Strategic franchise planning is critical, especially these days. It takes a lot more to succeed in franchising besides an FDD, a franchise operations manual, an invoice and a handshake. This how to franchise a business series by an MBA franchise attorney who doesn’t just talk the talk, but has actually walked the walk, continues below with this important topic.
Copyright 1982-2012, Kevin B. Murphy, B.S., M.B.A., J.D. – all rights reserved
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 solid strategic planning, developed and refined over several months. Especially in the franchise industry, if you don’t differentiate your franchise program and plan for success, you set yourself up for failure. What is called for is not a traditional business plan, a rather thick document that normally does nothing but collect dust in the dark drawer of someone’s desk. More important than a business plan is a strategic plan – a vision of the franchise program together with a limited number of concrete action steps.
The recommended franchise industry best practice approach is to integrate management training with strategic planning. Management is first trained in how to structure and staff the various functions in the new franchise company, how to determine franchise profile requirements, market and sell franchises, etc. Then, the training is carried forward as the franchise relationship is planned and structured.
The long-term goal of any franchise program 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 based on first-hand knowledge of how franchise relationships work; and
(7) considering and answering a myriad of strategic issues: defining protected territories, initial franchise fees, ongoing royalty payments, structure and implementation of a network marketing fund, the ongoing support function, etc., etc.
What should emerge from this detailed analysis and training 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 marketing problems, or, even worse, land mines that are franchise lawsuits waiting to happen. Often this is because they only utilize the services of a franchise consulting group or law firm, where little or no attention is paid to critical strategic franchise planning, operational and organizational issues.
Reasons why there’s no Strategic Franchise Planning
Usually it’s because attorneys – even franchise attorneys – are not versed in nor have they ever done strategic planning; they just handle the legal docs. If only the legal, but not the strategic business aspects of franchising and franchise relationships are addressed, it’s like a car engine running on less than half its cylinders – things will be very “rough,” and you won’t get very far. Compounding the problem, most attorneys tend to write overly complex, lengthy and very one-sided franchise contracts that end up being either franchise marketing problems in the short-run or sew the seeds for future problems in the franchise relationship. Undoubtedly, this is a built in form of job security – you’ll definitely need their legal services down the road – but makes no sense. Franchise consultants, on the other hand, are not licensed attorneys, and don’t engage in real strategic planning either. They only produce (what turns out to be) boilerplate stuff where all instances of “hamburgers” are searched and replaced with “tax returns.” Getting strategic planning from a professional, who also owned a successful, win-win franchise will focus the planning on areas totally ignored by others – attorneys and consultants alike.
Think about it, and let’s assume a best-case scenario. You hire a well-respected law firm that has a sizable franchise and distribution law department. Sound’s good, right? Actually, the answer is . . . not so good, and here’s why. Even assuming you deal directly with the top franchise attorney (and you won’t, you will end up with a very junior, Junior) – the top guy’s not going to do it. Junior may do a brief review, but almost all work ends up on the shoulders of the lowly Paralegal.
Even assuming the top attorney writes every word, which will never, ever happen, believe me, has he or she ever owned a franchise before? Do they have an MBA? Have they qualified and testified as a franchise expert, ever? The answers will be a resounding “NO.” Without these credentials, it’s a vacuum, and sound strategic decisions cannot be made in a vacuum; it just isn’t going to happen.
I’ve reviewed a lot of franchise documents prepared by some of the best firms out there. There is no strategic planning; it’s all just boilerplate. Which is why most reputable firms will recommend you also hire a franchise consultant because consulting and planning . . . it’s just not what attorneys are trained to do or have ever done. Franchise consultants have their own skeletons in the closet, but that’s another story. What’s sad is this lack of planning produces a very, very mediocre franchise program. Even worse, and especially in today’s economy, it lays the seeds for very difficult marketing (best case) or even failure.
Example of how not to plan
Let’s consider a very 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 should have never happened. The attorney probably said “hey, that’s a catchy name.” Even worse, it’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 number jumped to 33 in 2008 and 37 in 2009; company-owned locations went from 3 to 7. 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.
This how to franchise a business series continues with Phase 2 – Franchise Documentation.