want to first make sure that your business is ready for expansion and that the franchisees you approve of do a good job of maintaining your brand integrity and reputation. If they screw up, the effects reverberate to all other business locations. If you're at a fork in the road regarding the franchising of your startup, here's a guide to help you determine when the best time to franchise your startup is.
Is the Business Model Working?
Before expanding your startup to new locations, gauge your current business model. Is It Scalable? Does it garner positive feedback from your target audience? Will a franchising structure benefit the main business? Questions like these must first be addressed otherwise you risk spreading your resources too thinly. While there is no law requiring franchisees to prove their competence, certain things must be considered beforehand including previous work experience and educational background.
Is Your Business a Worthwhile Investment?
Franchising is a two-way street. It's not a one-way relationship where franchisees flock to your business by the dozens, waiting to get a chance to franchise your business. You will also need to prove your future value to them if you have any chance of franchising for the long term. It can be fairly challenging to prove to your franchisees that your business is worth the investment since there is no quantifiable factor for "salability". However, what you can pitch to franchisees is your credibility as a legally operating company, brand uniqueness, and market presence. Now's the time to whip out your numbers for sales and positive reception from consumers.
Is It Scalable?
As mentioned earlier, ask yourself "can my business be cloned?" More importantly, can that clone perform at similar levels as the parent company? The key to succeeding in your path to franchising is to ensure scalability. A commercial cleaning franchise, for instance, can be cloned with minimal challenges, but a tech startup with unique demand and multiple vulnerabilities to contend with will be a harder transition to manage and succeed from. Look at your business model from an objective standpoint. Can your hardware and software infrastructure be easily duplicated? Are your sales and marketing methods transferable to new prospective markets?
Can You Offer Good ROI?
It's all about the cash flow. A franchisee will expect a good ROI to recoup his/her initial investments on the franchise as well as any time and effort spent towards managing the business. The higher risk your business is, the higher ROI franchisees expect for their investments. For established companies, however, franchisees are okay with getting decent returns on a consistent basis since they know the underlying brand is solvent.
Do You Have Time?
As a franchiser, it will be in your best interest to help franchisees succeed. The more they earn, the more you get in the form of fees paid on an ongoing basis. Invest time in teaching your franchisees about how to best manage their businesses and introducing them to your connections. The quicker they grow in sales, the stronger your franchise gets. This positive brand image fostered through your teachings will echo to all other business locations.
Franchising is indeed a low-cost way to expand your business, but it is in no way a "cost-free" model. You'll need to invest time and cash before you can expect returns. What's great about franchising, however, is that risk is reallocated to franchisees, so you get a low-risk, high-reward investment strategy.
I hope you enjoyed this article on expanding your frugal startup and when to consider franchising.
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Published by Michael J Schiemer
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