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Top 10 thinks to LOOK for in a franchise system

Nathan Hudson, Senior Consultant, DC Strategy

Australia has over 1,000 franchise systems, making it one of the most heavily franchised countries in the world. Whilst you could say we are somewhat spoilt for choice, there are many distinguishing features which separate the strong franchise systems from the pack.

1. Associated Risk

Before comparing franchise systems, potential franchisees must first assess their own risk profile, as this will partly determine the system which best suits them.

Risk averse individuals should seek an established brand with a proven track record of success. This comes with a heftier price tag, but a better chance of success.

Franchisees open to higher risk should investigate growing brands in growing industries. This will possibly mean a more immature business, but it must still have a good system. The safety blanket for success is not as warming, but the rewards can be substantial to compensate for the greater risk.

Look for a franchise system that best matches your risk profile and then ensure the franchisor understands your concerns and expectations. They should talk in depth about how the business is planning to expand and how it will be supported.

2. Strong Operating System

Good franchise networks have a differentiated and defined system of operation. This will define how the product is developed, through to how it is delivered. Ask yourself: What makes me want to buy into this business?

One reason is likely to be that you are chasing a recipe for success. The last thing you want is a recipe that contains ambiguous instructions so your pavlova turns into pumpkin soup. Clearly defined processes are crucial to ensure the service and product offering is consistent. Franchising is a successful business growth strategy because products and systems can be replicated from store to store, allowing the customer to know exactly what to expect, regardless of location. But good systems go far deeper than making and delivering the product, they walk you through the challenging aspects of business, such as managing suppliers, recruiting staff and handling customer complaints. The beauty of a good system is that it defines common activities and addresses unique scenarios to produce a highly valuable cheat sheet (otherwise known as the Operations Manual).

3. Competitive Advantage

The perceived value of the franchisor’s offering must be strong enough to encourage customers to purchase the product over any competitors. There is no point getting involved in a business where you do not believe in the value of the offering. Being passionate about your business comes from the unconditional belief that your offering is superior. This may be the taste of the food, the speed of service, the experience or the price. The Cupcake Bakery is growing rapidly in Australia on the back of a unique product and position in the market. Franchise enquiries are through the roof, thanks to the proven system and brand values. Its growth has also been helped by a carefully targeted franchisee recruitment strategy using the skills of recruitment specialist; Franchise Selection.

4. Happy Franchisees

Prospective franchisees must get a thorough understanding of the business during the recruitment process. In fact, all of the important things to look out for in franchise networks must be addressed during the initial meetings. If the franchisor is transparent and encourages you to meet other franchisees in the network, it shows confidence in the business and the satisfaction of current franchisees. It is imperative to talk with current franchisees to gather an insight into day to day operations and the challenges faced. Happy franchisees who are making money will talk about the business in a positive light. Sound franchise networks have structured recruitment processes and as a result attract and sign higher quality franchisees. Carefully note the personalities of franchisees in the network; do you share similar qualities?

5. Thorough Training Procedures

The structure of initial training is often a good indicator of the network’s professionalism and the support a franchisor will provide. Initial training can be conducted in several ways, but one of the most effective methods is to have training administered in the highest performing stores. This is so you can learn the processes and behaviours required to succeed. Hairhouse Warehouse follows this methodology for new franchisees with great success.

A longer training period reflects a network that is focused on maintaining consistent operations and ensuring franchisees are operating effectively. Several weeks of training are necessary to understand the inner workings of the franchise. A poor training programme will almost certainly produce poor results and under-performing or disgruntled franchisees.

6. Sound Financial Performance

The financial performance of current franchisees in the network should be evident from your discussions with them. How happy they are will be a good indicator of their store’s performance.

Good franchisors should communicate how all sites are performing. Not providing prospective franchisees with accurate schedules of past performance suggests the network is hiding something or not capable of generating quality reports. Both of these elements are not the ideal way to begin a long term working relationship.

The disclosure document will reveal important information about the franchisor, so make sure you read this carefully and seek qualified advice. A franchisor that is not transparent is likely to be focused on short term profitability and not the long term welfare of the network. A financial model should always be provided during the recruitment process – be thorough when developing your own model and don’t be afraid of questioning all areas. The franchisor should be undertaking stringent tests to ensure the franchisee is the right fit. The reverse also applies and prospective franchisees should scrutinise the franchisor and any data provided.

7. Desirable Lifestyle

Prospective franchisees must understand their role in the business and ensure it matches their lifestyle expectations. There are many franchise opportunities and each has different levels of involvement. Whether it is mowing lawns, serving sushi, cleaning carpets or waxing legs, ensure you outline your desired involvement and that it aligns with your personal goals.

Review the business closely to assess whether you have the best chance of growing it. Is the franchisor open to innovation? McDonald’s would be without many of its signature items if it wasn’t for being open to franchisee innovations. Do you have the desire to operate multiple units and is this a viable option for the franchise you are looking at? Gym franchises like Anytime Fitness allow suitable franchisees the option to own multiple sites and further increase their wealth. Although this is not for everyone, opportunities are ripe for the taking if you have what it takes.

Look for a franchisor that is willing to discuss your future desires.

8. Quality Support Structure

The quality of the franchisor’s field support managers is crucial to the how well the network operates. Good Area Managers should be visiting frequently and providing advice. A head office that is under staffed will not provide adequate support. Ensure you verify who currently works in head office, their roles and how it is expected to scale to support the growing network.

A franchisor that has not planned how they will support the network may be forced to settle for under-performing sites, disgruntled franchisees and inconsistent offerings. For example, if a franchisee trials a new product that increases sales, this should be communicated to the entire network. If there are insufficient resources and support, franchisees will act independently and ultimately threaten the brand’s consistency. Annual conferences are an ideal way to communicate ideas and meet other franchisees. If the franchisor does not hold any form of conference or training events, there is a good chance they are under supporting the network.

9. Strong Brand

Although accompanied by a heftier price tag, the value of a strong franchise brand is very appealing. Buying into well-known brands like McDonald’s, Subway or Boost means brand recognition already exists. It also means that both past and current franchisees, as well as the franchisor, have already invested significantly in marketing. This works in your favour, as essentially a customer base is already inherited. Despite a strong brand being a good indication of a sound franchise system, the investment required means not everyone is capable of buying into the system. This is why the level of investment should only be one of several metrics used to evaluate the franchise.

10. Sought Specialist Advice

You should be wary of a franchisor who has developed the franchise system themselves. This is not to say it can’t be done, but more times than not some key elements may be omitted.

People who are serious about growing their business engage specialist franchise advisors who can assist in the best practice development of the system. Check the track record of the franchisor’s chosen advisors, they will typically have the brands they have worked with plastered across their website.

Properly developing the financial viability, commercial requirements, recruitment strategy, operational support and online strategy are crucial and are best developed with a specialist advisor. For example, a pertinent issue in franchising is the use of the internet and social media. Developing an online strategy which both meets the objectives of the franchisor, and considers the expanding franchise network is critical. It is important to discuss how internet sales will be distributed (if at all) and the social media strategy. The online space has given consumers a wide-spread voice and it is therefore a powerful, but potentially harmful tool.

A franchisor who has considered the online implications of their strategy is clearly thinking about the future of the business and the impact on franchisees.

Do your homework

The most important thing for prospective franchisees is to undertake vigorous industry research and ask the franchisor questions relating to all of the key success factors discussed above. Be convinced the investment is the right one for you and that you can control your own destiny, taking advantage of the proverbial helping hand guiding your direction.

Nathan Hudson is a Senior Consultant in the Melbourne team at DC Strategy. He has an Honours degree in Business and over five years’ experience developing business models and strategies throughout the retail and services industries.

DC Strategy is widely recognised as the regions premier franchise consulting and legal firm. Their people have helped create the franchise systems and documentation for many of Australia’s leading franchise networks and have assisted franchise networks to expand internationally.

Contact Nathan at:

Phone: 03 8615 7202
Email: Nathan.hudson@dcstrategy.com
Web: www.dcstrategy.com

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