I have been involved in franchising dozens of businesses, at last count over 60. Some from concept and some where we converted an existing business to the franchised model and I am really happy to deal with either pathway with one really important proviso.
The business owner must have a reasonable understanding on what it takes to run a business successfully – franchised or not.
And unfortunately I have concluded this is easier said than done.
Done well, franchising does help to structure a business so that it has the best chance of success because franchising helps to put some great business practices in place. Systems and money management being at the top of the list. But overall, I have found that in most businesses, there are some aspects about business success which need to be reviewed and without sound business experience, creating a franchise is not likely to succeed.
Understanding how business works is especially important, because you, as franchisor, will often be training less business savvy-franchisees on successful business practice.
The most useful way I have found to think about business success is to look at the stages of business growth because it is through this journey that many learn the value of different business skills needed as they grow.
The 5 Stages of Business Growth
Way back in the early 1980’s, the concept that businesses grow through defined stages was first discussed in an article published in Forbes by Neil C. Churchill and Virginia L. Lewis. This work is still cited to explain the importance of basic business elements to success.
Before I go into the 5 stages, there is one important point to make.
Businesses do not necessarily need to go through each stage. It is possible to speed through stages into whichever is your goal. The way to do this is to understand what is required. This is how the likes of Richard Branson create new businesses everyday – Richard will have all his business ducks in a row before he starts. But even his businesses will need to go through some of these stages on the way to creating an empire.
In a nutshell these are the stages
Stage 1 – Existence
This is generally the start-up stage for any business. With no revenue, the focus of the business owner is obtaining customers and delivering the product or service. Inevitably, the owner is definitely working in the business, often alone filling every role. A major concern is having enough money to cover this start-up phase. The strategy here is simply to stay alive.
Stage 2 – Survival
By now, the business has proven it is workable and can be profitable but it is still simple in structure. There may be a limited number of employees supervised by a sales manager or a general foreman but neither will make any major decisions independently. They carry out the rather well-defined orders of the owner.
Systems development is still minimal. Formal planning is, at best, cash forecasting. The major goal is still survival, and the owner is still the business and working in the business. The main aim is to get a return on investment and making the business profitable.
However if the business is to grow, it is important to begin to understand the need to systemise and understand how business operates.
Some small businesses choose to stay here, hardly making a profit, others choose to move into the Success Stage.
Stage 3 – Success
At this point, the company is stable and profitable and cash is not a problem. Most telling, basic financial, marketing, and production systems are in place to power effective delegation.
Organizationally, the company has grown large enough, in many cases, to have functional managers to take over some duties previously performed by the owner and some planning through operational budgets support this delegation.
There should also be some strategic planning in place and the owner and, to a lesser extent, the company’s managers, should be monitoring this in accordance with goals.
While cash is plentiful, the main concern is to avoid a cash drain in prosperous periods to the detriment of the company’s ability to withstand the inevitable rough times.
Some choose to stay in this phase while others choose to move into a phase of growth.
Stage 4 – Rapid Growth
If the decision is made to grow beyond the Success Stage, then key problems will be how to achieve growth and how to finance it. Growth will return to a phase where cash management becomes critical.
Churchill and Lewis report they found the keys to success here are having a sound understanding of delegation and how to manage risk in cash flow.
As staff numbers grow, systems need to become more refined to ensure delegation is efficient and both operational and strategic planning are crucial to make sure everyone is on the same page.
At this stage, the owner no longer works in the business but does have a strong presence over the way it is run and over things such as stock control.
Churchill and Lewis state:
‘This is a pivotal period in a company’s life. If the owner rises to the challenges of a growing company, both financially and managerially, it can become a big business. If not, it can usually be sold-at a profit-provided the owner recognizes his or her limitations soon enough’
Stage 5 – Maturity
The company has now arrived. It has the advantages of size, financial resources, and managerial talent. If it can preserve its entrepreneurial spirit, it will be a formidable force in the market.
If not, it may enter a sixth stage of sorts: ossification and death.
Franchises often do it better
Yes, even in the 1980’s when the Churchill and Lewis first published their article, it was acknowledged that franchised businesses moved through the stages to Success and Rapid Growth better than those not franchised.
Because franchises often have the following advantages:
First of all, they have, in most cases, a franchisor who really understands, through experience, the essentials of business, making sure clear structures are in place from the beginning to move through Existence and Survival fast.
At the very least they will have:
- A marketing plan developed from extensive research
- Promotion and other start-up support such as brand identification
- Sophisticated information and control systems so the whole franchise can be monitored
- Operating procedures that are standardized and very well developed so delegation is consistent and efficient
I would add that, if the franchisor has really done the homework, there will also be:
- Strong leadership for the group and an understanding of managing teams of equal partners
- Good strategic and operational planning which has input from all franchise partners
- And a very clear understanding of money management in the franchise group, making sure that all levels of the franchise can be profitable
I have to say, not many business I see have all these business aspects in place when they start to think about franchising. And the franchise process will help to put some in place. Things such as systems will be built and it will be essential to have a sound understanding of money management as the franchise structure is developed. If you are still working in the business though, putting in 60 or 80 hours a week, I think you will find the extra work and emotional energy to do the conversion can be more than a little overwhelming.
The Pillars for Successful Business Growth
So what’s the answer?
It’s really quite simple…
In discussing the five stages of business growth, Lewis and Churchill identified some skills needed and show that these skills are what are built up through the business growth process.
- Money management
- Systems development
- Delegation, leadership and people management which results in leveraging you out of the day to day of the business
- Strategic and operational planning
In my mind, today, there is at least one other skill to be added.
- Marketing and your brand
The thing is, I know very few of us, if any, have the individual skill to deal with every business ability to a satisfactory level, so creating a team is an essential component as soon as it is possible. The key is to understand each area and to know who to put into your team to move you and your business forward.
So here is some detail.
Marketing and Your Brand
Having a good understanding of your target market, what is wanted of you and what your brand should look and feel like is essential from the earliest days of business.
If you do not understand how important this is, you need to think about getting help from the beginning.
Fundamental today is knowing that people respond to the power of Why. If you do not know of Simon Sinek’s amazing Ted Talk on this then visit Start With Why and listen to what he has to say.
Once your brand is sorted, you need to think about how to get your message out into the very different market place of today. Central to this is your internet presence. Businesses without will generally not have the ability to grow beyond their local area if they even manage to reach that level.
The foundation of marketing today is the ability to communicate to your people in today’s vernacular and the bitter truth is that’s the killer for 80% of businesses.
Money Availability and Its Management
Managing business through the various growth stages from inception to maturity needs a good understanding of money. How to manage cash flow, what level of risk is good (some is inevitable), expense management and the need to spend to get growth.
The other requirement is the need for capital to fund different growth stages. Existence, Survival and Rapid Growth all need capital in one form or another and not having the cash can seriously hinder the process.
Systems are the foundation of a growing business. In the early stages, not so much but moving beyond Survival requires the ability to delegate for which systems are essential.
systems, no growth. It’ as simple as that!
Delegation and Leadership
Delegation needs more than just good systems. The biggest problem faced by many entrepreneurs is letting go. Ego and thinking no one can do it as well as you is a trap.
In today’s business environment, delegation needs to be done in accordance with the three Laws of Type I management – motivating people through their own intrinsic wish to do their best.
Outlined by Daniel Pink in his book Drive: The Surprising Truth About What Motivates Us, Pink looks at how the best organisations motivate today in a way that gives their people the drive to take the organisation far.
First is Autonomy. Select people who love the job they will be responsible for and then give them the autonomy or ability to do it their way with as few essential boundaries as are necessary.
Second is Mastery. Select people with an open mind, who do not see their abilities as finite but rather know they will grow with practice and pain and who love a challenge. Put them into a job where they will always be looking to do things better but not one which will overwhelm. They will then go into the flow and give back to the organisation many fold.
Third is Purpose. Human beings seek purpose, a cause greater and more enduring than themselves. Simon Sinek and his ‘Start With Why’ YouTube video will help to see this point.
If you can combine profit maximisation with purpose maximisation then this will take you far. As Simon Sinek shows, think of Apple as an example.
And finally, remember, leadership requires humility. Yes you need the vision. But the ability to give clear directions at the appropriate level, listen to your troupes, change direction when needed, and really understand what team work is all about is key.
Again, Simon Sinek puts it so well in his latest book ‘Leaders Eat Last’. Simon’s central tenet comes from the US Marines where leaders always stand at the back of the line when it comes time to be fed. If there is no food left, it is their bad luck and that is when they rely on their troupes to provide from their share. Would your troupes willingly feed you?
Strategic And Operational Planning and Keeping an Eye on Those All-Important KPI’s
Finally, this is your job. Especially as the business becomes more sophisticated and grows larger.
Making sure you have an eye on the strategic direction of the business and know where it is going. Every leader has a clear picture of this and can give this picture to the team.
Yes, at the beginning every business owner is in the business doing every task. But as you grow remember, the more you can put in systems and delegate and have some sort of business direction in place, the faster you will achieve the goals you are looking for.
Goals are great. Planning how those goals are going to be achieved is better. Keeping an eye on how the organisation is travelling against those goals is best.
The more successful your existing business or even a past business, the more likely you have what it takes to create a successful franchise group.
Many years ago in my career I had founded and run a series of automotive service franchising companies. I started with mobile car washing, truck washing, and mobile oil change services. Business was good, as we are a nation of cars. Today, we still are, cars, cars, cars, everywhere; Gasoline Cars, Electric Cars, and soon Flying Cars and Hydrogen Powered Vehicles too. Not long ago, I was asked by an entrepreneur if I thought that a mobile oil change franchising company was still a viable company to start in the present period? I put a little thought into this and considered all the future challenges and opportunities. Let’s talk shall we?
Okay so, is this a feasible business model today and into the near future (five to ten years)? Yes, I believe so, mobile auto-services tend to do well, and there are many who are looking to start a small business with the new Trump Administration. Reciprocating engines are not going away, and even EVs need battery conditioning services, lubrication for wheels, etc. Hydrogen cars also have moving parts, air-filters, heat shields, etc. Tires will still need car, balancing, and rotating.
What sort of service vehicle is needed for the franchisees doing the work and servicing the vehicles? Should one use a truck, trailer, or van? Well, vans tend to do well with mobile oil-change, and the fleet business is the best of all, and sometimes it means a trailer is needed for extra storage tanks for new oil and used oil, and parts; belts, windshield wipers, oil filters, air cleaners, etc. Working in low-hanging parking structures can be a tough thing to worry about, so sometimes trucks are not the best option, and some vans are too tall, for instance the Sprinter Van, which is roomy but too tall for parking structures.
One great benefit today that we didn’t have back in the nineties is easy use mobile-pay and easy internet ordering efficiencies, which makes it possible to stay efficient even doing one’s and two’s for individual cars. Of course, in the future Self-driving cars may drive themselves to get an oil change, or they can drive to the franchisee in the middle of the night for a discount, and the service vehicle can make that work perhaps by renting an auto parking lot at night. I think there are lots of good things about this industry looking forward. Please consider all this and think on it.
When it comes to travel agencies, you have a few options available to you. If you love travel and have always dreamed of a travel agency franchise being the right choice for you, then you may want to know the benefits so that you can identify the right options for you to ensure you achieve success and enjoy a successful business operation moving forward.
The first benefit to choosing a franchise for a travel agency is that they already have all the essential technology in place. Think about it, when you want to start your own travel business, you are going to need a brand name, you will need to have software where you can manage your bookings, your deals and keep it updated and so much more. This software can be expensive if you have to have it custom developed for your unique needs. When it comes to buying a travel agency franchise, the technology is already there, all you have to do is install it onto your computer systems and start using it without delay.
Another benefit to this option is the marketing that you get to help you. With a franchise, the holding company will promote your business on your behalf, which means the brand is already visible the day you start your business. As you can imagine, you can’t get any better than that. You open your website for the first time and your company is known throughout your area. When it comes to this investment, you are paying for a trusted brand which is highly visible, reducing the amount of marketing that you need to achieve in order for clients to find your business and take advantage of your deals.
Buying a franchise for a travel agency comes with a wealth of support from the franchiser, another major benefit. When you are investing in a new business, having a back up support plan is something that you will cherish and appreciate, especially in the first year or more. As you become accustomed to how the software works and what is expected of you as a franchisee, the more confident you will become. But that initial support is something that you can rely on each and every day.
Of course, you don’t get any better than investing in a business that already comes with a known name. When you start your own business, you have to pay close attention to your branding, choosing a catchy name, having your logo designed and ensuring that people get to see it daily, so that they remember it to use when they want a service you provide. With a franchise for a travel agency, the name is already there, which means people already know the name, a major benefit, which can save you valuable time, energy and money in the long run.
The final benefit of a franchise for a travel agency is that you have a wider range of providers to work with. Hotels, resorts, airlines, car hire companies and tour companies will already know your company’s name. What this does is you already have the reputation with these companies, making it easier to work with them and secure the best deals to share with your clients now and moving forward.
Remember, even when looking at investing in a franchise, you want to do some research to ensure that you are making the best investment choice for you that will offer you a good return on your investment. Ensure you are completely comfortable with what is offered, what is expected of you as the franchisee and what the franchisor will do for you to ensure your success.
In much the same way Amazon and eBay have helped many get their start in starting, developing and running an e-commerce business, this same help is now available in starting a staffing business.
There are now well over two million third-party sellers on Amazon. The infrastructure that is on Amazon and eBay is plug_ and_ play for all who try and claim their stake on these selling platforms.
With this in mind, the traditional route for those seeking an opportunity to start their own staffing business included the need for a large capital infusion, a payroll system, access to high-cost worker’s compensation insurance and many other costs that were prohibitive for most to enter the industry.
For many who do have the resources to enter the staffing industry, they often turn to high-cost franchise staffing companies who enjoy a large slice of earnings for the lifetime of the business. This relationship can grow strained over time and at some point the operator may feel they are contributing more to the franchise than the franchise is contributing to the operator. When this occurs, the separation from the business can grow messy and can even end in litigation.
The simplicity of both Amazon and eBay and their policies are a big draw for many who are looking to sell products online. There are no long-term agreements or costs that can easily cripple a new business. Being able to be flexible in a new venture is always a great asset and both these platforms allow for it.
This flexibility platform is now available in the world of staffing and has over 150 firms using this unique business model to grow impressive sized businesses with many reaching over a million in first-year billing. With over half a billion under management in less than 10 years in operation, one can see this is becoming a great alternative to going it alone or entering into a long-term agreement with a franchise.
What you get on the platform:
- Worker’s compensation insurance with no liability to the operator.
- An unlimited funding source for all payroll and client billing.
- A complete back-office for all management and personnel needs.
- Access to professionals with over 40 years of staffing experience.
With all the boxes checked, this platform can be summed up as the Amazon or eBay of the staffing industry. If mitigation of risk is high on your list for starting a sustainable, prosperous business there are few options that can match what is now available.
While considering franchise business, it is crucial to know that you are actually into the selling process. If you are good at sales, franchisors will definitely go to sell you on their systems, and you will work with sales executives who usually get the commission to generate lead to enter into franchise agreements. When we talk about European franchisees, several laws are to be taken care after. In fact, every small detail from the readiness of understanding to working with money-related information is to be deliberately recorded in an agreement.
In between sales process, you will always hear about the several benefits that each franchise system has to offer. But in many situations, these systems have limitations too. Let us understand this with some examples:
Benefit or Drawback of Franchise Opportunities
1. Designated Suppliers
It is highly desired for the franchisors to ask their franchisees to buy the product only from selected suppliers; this case is valid only for product-based franchises that offer products and services. The benefit of asking the franchises to make a purchase from the designated supplier is to deliver the same services and products to the customer and also to reduce the burden of sourcing the product.
On the other hand, the drawback with designated supplier option is to make delay in delivery or what if it’s provided products do not meet the client’s expectations. If you are tied in contract with the franchisor and unable to find a possible solution of this then these could create a big problem for you and your business in future. In that case, a franchise agreement lawyer can give a solution to this problem.
2. Advertising Funds
A centralized advertising fund in a franchise system can provide benefit for the right franchisees. But, wait a minute, to consider few things before contributing an amount of your income. It means, in a typical franchise agreement which is generally created by a franchise agreement lawyer, franchisees are not given any benefit on their contributions. If the franchisor thinks it can generate a good amount of revenue by concentrating its marketing efforts in a particular region even if your franchise is located somewhere else, you will hardly notice any postings that are targeting your region.
Moreover, franchisors always reserve the right to use the franchisees’ part for administrative expenses and advertising funds are never operated with transparency.
3. Franchise Territories
If in case, a franchisor is offering franchise territories, it is crucial to understand what does franchise territories mean. Usually, different franchisors give rights of different territories, based on their geographic reach with the uncertainty of exclusivity.