Articles by Day: January 11, 2019
The franchising business model has grown in popularity over the years. From 1983 to 1993 the number of franchisors, i.e. companies that sell licenses or rights to third parties that enables them to operate under a trademark or a brand name, grew in numbers from 1,887 to 2,900 in the U.S. alone. This has created an increased employment rate of 56% (from 5.6 million to 8 million). In other words, a franchising business model has proven to be an efficient and successful concept even today.
However, a franchisor cannot guarantee the success of their franchise any more than a personal fitness trainer can guarantee positive results for their clients. As a matter of fact, a franchisor can provide proper help and support but ultimately it’s up to the franchise owners to ensure their business success. In addition, the success rate of the franchises depends mostly on the franchise system a franchisor has implemented. That being said, here are a few of the best predictors of a franchisor’s success.
As you may already know, a franchise is an already developed business model supported by a trademark or brand. Franchisor companies leverage this method, in order to expand their business to other locations and other markets to distribute their goods or services through licensing agreements with entrepreneurs who will work under their brand’s name. However, selecting candidates for a franchise business is a difficult task that cannot be accomplished without a well-developed plan.
The first step is to create a disclosure document known as the Uniform Franchise Offering Circular (UFOC) or simply the Franchise Disclosure Document (FDD). This document helps outline a franchising business plan, as well as select the right candidates for the franchise owners. For instance, here are a few elements that should be included in this document:
- Detailed information about the franchisor’s business, identity and background of their principals.
- The fees franchisors are obligated to pay.
- The terms and conditions of running a franchise
- Franchisor support, such as training, operating plans, marketing strategies etc.
The franchisor’s system survival success largely depends on their expansion strategy and their willingness to share knowledge with their newly-formed franchise businesses. However, being able to compete against other businesses is also a major factor for franchisor’s success in the market. Therefore, a few of the major predictors of success are a franchisor’s ability to properly identify disruptive or competitive threats and develop a strategy that will protect the brand against them. Also, a franchisor’s ability to create a unique business model, which competitors won’t be able to copy.
In addition, a franchisor’s ability to ensure that their products, services, unique proposition, delivery methods and other factors will have value even in the future. Moreover, the ability of a franchisor to ensure that their franchises have the resources required to compete against their competitors on the market. That being said, proper competitive analysis and strategy are crucial predictors of franchisor’s success.
A franchisor has already established their brand name and presence. The reputation of that brand has a major influence on the market, on the customers and most importantly on other franchises. If a franchisor’s brand reputation isn’t favorable, their franchises will suffer the consequences of that reputation, as well as vice versa. Therefore, it’s crucial for success that franchisor’s work on improving their brand reputation by improving their brand identity and also improving their brand image.
The way customers perceive a franchisor’s brand and the emotional connection they establish with that brand is a key factor in success. That’s why many franchisors implement strategies that will help their franchises have a positive impact on the local economy, as well as a local community. Regardless o the fact that each franchise shares the reputation with the franchisor, it’s still important for individual franchises to have a positive reputation of their own.
One of the most important predictors of success is the franchisor/franchisee relationship. This predictor mostly depends on a franchisor’s leadership and their ability to inspire franchises to follow. Even though franchises are legally bound by a contract to follow specific rules and strategies outlined in the franchisor’s business plan, it doesn’t mean that they’ll do it right or that it will guarantee their success. That’s why it’s up to the franchisor to take the initiative and encourage their franchises to stick to the proven strategies. That includes a few key elements.
- A franchisor’s ability to consult franchises on a potential opportunity.
- Leveraging leadership skills to convince franchises that a potential opportunity is in fact worthwhile.
- Creating a leadership and management teams that will capitalize on new opportunities, as well as scale properly.
- Helping franchises establish a good presence in their local markets by providing counsel and resources.
If franchises cannot rely on or see the value in franchisor’s decisions, then the entire system is in jeopardy and at high risk of failure.
Just like any other business model, franchising has no secret recipe that will guarantee its success. However, franchisors carry a lot of responsibility for their franchises and they must guide them properly, in order to ensure that the system will not only function but also succeed in the long-run.