How to Succeed as a New Franchise System

This is an article written for by Sara Wilson with Christian Faulconer contributing.

It was only last June that Allison O’Kelly started offering Mom Corps, a staffing company, as a franchise opportunity. However, in that brief time, O’Kelly has learned a lot. In the life of a franchise, every year is important. However, there’s nothing quite as crucial as that first year in setting the stage for what’s to come. So what’s the secret to making it past Year One as a new franchisor? We asked O’Kelly how she did it, and talked to franchising experts about what sets successful franchise systems apart.

1. Choose the Right Franchisees – and Give Them the Right Kind of Support

O’Kelly spent much of the first year talking to and listening to her franchisees. She then used the feedback that she received to fine-tune the franchise program so it would better meet their needs. “We wanted to use that period to refine our program, to ask ourselves, ‘What are we doing right? What are we doing wrong?’” says O’Kelly.

In Year One, O’Kelly also learned the importance of choosing the right franchisees to represent the brand. “Don’t bring candidates on [just] because they are willing to buy a franchise from you,” she says. “Only let the right franchisees in.”

O’Kelly was correct in prioritizing the needs of her franchisees. Christian Faulconer, CEO of Franchise Foundry, a franchise development firm, says that providing support to franchisees is crucial. “Your first franchisees are critical to the success of your system,” Faulconer says. “It is important to put support and communication mechanisms in place in order to ensure that your franchisees get the training and support they need and to make sure they have a way to voice concerns. This will improve the franchise system and will result in franchisee validation, which is critical to your ongoing sales efforts.”

Tim Howes, principal of Spyglass Strategies, a franchise consultancy practice, recommends developing an intranet system for optimal communication. “Possessing an intranet is a great start for younger franchise systems,” he says. “Keep in mind that when you’re new to franchising your concept and you’re training franchisees, there are bound to be gaps in the education process. As these franchisees ask questions, incorporate the answers into the next franchisee’s training.”

2. Tackle the Legal Side Early On

One of the key lessons that O’Kelly learned in the first year is that having a really good attorney on board is essential. This is one lesson many new franchisors don’t learn until it’s too late. “I think the most common mistake people make in their first year is they don’t get their disclosure document done right,” says Faulconer. “It is very common for us to see emerging franchisors that have legal messes to clean up because they sold franchises in states they weren’t registered in or they sold without a compliant disclosure document. These mistakes are time-consuming and expensive to fix, and in some cases they can kill the system.”

In addition to modifying the franchise program in order to better support her franchisees, O’Kelly also modified the franchise agreement, particularly around royalty and termination structure. “We realized that there were a few things in our franchise agreement that we would change,” she says. “We did our annual update and provided our current franchisees the opportunity to add an amendment to their current agreements.”

3. Take the Time to Create Lasting Systems

Systems are the main determinants of the life expectancy of a franchise. While some systems can’t be established until the franchise is up and running so that the kinks can get worked out, other systems are fundamental from the beginning. “One of the keys to a successful franchise is a proven and profitable system,” says Faulconer. “Some companies try to franchise before they have built a system that works. The most successful franchise systems have a repeatable business with a track record of success before they sell their first franchise.”

Often, in order to create the best systems, additional skills or talent needs to be brought on board. Franchisors need to be aware of this and take the necessary measures to improve the health of the franchise. “Many year-two systems try to juggle [running] corporate locations, serving existing franchisees, and recruiting new franchisees,” says Howes. “Some systems aren’t willing to invest early on in management because of cash constraints. Big mistake.”

Franchisors also need to remove their ego and act in the best interest of the franchise and its franchisees. “[One of the] most common mistakes is entrepreneurs aren’t willing to change their system for emotional reasons,” says Faulconer. “It helps to be very analytical about your business, its strengths, and its weaknesses. You should be willing to adapt intelligently to make the system better.”

There’s one thing all major franchises like McDonald’s, Dunkin’ Donuts, and Subway have in common. They all survived Year One, and they did so by creating a franchise system that would continue to endure even in a changing world. By building a solid foundation and taking the time to focus on the details and the success of your future franchisees, you can ensure your Year One is just the first of many years to come.


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