The Franchise Modeling Process: When Are We Ready To Develop?
Olympia Fields, IL – I am very blessed to be able to review scores of new potential franchisors and their various business models every year. Regardless of the endless challenges in our world economy, the creative forces of the human spirit continue to inspire both brand new ideas and derivatives of older concepts that are no less than brilliant in their business systems and franchise opportunities.
One area of much concern is, even if a potential franchisor has a proven and profitable system worthy of franchising, is their existing store unit or other given unit structure indicative of what they are selling to their first franchisees? Many of the most profitable business models were “boot-strapped” from the ground up, and wound up in store spaces or offices that are not worthy of the “model store” or “model structure” that a given franchisor wishes to develop.
This inspires many brilliant business models that have all of the relevant tools in place to franchise their system to delay their expansion in favor of building at least one, and many times many more company-owned units prior to expanding their business. In effect, they are temporarily stalling their franchise development in favor of having a more “visible” platform to sell. In some cases, this may be the correct thought process, such as when there is more than enough adequate capital to rapidly build more company units without losing significant “market-momentum”. However, in more than half the prospective franchisors that I see, this is a tremendous mistake. What the new franchisor is essentially doing is taking capital that needs to be used to properly put the franchise system together, and perfecting the model’s “physical structure” in lieu of taking the profitable system to market quickly.
We live in a modern architectural age for retail and office store design. For example, several of our vendors in the realm of store architecture, financing, and related logistics can literally create a turn-key perfected model, lease it back to a new franchisee over seven or eight years, and illustrate the end result using the newest computer design tools so accurately that putting money and energy into fully developed company-owned units is just a paralyzing waste of time. “Time-to-Market” is crucial, and so is ethically demonstrating the end result of a finished unit to a franchisee buyer. However, wasting a new franchisor’s development resources in perfecting the initial company stores by actually creating additional physical locations can be an expensive mistake. There are cases where adding more company units first is necessary, such as specific medical models and some unique service franchises. But in spite of the illustrative benefits of our digital age, I am still asked by almost 100% of my clients “Don’t we need to put in at least two more units before we can sell this as a franchise?” It can take a considerable amount of analyses to answer the question in some cases. Most of the time, spending resources on more real estate is the wrong focus.
Selling the first five units of almost any franchise model is the hardest part of entering the market for most new franchisors. There are few things more valuable than the trust our initial franchise buyers are putting in us when they agree to buy into a system that is working well as a stand-alone operation, but is yet unproven as a successful multi-location franchise. Although this challenge DOES get easier when you have two or three “model” stores with some kind of proven track record, you must ask yourself the fundamental questions prior to going down that path; Are my resources better spent on creating more operating structures myself? Or should I use the tools available to illustrate the contents approved for new units, and invest in expansion of my profitable model earlier in the cycle? As technology takes over the business universe, most of us have become more comfortable with understanding what we are buying or investing in by visualizing digital data and form.
For most successful business systems in the modern day, being able to prove the benefits of your reliable system and the support provided therein is much more important than having the perfect model store firmly in place. However, every business needs to consider this question individually. Take the time to strategically analyze the benefits of both options by doing a complete S.W.O.T. analyses (Strengths, Weaknesses, Opportunities, and Threats) of delaying your “Time-to-Market” before making the leap in either direction.
Interested in learning more about franchising and/or how to franchise your business? Visit http://www.francorp.com to download the free e-book and take the franchise quiz today! For more immediate assistance call 800-FRANCHISE (800-372-6244) to speak directly with a franchise analyst to learn more about taking your business the next level and beyond.