Franchising- Is it the best way to scale your business?

 

Scaling your business is a cool thing to talk about.    There are many strategies to scaling-  and today we want to focus on franchising.   Specifically, because one part (of five) of a CFO’s job is infrastructure-  that is, building infrastructure that works for the business- through management, systems, legal, and sales.   To franchise, your processes must be trainable and repeatable.   It is a hard thing to achieve without the right guidance, but many have tried and failed.

Recently we met with a local friend who has a new retail store.  We asked how things were going, he said really good despite the current times, and we asked if he planned to have any additional locations.   The first thing out of his mouth-  yeah, we think we might franchise our brand.

Let’s discuss.

Loads of consultants and coaches have written books upon books about franchising, building repeatable processes, and attempting to copy the McDonald’s model of “a Big Mac in California is a Big Mac in Ohio”.   What a great concept!  But will it work for your brand?

Advantages of Franchising

While not an all-inclusive list, these are the top advantages to franchising your brand as a scaling strategy.

  1. Speed of Growth/Brand Equity. You’ll get to expand to several markets immediately, just by having someone else take the startup costs to plant your brand in their neighborhood.  You can grow as fast as you want, assuming your processes are solidly repeatable.   The brand grows exponentially with exposure everywhere you earn a franchisee.
  2. Capital. You start getting money immediately once a franchisee signs up.   Depending on your franchise agreement, you start earning revenue share immediately.
  3. Motivated management. Your franchisors are motivated by their investment into owning their own shop.   They treat it as their own, unlike a store management in a non-franchised location.

 

Disadvantages

  1. Lack of local identity. Think about it this way; you did well in Cleveland because you opened three stores on the east, west, and downtown.   Your brand thrives because you speak the local language, understand the people, culture, and local politics.   You decide to franchise based on success in Cleveland-  forcing your franchisees to adhere to policies you develop that work in Cleveland-  not Pittsburgh, Chicago, or Birmingham.

I can’t usually go into a chain restaurant and get local wines, beers, and dishes, and I can’t usually go to my chain department stores to get local makers’ goods.

 

  1. You’re in the franchise business. The day you start selling franchises, you no longer sell the thing you did before-  now you sell franchises.  In fact, you now become the “standards police” making sure that each franchisee is doing it the way you laid out in your agreement.
  2. Owners find holes. Instead of having an infrastructure which supports a network of locations, you’ve now got to hope that your “repeatable process” is really repeatable.   You’re dealing with owners-  people who have invested in your brand-  who have likely given up their retirement fund to start your brand in their town.   If you fail them, they’ll let you know, and you can’t just fire them for being insubordinate.   If a store employee or manager fails, they are replaceable, and you’ve still got operations in the location.

 

Analysis

There are more advantages/disadvantages to franchising, and I only have 1,000 words or you’ll doze off.

The point here is that there is a lot to weigh out when scaling with this method.   Yes, you get massive brand equity, but often at the cost of identity and control.   There’s not really a way to guarantee success for your franchisees and their employees, and with little freedom to make local decisions, your franchisees sometimes feel more like employees.

Don’t get me wrong, there are advantages if you’re a franchisee.   You don’t have to worry about marketing (hopefully), and branding is done for you.   You get a brand that's proven itself, and operations support and training from the corporate office.

We support franchising as a method of scaling, but recommend, of course, that you utilize the help of a Chief Financial Officer, Chief Operating Officer, and other leaders who can help to set up a winning infrastructure.

Call us anytime to discuss the many ways to scale your business.

 

Ryan D.

Founder | SharpCFO


0 Comments

Leave a Reply

Your email address will not be published. Required fields are marked *