The world doesn't need another franchise, but there is always room for another good one. This is what John Von Aiken, one of the most sought-after sales professionals who has advised IBM, Procter & Gamble, Microsoft, Philips, Motorola, ABB, Reebok and dozens of other leading companies in the world and in our country, believes. The only question is how to create such a franchise. We answer point by point.
Why do you want to transfer your business to a franchising model?
Many companies, creating a franchise program, think that it is enough to open a special department and recruit people there. This is not true. Your franchisees are not only your profit, but also your responsibility. And at first it will take a lot of effort from you, and you must understand that franchising is not just some kind of initiative. This is a new lifestyle for your company. And before you get to it, you need to understand that you know why you want to make this commitment.
What do you do that other franchisors do not do? Why would people want to buy this?
Most companies are not very honest in answering the question: "What is special about my products and my services?" They think they are great. They think that if they succeed in one city or one country, then they can easily achieve it in another. And they decide: "All other countries and cities should have it too!" And what they don't catch is that the world doesn't need more clothes or shoes. The world doesn't need another coffee shop or pizzeria. The world needs better quality shoes, unique clothing, a different type of coffee shop, or outstanding service.
If you don’t have anything special, it will be very difficult for you to transfer your business to a franchising model. You must realistically evaluate your products and services - do you have something that could be a turning point in history.
Do you have a proven model?
Here we are talking about the system - how you do what you do successfully. Most franchises are maximally interesting in terms of margin and successful in terms of margin.
And if you come up with a certain system that will really change something in this world, then that's what people will pay for. Not only franchisees, but also buyers.
Entrepreneurs often come to me with the question: “We want to transfer our business to a franchising model, how can we do this?” I ask them: “Do you have a proven success system?” And they answer: “Yes, we have already opened 27 stores.”
I go to these stores and see that they are all different. They are not very organized and in fact resemble a patchwork quilt. This is not a proven system - it's just a mess.
Is your model easy to duplicate?
One may ask in another way: is your model resistant to idiots? Can any person, regardless of intelligence, buy your model and make it work? “John,” they usually answer me, “we will be very careful in selecting franchisees.” Nevertheless, most of the people to whom you will sell your franchise will not be experienced entrepreneurs. Or they won’t understand your industry. The essence of a good franchise is to prevent potential franchisee mistakes. The more complex your leadership, the more confusing your processes, the more difficult it will be to duplicate them. The more difficult it is to duplicate them, the more inconsistent the system, the more inconsistent the franchisee.
Are all your models fixed?
Most franchisors that I see in emerging markets do not provide their franchisees with full documentation. And that which is not fixed on paper is unrealistic. This is the most tedious part of franchising - writing guidelines. But perhaps the most important. When franchisees invest their money in a project, they expect to receive a large stack of documents in response: work procedures, information about your product, processes related to launching a new point, marketing, finance, advertising, selection of real estate, how to carry out repairs in an already purchased room, how to hire people, how to motivate, how to pay them - everything should be spelled out. If you do not, you simply substitute your franchisee.
Have you protected your intellectual property?
Have you given your brands the status of registered trademarks? And not only your brands, not only your products, but also your processes. This is also very important. Some of your franchisees may use your processes to sell them to competitors or create your own company. Without protection, you are very vulnerable.
Have you created a fair agreement?
This is what I understood when working in emerging markets. You should leave a few points in your franchise agreement, where the franchisee will have the opportunity to be flexible. In the US, they will tell you that this is by no means possible, but in emerging markets people will test you for strength. If you do not leave them options for creativity, they will simply violate your standards. And you have a choice: either you help them do it or not. Find at least a few elements where flexibility can be shown, and your franchisees will feel that your offer is fairer.
Have you decided which elements of your contract can become elements of negotiations and which cannot?
Details only. Suppose your contract says that royalties must be paid on the 15 of each month, but for some reason your franchisee wants to pay on the 18 of the month. No problem. Or the standard term of your agreement is five years. And the franchisee offers to conclude a contract for six years. Well, you can live with it. But the key questions - about products, about marketing, about brand use - are not subject to discussion. “But can people turn around and leave?” You say. It is better for someone to leave than the opportunity to lose the trust of the franchisee.
Have you defined a geography and real estate policy?
Typically, in terms of geography, there are three options for an agreement: a franchise for a region or a country, a franchise and a franchise for opening one point.
If we are talking about a franchise for the region, then in this case you are offering the franchisee to become an intermediary and offer franchises for you. A franchise master is an opportunity to become an exclusive representative in a certain territory, usually in a city or region. In emerging markets, especially in large countries, I would only sell master franchises. Because in this case it will be much easier for you to control. I would prefer to have 5-6 franchisees with 10-15 points, than 200 franchisees with one point.
How will you and your franchisees make money?
You must earn a lot of profit in order to use this money for business development. Franchisees must also make money. If they do not make a profit, they will drag you through the courts, which is bad. They will tell everyone that you lied to them, outwitted, manipulated them, they simply cease to pay you or begin to show their creative abilities - to add something at their discretion to the assortment.
There is a third thing - do not try to make money on everything. I have compiled a list of the things on which you can make money in principle: franchise fees (in most cases $ 20-25 thousand), royalties (usually 4-5%), contract renewal fees, advertising, products, resources for production, equipment, loans (you can get interest as an intermediary between the franchisee and the bank or be a lender yourself), market research, real estate search, room design, legal support, software, plastic cards and loyalty programs. You can earn money at any point from this list, but not at all at the same time - this is important.
Who and how will help your franchisees open new outlets?
They need help. If you do not want to be crushed by competitors at the very beginning, if you do not want them to go bankrupt, you must help them get started right - in all aspects. Most franchisors have special procedures for launching a new outlet, but usually they are not as good as they could be. In fact, I believe that the franchisor should carefully consider this issue, especially if we are talking about selling a master franchise to a big city, because in the regions the possibilities for promoting your franchise are simply unlimited. In most cases, opening a new outlet is a big event. You can also use the opening of the store for cross-promotion, attracting local entrepreneurs from another sector, for example, for gifts to the first customers. The main thing - do not underestimate the launch of a new specific point.
Who will train your franchisees and how?
You need a long-term training program. You can use DVD, video training, skype. It is very important to bring franchisees together a couple of times a year, or at least annually, so that they can exchange experiences, and it is important for you to control these processes so that they are not spontaneous. They should feel support from you and other franchisees, so if you do not train them, they will not have enough self-confidence and their strengths, enough skills to build a successful franchise.
What support will you give your franchisees?
Here is my rule: if you do not support them, they will often make mistakes. And every time they make a mistake, the whole franchise as a whole suffers. I am not saying that huge amounts of money should be spent on support, but even regular communication can play a role. Think of it like this: how many-star service are you ready to provide your franchisees? I am not saying that all support will be free of charge for them, some of them will certainly, but some can be provided for money. This is normal. Just remember that many franchisors justify charging a single phrase "We care about you." But you must guarantee them that you are giving them some value.
How will you control your franchisees?
This is a very interesting question. Of course, they must comply with all conditions, especially if you have a good agreement. I repeat once again: a franchise agreement is the most important, because if you leave a hole in it, your franchisee will definitely use it. Therefore, the very beginning of control is a well-written contract. The next point is the right choice for the franchisee.
In fact, the best way to control is the right documents, the right trainings and the right process to launch a new point and the right support process. And regular communication. The longer you manage your franchise, the easier it will be for you to talk to the person on the phone and understand what is wrong with him. The more communication you have, the more control you will get. Communication should be two-way: you say - they are listening, they say - you are listening. Moreover, you need to communicate in real time, the Internet is just an amazing invention. But remember: the essence of a franchise is in a relationship. You cannot build relationships simply by sending emails. You have to drive yourself. A franchisor representative should visit the franchisee as regularly as possible. Many companies will say: “We cannot afford it.” I will answer: "This is because you have a mess with your profit model." But I would also add mystery shopping - so that an independent person visits your point of sale at least once a month, so that I know what you are doing.
Who will manage your franchise business?
You must transfer this part of your business to the person who will actually lead it. Not just to watch its development, not just to organize, you must give part of this business to a person who has a vision, who is ready to be there in the field, ready to go to the franchisee himself if necessary, will attend exhibitions and communicate with companies, working daily . And here is the important thing: part of its payment should depend on the success of the franchised network.
Who is responsible for the development and implementation of the marketing plan?
A marketing plan should have three main elements. Firstly, what is directly related to the franchise is for people to want to buy your franchise. Secondly, marketing efforts to promote brands that you will create or have already created. Thirdly, the attraction of end customers.
Who is responsible for all this? Marketing is very important to entrust this to a person with no experience. Because marketing is at the heart of your company, at least it should be, although, as a rule, this is not the case in most companies.
What is the sales strategy of your franchise?
If you do not ask anyone to buy your offer, nothing will happen. Nothing good. Like in any other business. You need people who will be engaged in direct sales. They will develop and monitor your database. Pick up potential franchisees. Attend the exhibition. And they will constantly look for new contacts. Of course, you should have a website that will help you to replenish the database of contacts.
What is the process of selecting potential franchisees ?.
Here is my list of selection criteria, it’s not quite traditional, because it is designed for emerging markets.
And remember: I try to select the master franchisee. The first criterion: people with money. The second criterion: people who have a lot of money. You do not need a franchisee, which scrape the last penny in order to pay for the franchise. Third criterion: people who have experience in franchising. Perhaps they have already worked with franchising before. People who already have other franchises. People who want to run a business or make more money. And it is important that they have a desire, because desire can justify many flaws. But here you need to be careful, because a person with a great desire, but with a complete lack of managerial experience, can turn into a disaster for you. And finally, the last criterion, especially important for emerging markets: people with connections. Because one of the most important criteria for success in franchising is a well-chosen outlet, and if the franchisee has connections, it will be easier to find it.
How will you resolve your conflicts?
Two comments. The first brings us back to the franchise agreement. If there are no conditions for conflict resolution, then it is resolved on a hunch. And the second tip: if you do your job correctly and successfully answer all the questions that we managed to ask, you will not have so many conflicts.
Summarize. A good franchise is a responsibility. A good franchise is a relationship. A good franchise is a system.
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