Nov 20, 2012
By Norman P. Friend, President of Franchise 101 and featured expert on Episode 5, Season 2. Find out more about Norman P. Friend
While it is impossible to determine the franchisability of a business concept without a significant amount of analysis, with Franchise 101 Inc. there is a series of 12 predictive criteria that assess the possible readiness of a company for franchising and the likelihood that it will achieve success as a franchisor.
- 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 e.g. size of organization, number of units, years in operation, look of the prototype unit(s) (the "footprint"), publicity, consumer awareness of the brand, and strength of management.
- 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.
- Transferability of Knowledge - 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 particular field.
- Adaptability - How well a concept can be adapted from one market to the next? Some concepts do not adapt well over large geographic areas because of regional variations in consumer tastes or preferences. 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.
- Refined and Successful Prototype Operations - A refined prototype (i.e. a 'Footprint') is necessary to demonstrate that the system is proven.
- Documented Systems - To be franchisable, the company's systems must be documented in a manner that communicates them effectively to franchisees. Policies, procedures, systems, forms, and business practices must be documented in a comprehensive and user-friendly operations manual and/or computer-based training module.
- Affordability - Affordability reflects a prospective franchisee's ability to finance for the franchise in question.
- Return on Investment - 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.
- Market Trends and Conditions - While not an indicator of franchisability as much as a general indicator of the success of any business, market trends and conditions are key to long-term planning. Is the market growing or consolidating? Will the franchise'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 franchises likelihood of long-term success.
- 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. A major reason for the failure of franchise systems is the franchisor relying on non-recurring revenue from over optimistic franchise unit projections.
- Commitment to Relationships - Successful franchisors focus on building long-term relationships with their franchisees that are mutually rewarding. Strong franchisee relationships enable the franchisor to sell franchises more effectively, introduce needed changes into the system more easily, and motivate franchisees to provide a consistent level of products and services to the end user.
- Strength of Management - Probably the single most important aspect contributing to the success of any franchise program is the strength of its management. In franchising you bet on 'jockeys' rather than 'horses'. The product or service is important but the quality of the leadership is critical, especially when the system has to be modified to adapt to changes in the marketplace.
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