Can you become a franchisor?
It's important to recognize that almost any business can become a franchisor, as the legal hurdles for becoming a franchisor are very modest. What is essential in creating a sustainable franchise system is for our clients to first understand whether franchising is the right expansion strategy for their companies. We begin each engagement by reviewing with our client the franchisability of their business before they make the serious investment of designing and developing their franchise program. We do this through a process called the Feasibility Analysis (also referred to as a threshold analysis).
Our Feasibility Analysis reviews our client's franchise-readiness and focuses on a broad spectrum of important business factors in a systematic approach. We help our client take an honest look at where their business is today.
If our Feasibility Analysis finds that our client is not capable of becoming a successful franchisor today, we examine alternative growth strategies that may be more suitable for them now, and assist them in developing the necessary franchising qualifications they require for the future. MSA’s broad practice capabilities enable us to work in a host of downstream expansion strategies in addition to franchising.
While each of our clients and the industries in which they operate are different, some of the relevant benchmarks we examine in determining clients’ readiness to franchise include:
- Products and Services: Is there sufficient consumer demand for the company’s products and services, and is that demand established or based on a trend that will keep the company’s consumer offering in demand for the foreseeable future?
- Management: Is management experienced and ethical with a history of financial and personal accomplishments?
- Commitment: Does the management of the franchisor have the necessary long-term commitment necessary for franchising?
- Adaptation: Does the company have the necessary resources, capability, and willingness to adapt its consumer offering to local market conditions (neighborhood culture, real estate, consumer preferences, local regulations, etc.)?
- Systemization: Is the business based upon a set of refined and unified operating processes that have been tested and proven in actual operating locations?
- Skill Transfer: Can franchisees, their management, and their staff be taught to operate the business in a reasonable period of time to meet brand standards?
- Support: Can the revenue stream generated by the franchise system give the franchisor the resources necessary to provide the support required?
- Expansion: Is there an adequate pool of franchisees with the willingness and financial capability to become franchisees?
- Differentiation: Does the consumer offering have competitive advantages or points of differentiation that make it attractive to consumers and prospective franchisees?
- Real Estate: Is there sufficient real estate available to support the system’s growth requirement that is both acceptable to the franchisor and available at a cost required to ensure franchisee profitability? Can the system’s real estate requirements be adapted to various market requirements? Is the cost of developing a franchisee’s location acceptable to prospective franchisees and bankable?
- Regulatory Requirements: Are there any significant regulatory barriers or personnel licensing requirements that would prohibit or limit the development of franchises?
- Economics: Will the franchise offering be affordable for the prospective franchisees? Does the franchisor have the necessary financial capability to establish, expand, and support the franchise system? Will the business, after fees, be profitable and will it meet the return on investment required by the franchisee and franchisor?
For a more detailed primer on franchisability, two helpful books are Franchising for Dummies, by Michael Seid, Founder and Managing Director of MSA Worldwide and Dave Thomas, founder of Wendy’s International; and Franchise Management for Dummies, by Michael H. Seid and Joyce Mazero.