Family businesses and franchises may seem like opposite ends of the business spectrum, but even McDonalds started out as a family business.
Dick and Mac McDonald ran a small hamburger joint with a limited menu when Ray Kroc pitched them on the idea of expanding nationwide. Three years later, McDonald’s sold its 100 millionth hamburger.
Even if your goal is not to establish tens of thousands of locations around the globe, every family business has the potential to become a franchise. In fact, a majority of the 3,000 different franchisors that operate in the U.S. have fewer than 100 units. They also span sectors, and it is estimated that there are more than 300 different industries and business categories that use the franchise business model.
You don’t have to sell hamburgers for your franchise to succeed. Beyond quick-service restaurants, maintenance, personal care and children’s businesses are the fastest growing franchise sectors.
Franchises are currently booming in popularity because they make sense from multiple angles. As an entrepreneur, franchising is a scalable way to expand your business. It enables you to hire more people, access new business opportunities and achieve a degree of stability and prosperity that one shop alone cannot provide.
Franchises generate over $2.1 trillion to the U.S. economy, with franchisors receiving three to six percent of monthly gross sales in royalty fees. This can represent steady income long after you have personally ceased your involvement and represents a legacy for your children (and their children). Plus, it is thrilling to see your business grow beyond your reach.
There numerous benefits for franchisees as well. They are able to build a small business without the same degree of risk involved in starting from scratch. The concept, brand, operational processes and support infrastructure are already in place, so there are fewer chances to make mistakes.
And of course, consumers get the benefit of visiting businesses that they know and love in multiple locations. The blockbuster success of franchises like McDonalds, Starbucks, Hampton Hotels and Anytime Fitness prove that people like to stick to brands that are familiar and reliable.
To Franchise, or Not to Franchise
So how do you know if and when franchising is right for you? There may never be an “aha moment.” With my family business Barkefellers, a chain of upscale pet hotels, the original location was doing extremely well, so we decided to open a second store within 30 miles of the original. After six months, we saw a clear pattern of growth, and then we knew that this concept could be replicated anywhere, given the property’s location.
Before taking this leap, there are a number of important questions to ask yourself.
- Is your product or business distinguishable from competitors?
- Does it stand out?
- Will it stand out in other markets?
Generic businesses do not make good franchise candidates. Your business may have similarities with other businesses, but to build a successful franchise, your brand needs to be distinct, clearly articulated and instantly recognizable.
Your business also has to be easy to replicate. The brand needs to transcend location. Most family businesses gain traction because they become well-known in their community and develop loyal followings of customers. When you take the business out of the community and into unfamiliar territory, under unfamiliar management, it has to maintain its appeal.
Next, it is important to consider whether all involved family members have a good work ethic and share similar business expectations. Everybody needs to be on-board with the decision to franchise and committed to helping it expand. This will mean bringing on new partners who have a strong stake in the business. It’s not just your family anymore, and everyone has to be open to offering up more seats at the table.
With these boxes checked, it’s time to get into the nitty-gritty details. Successful franchising requires having a system in place to recreate what you did once over and over.
As a family, you need to set high standards for every franchisee to follow. It is important to keep the integrity of your brand as you grow. In order to maintain your standards, you must have a leadership team within the corporate environment that is willing and able to assist franchisees across the country.
In addition, make sure every facet of your business is in written form so that franchisees can easily assist themselves when issues arise. This includes everything about operations, training, communication, company values, branding, etc.
The franchisees themselves are extremely important. While franchising can lower the barrier to entry for aspiring entrepreneurs, they still need some experience with management and business.
Ultimately, franchisees are responsible for running their individual business or businesses, even when there are a clear oversight structure and leadership team. They are responsible for managing employees and dealing with problems as they arise. As the founder, you have to trust that all of your franchisees will uphold your brand and core values to deliver the kind of customer experience you expect. You want people who are trustworthy, hard-working and committed to your vision, and who can lead.
Challenges of Franchising
One of the biggest challenges Barkefellers faced was allowing our franchisees the freedom to express themselves while also holding them to our standards.
- On the one hand, you want your brand to remain cohesive and for your franchisees to do things by the book.
- On the other hand, hewing too closely to cookie-cutter replicas of the original can backfire.
Every specific location is different, which means there may be different designs, products or services that resonate with the local clientele. Even mega-franchises like Starbucks feature unique, geography-specific differences. This gives them a sense of character and soul and conveys that community-oriented, small-business feel that people respond to.
As the original founder, it can be tough to relinquish control or allow franchisees to deviate from the norm. The best way to assuage these fears is to be picky about who you distribute licenses to and find people with an intimate knowledge of the market they are going to operate in.
And of course, turning your family business into a franchise requires money. You need cash flow to open up new locations, develop the brand, cover legal fees and more. This means you need to find investors who believe in your vision and your business, and who are interested in providing the size and type of investment you need to be successful.
Taking investment also means giving up more of your business to someone outside the family, which can be a tough step to take.
Successfully turning your family business into a franchise boils down to striking a balance between the drive to remain true to your roots and the drive to expand, the desire for control and the willingness to bring new people onto the team.
A franchise can still be a family business, but the “family” will become much larger. As with large families and large organizations alike, clearly-defined rules and communication are key to keep everything running smoothly.