Are you ready for franchising?

Preparation is underestimated

Imagine you have a successful sports store and you are regularly approached by friends, acquaintances, and customers who are enthusiastic about your concept and want to start a similar store. This gets you thinking. The economies of scale and synergies with more locations do appeal to you. Additionally, you are ready for a new challenge, but you are not looking forward to hiring extra staff.

Meanwhile, you have already had several serious conversations with a good friend who wants to use your expertise, experience, and working methods to open a sports store under the same franchise name. Your friend already has a property in mind.

It sounds very tempting. You grab a contract from the internet and receive a franchise manual from a good acquaintance and tailor it to your formula—and there you have it. It might all be perfectly okay, but is it wise? You let yourself be guided by your friend at the opportunity. It is better to take your time and prepare the franchise carefully.

An optimal execution of the following four components is crucial for the success of franchise in retail:

1. the organization
2. the formula
3. the type of entrepreneur
4. the location

1. The organization

Clearly determine your personal ambitions and long-term goals. Then, clearly indicate what you, as the central organization, will do beforehand, but also what you will not do, and adhere to your agreements.

2. The formula (setup and development)

The formula itself must be strong enough and sufficiently developed to be exploited profitably elsewhere. Not only the ‘visible front’ of the formula, such as interior and exterior, house style, and assortment, needs to be developed, but also the 'back' like the franchise organization, purchasing, logistics, automation, management information, and support deserve attention.

Then, the elements of the formula and the desired uniformity must be clearly and thoroughly documented in the franchise manual. Careful documentation of the formula prevents arbitrariness and misunderstandings. The manual is a dynamic tool that can be adjusted at any time to practice and market conditions. It has legal value, recording what is ‘unique’ about your formula and must not contradict the franchise agreement.

The franchise agreement is a static document. It usually documents the obligations and responsibilities of both parties as well as all other important conditions of the collaboration for a period of five years.

If your distinctive store formula is clearly and transparently documented, you are ready to expand your formula.

Start with a pilot location (test store) with your own manager. Arrange in a contract that, after a certain period, they can become a franchisee under specified conditions. The advantage is that you can see whether your concept also works in another location and that it is not dependent on your personal presence. You can also address any initial issues yourself.

Do you have sufficient financial resources to fund the growth? It can sometimes be challenging, even before the first franchisees actually start. For example, because no suitable property is found, or because candidates eventually back out. Also keep in mind that new starters often require a lot of attention and can expect to receive it. Ensure you have enough time and financial flexibility to handle setbacks.

Recognizability often holds the true marketing power of a successful franchise formula. The top priority is ensuring the participating franchisees apply the formula as developed. This is an ongoing process.

Communication is the lifeline of collaboration. It is therefore necessary that alongside individual contact there is also joint franchise consultation. In larger organizations (from ten franchisees) structured consultation often takes the form of a franchise council.

3. The type of entrepreneur

Franchising is sometimes compared to a marriage. Mutual trust is the foundation for this marriage. Through solid procedures and professional recruitment material, you can immediately give potential franchisees the sense that everything is well organized. This builds trust. If you fail to do so, many will drop out and seek salvation with more professional-looking organizations.

Selecting suitable candidates often takes a lot of time. Take the time and make no concessions. This is certainly rewarding. The (first) candidates often determine the success of the formula. Pamper them. Invest in training and guide them intensively. Make sure the concept is optimally realized. This serves as an example for other candidates. In the selection process of the candidate franchisee, it is of course important that they match the established profile and criteria like competence, education, personal qualities, and financial resources. Additionally, you have the responsibility to carefully and as fully as possible inform the future franchisee about the formula and clearly depict what they can and may expect. The franchisor indeed has a duty of care, meaning he has the obligation to pass on knowledge and provide the support promised to the (aspiring) franchisee. The type and extent of guidance are recorded in the manual.

A pitfall in expansion is that franchisees are often enthusiastically and almost fanatically brought in. The growth target must be achieved. Too rapid growth and too little focus on the type of entrepreneur can result in differences in background and level among franchisees becoming obstructive and inhibiting. Additionally, due to the focus on growth, maintenance and development of the formula can become neglected. As a result, a well-documented full franchise concept might in practice decline to a ‘dusty’ store formula within a few years. This can result in declining sales because the formula no longer optimally aligns with the market, dissatisfied franchisees paying a fee and expecting timely refreshment of the formula, etc. Moreover, once-acquired freedoms can often hardly be curtailed after a certain period. There is a certain established right.

Regular training, support, and coaching of franchisees and employees throughout the duration of the agreement is crucial for maintaining the concept! This starts immediately at the beginning. With a (practical) training, the franchisee is familiarized and kept informed about work procedures, commercial methods, and finances. E-learning systems will certainly contribute to this in the future.

4. The location

The locations where the formula is launched are elemental for the success of the location. Often, potential locations are determined based on several criteria and documented in a 'white space plan'. The optimal size of the location, the type of location, and the housing costs are also determined. Once a building becomes available in one of the locations, a location feasibility study is often conducted. Using the number of residents, population composition, average disposable income, average expenditure in the product group per capita, zoning plans, shopping flow studies, local market conditions, industry and experience data, and competition, the viability of healthy exploitation at the location is assessed. This study is often used as a basis for the business plan and the financing application with the bank.

Briefly put, franchising boils down to ‘copying success’ but it is not a method for guaranteed success in itself. There are obviously many roads leading to franchising. Unfortunately, it often happens that well-intended and even promising initiatives fail within a few years, or even never get off the ground. This can largely be prevented by more thorough preparation. A thorough approach takes time but can prevent problems and save time in the long run. In short: ‘Hurry when you have time, then you’ll have time when you rush’ (quote Pieter Winsemius).