Business strategist and author Stefan Kazakis guides you through using franchising as an expansion strategy and deciding whether it’s suited to your business
While franchising has in recent years slowed down from the rapid rates in the 1990s and early 2000s, franchising is an exciting method to grow your business. But the decision to travel down this route is often more a bright, shiny light-driven campaign than a well thought out plan. And this, in turn, ends in failure.
However, with the right foundation, franchising your business can be a very effective way of expanding your business and growing your brand quickly.
For businesses that are well run, with systems and processes, procedures and rules, franchising will provide benefits and satisfaction for both parties. However, be under no illusion, this is not an easy path to take. Establishing a business model that can be considered for franchising has to be undertaken with education, skill, patience and, not surprisingly, capital.
So how do you know when your business is ready to be considered for franchising? Here are my top seven tips:
So what should business owners do if they believe their business has what it takes to become a franchise opportunity?
So before anyone invests in your franchise, you need to be absolutely sure that you can define your target market.
You need to be clear about who will buy the product and why. You need to be able to identify them with great clarity. If you are a bookstore owner and someone is considering a franchised book store, it’s no good you just saying, “You can expect book lovers and students to buy the books. I know there are plenty of them out there, so you’ll be fine.”
There’s no room for vagueness, guessing, crossing fingers or hopeful estimations when it comes to this stuff.
The skills and tools required to create an idea are very different to the skills and tools required to grow market share.
It’s the same for someone who is considering a coffee shop franchise in the city centre. If the extent of their strategic planning is that lots of people come into the city, lots of people like coffee, so if they open a nice coffee shop in the city they should be fine, then that’s not great market research.
In fact, that isn’t market research, but you’d be surprised how often franchises get started like this. You won’t be surprised to know they don’t last long if they don’t wake up real fast.
Having made the decision that you are going to franchise your business, your franchisees are going to want to know that this will provide them with a product or service that they think other people or organisations want to buy. But thinking this and knowing how and why it will happen are two very different things. At some point in their busy lives, with all sorts of other option available to them, you want people to look at the product and say, “Yes, this is what I need.” These people or organisations are referred to as the target market, and you and the franchisee need to know who they are, and how you are going to grow and service them.
Why is this so important? Because if someone is investing in a franchise, they have to be focusing on how they can serve your target market; they cannot be everything to everyone or they will actually be no good to anybody. It’s important to know who the target market are and how to attract and farm for new opportunities.
So, who are they?
So now that you know why it’s so important to find out who your target market is, let’s have a look at how you go about doing it.
There are six questions you must be able to answer about your target market. If you can’t answer all of these questions, you won’t be able to meet the needs of your target market and therefore will not be able to share this information with the franchisee.
These six questions are:
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Once you have the clarity of who your target market are, you then need to understand how many of your target market are out there waiting to hear about your products and services.
To establish the size of your target market, you now need to define how you plan to carve up areas for franchising opportunities. What areas are you going to target? This can range from local to global and anything in-between.
For example, a fruit shop can be highly successful just focusing on people in the target market in surrounding suburbs, but this is not likely to work for a carpet cleaner. People buy fruit weekly but only have their carpets cleaned occasionally, so the carpet cleaner would need to focus on an entire city to have a large enough target market. An accounting firm with 20 staff might service the whole of Victoria, and a firm with 250 staff might work the whole of Australia.
It’s about focusing on a market that is appropriate to the scale of your business – there’s no right or wrong answer. For some it’s the eastern suburbs, for some it’s Melbourne or Perth or Adelaide, or a particular rural region. For some it’s the whole of Australia and for some the opportunities can be in various countries overseas. And it might change over time as you grow. I started off targeting Australia and now I operate globally. This is fine as long as it’s part of your strategic growth plan and not random, disorganised expansion just for the sake of it.
It is up to you, before you start to consider franchising your business it is important to understand three crucial things about your target market:
This is crucial, factual information that you need to be fully aware of, otherwise you are building your business on the random hope that someone out there at some time might buy from you because you have an awesome product.
So in conclusion, how do you tell when your business is suitable for franchising? When you know your business inside out! Your business is ready when you are not motivated about the initial capital investment by a franchisee. Ultimately, you will be ready when you already have enough money in your bank account; you will continue to invest in the training of your franchisees ensuring the reputation of your brand and concept continues to grow relevance against your competition.
And the most important piece of advice I give my clients who ask about franchising is? Are you ready? Keep in mind that even the best laid plans will result in failure if the underlying business model is not ready for franchising. If you are serious, take a step back and ask yourself, “Am I really ready? Am I clear on what I’m prepared to lose?” As the question of gain is aligned with vision.
However, with the right foundation, franchising your business can be a very effective way of expanding your business and growing your brand quickly.
For businesses that are well run, with systems and processes, procedures and rules, franchising will provide benefits and satisfaction for both parties. However, be under no illusion, this is not an easy path to take. Establishing a business model that can be considered for franchising has to be undertaken with education, skill, patience and, not surprisingly, capital.
So how do you know when your business is ready to be considered for franchising? Here are my top seven tips:
- Proof of concept, establishing a franchise system and preparing it for market can take as long as three years. The business needs to be making a healthy predictable profit – this is non-negotiable.
- The business is making a positive cash flow without the key/critical staff being present. Having the right management structure is also non-negotiable.
- There needs to be uniqueness, however not extreme uniqueness. The best uniqueness is often found in a customer delight system.
- Your business has a predictable operations procedure with good systems and how-to manuals for all tasks, including the testing and measuring for all activities.
- Has a defined and proven lead generation system delivering leads within a cost per lead budget.
- Has a progressed and defined sales system to ensure a 60% conversion on all leads regardless of the sales skills of the person doing the selling.
- Demonstrates a strong culture of open and honest communication.
So what should business owners do if they believe their business has what it takes to become a franchise opportunity?
- You need to be assertive but fair. You need to be clear on the vision. Who needs to do what by when.
- You will continue to work harder with even greater laser focus. You are now accountable to other business owners who are buying into your vision – being a franchisor is not for the faint-hearted.
- Strong ownership of the brand and the ability to share it with a new network of business owners who must and will embrace it as their own. You must be OK with this.
- You will be OK to not have all the greatest ideas in your business and, more importantly, you are OK to encourage this.
- You will have taken legal advice and have a franchise agreement that has been developed with an authentic reputable franchise development and legal team. It should be noted that, as a minimum, the investment for this is $70,000.
- A training arm needs to be developed for all franchisees that comprises internal and external consultants/trainers.
- Having a recruiting system for franchisees that is more about deselection than selection. You need a much progressed system and track record for saying thanks but no thanks.
ICONNECT: A NEW TYPE OF FRANCHISE
iConnect is the branded retail aggregation arm of Connective, which was rolled out earlier this year. For Connective, an established wholesale aggregator, launching iConnect required more than just exporting a proven business model; they had to create one.
The iConnect value proposition is that brokers will receive leads from several digital resources: adverts on established real estate websites, a new educational loan website, a comparison site, a loans.com.au type website and a broker-find site. In return Connective will take 20% of the broker’s commission, rather than the flat-fee model of their wholesale aggregation offer.
As a wholesale aggregator, one of Connective’s distinguishing traits was the relative ease by which brokers could leave the organisation. Their general manager of strategy, distribution and digital Steven Heavey claims this will be replicated at the retail aggregation level: “We want to provide a fairer agreement to brokers … if you want to revert back to your own brand, or the business becomes more about you than the brand, then we would welcome you back with open arms to the wholesale aggregation. No fees whatsoever will be involved.”
iConnect is the branded retail aggregation arm of Connective, which was rolled out earlier this year. For Connective, an established wholesale aggregator, launching iConnect required more than just exporting a proven business model; they had to create one.
The iConnect value proposition is that brokers will receive leads from several digital resources: adverts on established real estate websites, a new educational loan website, a comparison site, a loans.com.au type website and a broker-find site. In return Connective will take 20% of the broker’s commission, rather than the flat-fee model of their wholesale aggregation offer.
As a wholesale aggregator, one of Connective’s distinguishing traits was the relative ease by which brokers could leave the organisation. Their general manager of strategy, distribution and digital Steven Heavey claims this will be replicated at the retail aggregation level: “We want to provide a fairer agreement to brokers … if you want to revert back to your own brand, or the business becomes more about you than the brand, then we would welcome you back with open arms to the wholesale aggregation. No fees whatsoever will be involved.”
So before anyone invests in your franchise, you need to be absolutely sure that you can define your target market.
You need to be clear about who will buy the product and why. You need to be able to identify them with great clarity. If you are a bookstore owner and someone is considering a franchised book store, it’s no good you just saying, “You can expect book lovers and students to buy the books. I know there are plenty of them out there, so you’ll be fine.”
There’s no room for vagueness, guessing, crossing fingers or hopeful estimations when it comes to this stuff.
The skills and tools required to create an idea are very different to the skills and tools required to grow market share.
It’s the same for someone who is considering a coffee shop franchise in the city centre. If the extent of their strategic planning is that lots of people come into the city, lots of people like coffee, so if they open a nice coffee shop in the city they should be fine, then that’s not great market research.
In fact, that isn’t market research, but you’d be surprised how often franchises get started like this. You won’t be surprised to know they don’t last long if they don’t wake up real fast.
Having made the decision that you are going to franchise your business, your franchisees are going to want to know that this will provide them with a product or service that they think other people or organisations want to buy. But thinking this and knowing how and why it will happen are two very different things. At some point in their busy lives, with all sorts of other option available to them, you want people to look at the product and say, “Yes, this is what I need.” These people or organisations are referred to as the target market, and you and the franchisee need to know who they are, and how you are going to grow and service them.
Why is this so important? Because if someone is investing in a franchise, they have to be focusing on how they can serve your target market; they cannot be everything to everyone or they will actually be no good to anybody. It’s important to know who the target market are and how to attract and farm for new opportunities.
So, who are they?
So now that you know why it’s so important to find out who your target market is, let’s have a look at how you go about doing it.
There are six questions you must be able to answer about your target market. If you can’t answer all of these questions, you won’t be able to meet the needs of your target market and therefore will not be able to share this information with the franchisee.
These six questions are:
- Who is the person or organisation you wish to serve? You need to be able to define them in detail. For example, parents is not a well-defined target market. What age are they? How many kids do they have? Where do they live? How much money do they earn? Are they married? Are they single? Defining parents as a target market is just the beginning.
- Why will they choose you? Why will they discriminate in your favour and open their wallets for you? This is one of the hardest questions to answer. Whatever your product or service, your potential A-clients have other options available to them. Your challenge is to ensure you make it easy for them to buy from you.
- How do you expect them to do business with you? How do you expect them to communicate with you, contact you, and correspond with you? How can they let you know they are interested in your services? Will this be online, face to face, over the phone, or a combination? In our modern, highly connected world, it’s more important than ever to make it easy for people to interact with you and buy from you. There are always other businesses they can buy from if you make life hard. How can you let them know about you and your service or product?
Once you have the clarity of who your target market are, you then need to understand how many of your target market are out there waiting to hear about your products and services.
To establish the size of your target market, you now need to define how you plan to carve up areas for franchising opportunities. What areas are you going to target? This can range from local to global and anything in-between.
For example, a fruit shop can be highly successful just focusing on people in the target market in surrounding suburbs, but this is not likely to work for a carpet cleaner. People buy fruit weekly but only have their carpets cleaned occasionally, so the carpet cleaner would need to focus on an entire city to have a large enough target market. An accounting firm with 20 staff might service the whole of Victoria, and a firm with 250 staff might work the whole of Australia.
It’s about focusing on a market that is appropriate to the scale of your business – there’s no right or wrong answer. For some it’s the eastern suburbs, for some it’s Melbourne or Perth or Adelaide, or a particular rural region. For some it’s the whole of Australia and for some the opportunities can be in various countries overseas. And it might change over time as you grow. I started off targeting Australia and now I operate globally. This is fine as long as it’s part of your strategic growth plan and not random, disorganised expansion just for the sake of it.
It is up to you, before you start to consider franchising your business it is important to understand three crucial things about your target market:
- How big is it?
- What market share do you currently have?
- What market share would you like to have and in what time frame?
This is crucial, factual information that you need to be fully aware of, otherwise you are building your business on the random hope that someone out there at some time might buy from you because you have an awesome product.
So in conclusion, how do you tell when your business is suitable for franchising? When you know your business inside out! Your business is ready when you are not motivated about the initial capital investment by a franchisee. Ultimately, you will be ready when you already have enough money in your bank account; you will continue to invest in the training of your franchisees ensuring the reputation of your brand and concept continues to grow relevance against your competition.
And the most important piece of advice I give my clients who ask about franchising is? Are you ready? Keep in mind that even the best laid plans will result in failure if the underlying business model is not ready for franchising. If you are serious, take a step back and ask yourself, “Am I really ready? Am I clear on what I’m prepared to lose?” As the question of gain is aligned with vision.
Stefan Kazakis is a renowned business strategist, sought-after presenter and founder of Business Benchmark Group, which helps clients from a variety of crossroads and industries seize opportunities to achieve ongoing business success and substantial profit growth. Stefan is also the author of From Deadwood to Diamonds. For more information please visit www.businessbenchmarkgroup.com.au or email [email protected]
