Franchise Foundations

Assuming the business is franchise-able as determined by a franchise feasibility analysis (see the Franchise Feasibility page of this website), a successful franchise development program begins with a solid strategic plan - a foundation for franchising - developed and refined over several months. Especially in the franchise industry, if you don't plan for success, you set yourself up for failure. The long-term goal is to establish balanced, integrated, successful franchise relationships with qualified individuals who support your company's goals and image. Creating enduring franchise relationships requires a comprehensive strategy and vision that addresses all aspects of the franchise development endeavor. The starting point is a detailed analysis that covers:

(1) identifying profile characteristics of who will be the best franchise owners for your type of business;

(2) competitive and image positioning to make your franchise stand out from the other 3,000+ franchise companies that populate the industry;

(3) geographic scope - where and when will franchises be sold initially;

(4) analysis of your company's strengths and weaknesses relative to franchising, so compensating adjustments can be made;

(5) identifying the appropriate organizational structure as well as staffing requirements, duties and responsibilities;

(6) structuring the franchise relationship for a balanced, win-win scenario; and

(7) considering and answering a myriad of strategic issues: how are protected territories defined, what are the initial franchise fees and ongoing royalty payments, how is the network marketing fund structured and implemented, how and when will ongoing support be provided, what happens if the franchise owner becomes sick or disabled, wants to sell or decides to leave the system, etc., etc.

What should emerge from this detailed analysis is a comprehensive strategic plan and framework for guiding virtually all franchise efforts and emerging franchise departments. Franchising vs. licensing issues must be addressed and decided. A 70% - 30% approach is best: 70% of the time should be devoted to strategic planning and 30% to drafting the franchise documentation. This approach will pay handsome future dividends.

Despite the long-term importance of the strategic franchise planning process, too many emerging franchise companies enter the franchise industry with no plan or strategic franchise planning - other than let’s try and sell a lot of franchises. They rush through (or entirely neglect) the strategic franchise planning process, thereby creating future land mines that are franchise lawsuits waiting to happen. Often this is because they only utilize the services of a consulting or legal firm, where little or no attention is paid to critical strategic franchise planning, operational and organizational issues. Normally, these firms draft a boilerplate franchise disclosure document based on a questionnaire completed by their client, who is presumed to make all strategic decisions. The legal documents (franchise disclosure document, franchise agreements, etc.) are presented, along with an invoice and a handshake - hardly the ingredients for success in the new business of franchising. And, especially in today's economic climate.

As a simple example of how NOT to plan, consider the Wholly Crap pet waste removal service. Per Entrepreneur Magazine's website and records, the company completed its franchise development program and started franchising in 2003 after it's single company-owned prototype opened in 2002. They haven't sold a single franchise as of January, 2007. Hardly a name or image a prospective franchise buyer wants to associate with. It's a classic "Franchise 101" strategic franchise planning mistake that's never been corrected Yet other franchised pet waste removal companies have done well, scooping up the profits, so to speak.

DoodyCalls started franchising in 2004 and by 2006 had 13 franchises. That jumped to 33 in 2008 Pet Butler, another franchised competitor, combines waste removal with dog walking and pet sitting. Having the better name and image, combined with a more diversified business, were advantages that carried over to the franchise program. According to the company’s website, they are #1 in the #2 business. Franchising started in 2005 and the year ended with 4 franchises. By 2006, the network mushroomed to 50 franchises. In 2008, total franchises hit 132.

Being Number One Carries Long-Term Advantages
McDonalds is the dominant player in the burger wars and literally owns key ideas and words in the consumer's mind. Words like "fast" and "kids" for example. For the number two or number three player, it is suicidal to try and compete with the Mighty Mac head on and try to convince the consumer they are faster or more kid friendly. So what can Burger King or Wendys do? Let the Mac have the kids and position their chain as the place where grown ups gather to consume burgers and fries. It won't totally give up the kids market. Many kids want to be perceived as grown ups and vice versa. It's a similar reverse strategy that Pepsi used to successfully compete against Coke, positioning itself as the choice of a younger generation implying Coke was for older people.

Imitation - the Sincerest Form of Flattery
The world is a big place. Being first in one continent doesn't prevent a copycat from "borrowing" a good franchise concept and launching it as a "first" in another continent.

One such person borrowed Domino's home delivery concept. Branding it TelePizza, he became the first home delivery pizza in Madrid. Fast forward ten years later, the TelePizza chain is going strong with 600 locations in almost ten countries. The original $80,000 investment has mushroomed to almost $2 billion.

This how to franchise a business series continues with Phase 2 - Franchise Documentation