How to Succeed as a New Franchise System

10 January 2011

This is an article written for AllBusiness.com 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.

I want to franchise my business, do I need a lawyer?

07 December 2010

Business owners that want to grow their business through franchising sometimes attempt to do so without the help of experienced franchise attorneys. I think this is partly due to the fact that franchising is a way to grow your business with limited capital so it attracts business owners that may not have the money it takes to hire an expensive attorney.

Unfortunately, franchising is a heavily regulated industry and it is important to seek good legal help. As an attorney once told me when I was complaining about the cost of his services, you can pay for good help now or you can pay more later. Eventually, you are going to pay and it is a lot less expensive to do it right. In the worst cases, poor legal advice can cost you your franchise system.

You can still get a good deal on legal fees, but make sure that you hire an attorney with franchising experience. Not all attorneys are the same and you want someone who has done it before. It is not uncommon to hear of franchisors that received bad advice from attorneys who are not familiar with the ins and outs of franchising.

A final word of caution: don’t attempt to sell a franchise until you have worked with an attorney to get everything you need in place. It is expensive and risky to try to fix franchises that are sold without the proper registration.

By Christian Faulconer, Franchise Foundry CEO

Franchise Sales: Helping to Find the Cure for “Entrepreneurial Itch”.

09 November 2010

I’ve never seen a full episode of the TV show “House”. But, as you probably know, it is about a brilliant, well educated doctor who has a terrible bedside manner and just “tells it like it is”. Now consider “The Office” – a very funny sitcom. The Office scenario is just the opposite from “House”. Instead of showcasing competent, hard-working professionals intensely working to solve life threatening problems, The Office depicts sales people who are basically inept, lazy, and non-functional in their roles.

Doctors receive an enormous amount of schooling, work incredibly long hours, and have jobs that require them to quickly and effectively find answers to life and death situations with very little room for error.  A good doctor is worth every penny they charge. On the other hand, sales professionals are often chosen because of their personality. Education and experience often have little to do with the selection process. Interestingly, top sales professionals quite often earn a higher income than top physicians and this year alone, more people will graduate from college and have a career in sales than all of the people who will enter the medical field.

Successful sales professionals understand rejection, they know that professionalism is a must, and they understand that their “bedside manner” will either earn them the sale or not. They have confidence – but not arrogance. They know their product. They know their competition. And, like good doctors, they ask a lot of “where does it hurt” questions.

Sales professionals work hard to help their clients find the right solution to their problem – not memorize the names of every body part, disease and new drug. The cure we provide as franchise sales professionals is, without a doubt, as honorable and important as any doctor - particularly when we (franchise sales professionals) are helping  to find a cure for “corporate deadenditis”, or “entrepreneurial itch”. The cure I am speaking of  is helping our clients/patients start their own franchise!

-Ron Saffell

VP of Sales for Franchise Foundry

5 Steps to Turning a Mom and Pop Business into a Franchise

08 November 2010

1. Get experience running your own business before you start selling the opportunity to others. After determining that there was ample opportunity in the U.S. market, the Ginattas decided to franchise their gelateria concept in 2004. Before doing so, they first tested several models for the stores by opening their own locations, which each had very distinct demographics, trade areas and business hours. They also perfected the store design of various-sized spaces ranging from 600 square feet to 2,500 square feet, and even used different types of materials in order to study how the stores would stand up to heavy usage and foot traffic over time. “Make sure you have thought of everything,” says Ugo “and that you have sufficient experience in operating the concept on your own.”

2. Build solid, repeatable systems. Before even making the franchise opportunity available to others, the Ginattas spent five years developing their training materials, systems and procedures in order to ensure that the product would be of the right quality. “It is important to build systems that allow someone else to run the business,” says Christian Faulconer, CEO of Franchise Foundry. “These do not need to be computer-based systems. In some cases, repeatability can be created by simply identifying the business process and creating a checklist of tasks that need to be completed. Repeatability is key.”

3. Know - and be prepared for - the differences between being a business owner and a franchisor. The fact that you can run your own business flawlessly does not necessarily mean that you’re ready to run a franchise. For example, selling your $50 product or service requires a very different kind of skill set than marketing and selling a $300,000 franchise opportunity, says Faulconer. In addition, bringing franchisees on board is very different from hiring employees. Understanding the difference was an important lesson for the Ginattas to learn.

“Every company has standards and procedures that employees are expected to contribute to and then follow and respect,” explains Ugo. “Employees are held accountable for those standards and procedures and they are coached and developed with ongoing training and performance reviews. Franchisees, [on the other hand], have to be very much involved and convinced of the standards and procedures set by the franchisor. They want to know the reasons behind certain choices and the effect on their return on investment and margins. They need to be ‘won over’ to be receptive to adapting.”

4. Protect yourself legally. Once you decide to franchise your business, you’ll need to abide by a standard set of rules and procedures established by the Federal Trade Commission. The Ginattas worked with specialized law firms from the beginning to get all of their paperwork in order; however, this is a step that some new franchisors tend to skip. “Business owners looking to franchise often make the mistake of starting without building the proper legal foundation,” says Faulconer. “Entrepreneurs tend to be decisive and move quickly. If they decide to sell a franchise without getting good legal help, they are likely to get themselves into trouble.”

5. Understand the financial requirements of franchising your business. When the Ginattas made the decision to franchise their business, they weren’t only making a huge business decision, they were also making a significant investment decision. Prior to even launching the franchise, they had to invest in a corporate structure in order to be able to support the franchisees. They then hired personnel to be in charge of franchise sales as well as to monitor the company’s growth. They invested in a manufacturing facility and warehouse to make handcrafted, fresh gelato. Finally, they found consultants specializing in marketing, IT, point-of-sales, and real estate.

Before making the decision to go big with your small business, look into the capital that is required. “Entrepreneurs frequently underestimate how capital-intensive it is to build a franchise system,” says Faulconer. “They tend to believe that the franchise fees will be sufficient to grow the business, but that is rarely the case. Be sure you have enough capital to see you through several months without a franchise sale.”

By understanding these five factors, you’ll have a much better chance of successfully growing your mom and pop business into a household name in franchising.

This is an AllBusiness article written by Sara Wilson. To view the entire article please go to AllBusiness.com.