Do Business Well

When assessing the viability of an existing business for franchising, several critical factors should be considered, for example:

• Does the business operate in a large and growing market? Market demand must be sufficient to sustain a franchised network, or even more than one franchise, since competition will inevitably enter the marketplace.
• A large market will also contribute to promising margins, making it an attractive business opportunity for prospective franchisees. Also, the market must provide room for growth, for the benefit of the franchisee and franchisor.
• Can growth be sustained? The market must have the potential to grow for a long period since the franchisee usually signs a long-term contract and the franchisor has to build a solid infrastructure to support the franchised network. For this reason, fads are not franchiseable.
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• Are the attainable margins sufficient? The franchisee must be able to obtain a return on investment over a reasonable period, pay himself a fair salary and be able to afford the monthly management services fee and other fees he will be exptected to pay over to the franchisor.
• The franchisor, too, will incur costs and will invest capital to develop the required infrastructure. Unless both parties can achieve adequate returns, the business is not franchiseable.
• Can the product or service demand a price premium? Consumers must be willing to pay a price premium in return for added value, for example exceptional service. Product categories that are caught in price wars do not franchise well.
• Is the franchisor adequately funded? The franchisor will need capital in order to pilot the concept, develop the franchise package and build the necessary infrastructure.
• The first few stages of franchising are capital intensive and the franchisor must be financially stable to survive the initial period when losses from franchise operations will be the order of the day.
• n Does the potential exist to establish a memorable brand? The great franchises of the world are recognised as great brands. Think about Kentucky Fried Chicken and McDonald’s.
• The criteria for building a brand include uniqueness and the ability to cultivate loyalty among consumers. A good brand is easily recognisable and pronounced, so that consumers will remember it.
• Is there a substantial barrier to entry? Uniqueness is one of the prerequisites, as a concept that is easily copied will battle to gain the competitive advantage required for success. Offering advantages to the consumer that other brands cannot or will not match may raise the barrier to entry.
• An example would be tyre fitment centres. They are highly price competitive but by offering extended hours or a mobile service, an operator in this category will be able to differentiate himself.
• Is it possible to grow a franchise culture? A franchise culture would be open and learning orientated, flexible and supportive by nature. When an organisation chooses to go the franchise route, it must be fully committed to the creation of a win-win situation and willing to treat its franchisees as partners in the business rather than as glorified employees.

A professional franchisor has a long-term commitment to the success of the concept. This includes having a vision for the future of the concept and a strategy for continued success. The franchisor must practice the highest business ethics, especially since his franchisees trust him with a sizeable investment. Large corporations have a reputation for being bad franchisors, since they generally find it difficult to accommodate the entrepreneurial spirit and way of thinking. When a corporation decides to franchise, it is important that it realises that franchisees are not the same as branch managers and must be treated differently.

Franchisees need guidance and support in a flexible environment. In other words, they need leadership, not dictatorship.

Possibly related posts: (automatically generated)
Is the business franchiseable? Some critical success factors

• Franchising Disadvantages Part 1
• Is a franchise the optimal solution? From the prospective franchisor's viewpoint
• Relationship Franchise Agreement - Operations Manual
• Selling the Franchise
• Modern-day Franchising Part 3
• Some Franchise Terminology
• Preparations for franchising
• Business format franchise
• Modern-day Franchising Part 2
• Is a franchise the optimal solution? From the prospective franchisee's viewpoint

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