I've long believed that franchising, done well, is an excellent way to scale a successful business.
By replicating a small, self-contained part of the business and
delegating its management on a performance related basis you can keep
the centre lean, avoiding the increasing bureaucracy of growing a single
business ever larger.
Franchising is a flywheel for expansion. Once you get it going,
it's possible to open several, even many branches per year, even to go
international, at low capital cost. New franchisees invest in setting up
branches, banks are happy to finance a proven, profitable business.
But that flywheel is very hard to get going.
Creating or turning an existing business into something that can
be franchised successfully, takes time - at least two years - plus
effort and deep pockets.
You have to:
Make sure the original business is extraordinarily profitable -
you're going to give most of the profit to the franchisee - the
delegated manager of a branch, so there needs to be enough for them to
make a decent living and for you to make a return on your investment.
Capture exactly what it is that makes the original business distinctive enough to command a premium - the source of your extraordinary profit.
Make sure there is a big enough market to make the investment worthwhile -
being successful where you are doesn't necessarily mean there will be
enough potential customers everywhere. At the same time, 'big enough'
doesn't mean 'everyone'.
Make sure you can protect your customer base by continuing to improve the customer experience -
its fine for your customers to try a competitor, just make sure they
always come back to you for what nobody else can give them.
Make
sure there is a big enough pool of people, willing, able and properly
motivated to take the responsibility of being an Outsourced Manager for
your new branches - there
will be plenty of people who are willing, and you can train most people
to be able, what matters is that they are properly motivated.
Document the customer experience that generates that extraordinary profit -
so that someone who is not you can replicate it. This isn't the mere
mechanics of what the business does, it's the whole shebang of what the
business does to make its customers come back time and again for more
recommending friends and family as they do.
Document the franchisee experience that will keep them happily generating extraordinary profit on your behalf -
as a franchisor your customers are your franchisees. You need to offer
them an experience that is at least as compelling as that you expect
them to give customers.
Protect the intellectual property behind all this effectively, but fairly, through trademarks and franchise agreements - because once someone with deeper pockets spots your brilliant idea, they'll try and copy it.
Test your documentation on a real, live guinea-pig - you already know the business idea works. You don't yet know whether someone other than you can replicate that success.
At the beginning of all this, it can feel like the flywheel is
hardly moving, even going backwards. You have to use your own money,
because at this stage the franchise is unproven, and banks won't lend to
franchisees, although if you're lucky and have other assets they might
lend to you.
But getting this stage of franchising right is crucial to success.
If your business is not extraordinarily profitable and able to
prove that, you'll struggle to attract good potential franchisees and
you'll struggle to cashflow initial growth.
If your customer experience is not distinctive enough, if you
don't engender loyalty in your clientele, you won't be able to generate
extraordinary profits, and you won't be able to protect yourself from
being copied.
If there isn't a big enough market it will be hard to get a return on your investment.
As you work through this process you'll find that momentum slowly
builds, until that flywheel is well and truly running so fast you'd find
it hard to stop it.
Franchising is a brilliant way to scale a successful business.
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