Franchise Foundations - How To Franchise

Franchise Feasibility
My three decades of experience in the franchise industry as a franchise expert, MBA, franchise attorney and successful franchise owner gives me unique insights into doing a franchise feasibility study. Most companies leap into franchising without doing one, or if a feasibility analysis is performed, it is by a franchise consultant who tells all clients the good news: they are all franchise-able. This, not surprisingly, is a big red flag.

Same goes for feasibility studies done by attorneys. They are not trained to do these, are not franchise experts, nor do they have MBA's or former franchise ownership experience. The most critical section of a franchise feasibility analysis is the business factors. Unfortunately this is also the area where attorneys are the weakest.

It is important to find out a few things before engaging anyone to do a franchise feasibility analysis:

(1) how many feasibility studies has the expert done;
(2) are they truly a franchise expert; (see the checklist at Evaluating Franchise Attorneys and Franchise Consultants)
(3) over what period of time; and
(4) what percentage of the clients were told they were franchise-able.

An objective franchise feasibility analysis by a recognized expert will highlight the strengths and weaknesses of the underlying business model. From the perspective of the expert, has the model been proven sufficiently in the market? How profitable are operations? Is there enough profit in the business model so that royalty and other payments can be deduced and still leave the franchise owner a sufficient profit margin? Can the business be taught to someone else, usually a person with no experience in the industry?A franchise feasibility study will rank and grade the company on a variety of these and other factors.

Franchising a business will not solve problems in existing business metrics. It will only make these problems even worse. Franchising should not be viewed as a method to raise capital, expand a business that has existing problems, or a way to get rich quickly.

Consider Frosty Paws, one of many hopeful, specialized retail concepts. Trying to tag along with others like Toys R Us, party stores and dog-sitting clean-up companies that have done well, Frosty Paws believed it would become the Baskin Robbins of ice cream for . . . dogs. On top of this, it wasn't even real ice cream. The initial ads declared "It's not ice cream, but your dog will think it is." Frosty Paws may have been the first ice cream for dogs, but being first with a stupid idea is just plain stupid. And stupid ideas are not the foundation for any franchise program.

An objective franchise feasibility analysis will also document what steps, protective measures and documents need to precede the expansion effort. Many of these can (and should) be done in-house by existing personnel. This will result in the most efficient use of time and resources. It will also produce the most professional and user-friendly results.

Pre-Franchising Steps - Continued
By taking the other steps to franchise outlined below, a company can increase the efficiency of existing operations, which immediately adds value to the firm. This more than justifies the investment of time and money, whether a company ultimately franchises or not. If the company moves into a franchise development expansion program, these steps will already be done, resulting in significant savings in money as well as the time required to complete the development project. Some of the important pre-franchise steps are :

(1) Drafting an operations manual that can be fine-tuned and ultimately become the franchise operations manual. We have a unique three-step program for helping a company write its own operations manual.

(2) Developing a training program curriculum for training a manager (or franchise owner) in the specifics of opening and closing procedures, human resource management, business operating procedures, customer relations, quality control and other topics.

(3) Taking steps to protect the brand, logo and tag lines as registered trademarks and service marks. Although use of these marks establish common law rights, registration of the marks confers a much higher level of protection. The best registration is at the federal level through the U.S. Patent and Trademark Office. A federal registration creates rights that apply throughout every state in the United States.

(4) Protecting other intellectual property (proprietary) assets like recipes, customer lists, business operating methods, etc.

FRANCHISING - DIVERSIFICATION: ENTERING A NEW BUSINESS
As a prelude to strategic franchise planning (phase one of a franchise development program), a company that franchises must realize it is entering a new business, offering an entirely different service (training & support) to an entirely new group of customers (business owner-operators). This new business strategy, called diversification, requires different skills, abilities and expertise.

In the new business of franchising, it is critical to develop evaluation, documentation, training, mentoring and consulting skills, all within an ongoing, long term franchise relationship. Because these new skill sets are rarely present within existing personnel, outside experts are needed to train existing personnel and plan the transition. Like a football team, a franchise organization is made up of people who must be properly organized and trained to be effective.

Because it is highly adaptive, a functional franchise organizational structure is appropriate in many cases. These and other issues involve strategic planning to create a "blueprint" for successful expansion efforts. Experience shows that, just like a building, the foundation developed at the beginning will create lasting consequences affecting the relative success (or failure) of the entire venture.

This how to franchise a business series continues with Phase One - Strategic Franchise Planning