Franchising is one of the highlights and aspirations of an entrepreneur’s career. Yet, the journey to building a great franchise is one fraught with danger and challenges. As an entrepreneur, you need to be prepared for the challenges ahead before you begin this journey. From concept to franchise, you must have clear ideas while retaining the flexibility to respond as facts on the ground change. The great Prussian military commander, Helmut von Molke, noted that no plan survives beyond first contact with the enemy. This notion can be expanded to business. Steve Blank has suggested that no business plan survives first contact with a customer. You have to be prepared for unanticipated challenges to shred your best laid plans to bits. Planning is not about creating a perfect path to your goal, in the first instance, it’s an exercise in preparation, building foundations and establishing strategic goals, and values. In the second instance, plans are ways to get you thinking about your business so that when challenges emerge, you can innovate your way out of trouble. In this article, we will address the question of how you can franchise your business.
Many business models lend themselves to franchising, and when a business achieves a certain level of success, it’s natural for entrepreneurs to wonder if they should take that next step. Franchising brings with it greater public awareness of your brand, making it an even more attractive option. For many business models, franchises have clear cost advantages over building more business units and developing them to maturity. To decide if franchising is right for your business and how you can make a success of it, you have to ask yourself a few questions.
Understand Your Value Proposition
The biggest question is the most neglected question: “What makes my brand unique?”. Every entrepreneur believes that their business is special. You don’t put all that hard work and capital into something without believing that. Customers are not as invested in your business’ mythology. They need to feel as if doing business with you is like daylight robbery, they need to walk away feeling that whatever price you charge for your products, what they are getting is so unique, so special, so valuable, that they are getting the better end of the deal. Without a compelling value proposition, your relationship with your customers will be transactional at best. Yet, most entrepreneurs cannot state what their value proposition is, because they are so caught up in their emotional investment in their business that they forget their customer. Without identifying a value proposition, you will not be able to make the right decision regarding franchising, or know how to build on your value proposition.
You see, the reality is that even though competition is great for consumers, leading to lower prices and a wider variety of goods and services, competition is anathema to businesses. Competition removes a company’s pricing power, because competitors are forced to drive down prices in response to lower prices from you or other competitors. Competition means you can;t invest in research & development, because you have to dedicate resources to keeping your customers, customers who are all-too-ready to leave for the next business. When you have a compelling value proposition, customers feel that they can tolerate higher prices because what they’re getting is so good. The great businesses are necessarily businesses with little competition. When you engage in a business in which you can expect severe competition, then you can kiss goodbye to your ability to earn economic profits. Restaurants, for instance, are savagely competitive businesses. They are also generally either unprofitable or businesses with thin margins. Even restaurants with top chefs and backed by the biggest celebrities can fail. Competition kills. You need to know your value proposition.
Product and price are the usual differentiators, and the ultimate differentiator is a quality product at a low price. Understand what your customers gain from doing business with you. Superior customer service is another element that is a great force of gravity drawing customers. Whatever your value proposition, you need to identify it and build upon it.
What’s Your Story?
A business is more than the sum of its legal documents and financial transactions; it’s also a story. Through your business’ name, logo, customer positioning and value proposition, your business tells a story.
Your company’s story is even more important now than ever. Millennials and Gen Z consumers want to have relationships with businesses whose values, mission and story align with their values. One survey showed that 83% of millennials want to do business with brands that align with their values. Your values, mission and story are important and they will determine if you can capture millennials and Gen Z customers. By 2025, millennials will account for 75% of the labor force and will therefore be the most important demographic for your many businesses. What’s your story and does it align with their values?
Is Your Brand Replicable?
Your business may be a great business, but that does not mean that it has a replicable business model. You have to ask yourself just how replicable your business model is. This is a very difficult question to answer, because it has both objective and subjective elements. Yet, it is a crucial question to answer. You need to understand how much of the business is reliant on you, or special conditions where the business is located, and what part of the business is a replicable system. A robust system is one which does not rely for its success on the personalities and talents of its founders. For example, McDonald’s is a great brand, but the franchises do not need geniuses to run them. The system, the business model, can be translated across different jurisdictions and demographics without losing its power. You have to protect your business and part of this involves taking cold, objective decisions. The subjective elements of decision-making make answering questions like these very hard. However, if you do not answer them truthfully, you will endanger your business. Success begins with honesty.