Franchising is one way a small business owner can continue to grow their business. Here's how an emerging franchise can validate its business model to show future growth and gain investors and customers.
You're ready to take your successful small business to the next level. After evaluating various options for growth, you've decided that the franchise model is very attractive. Franchising will allow your small business to grow fast without the kind of capital investment required if you grow it alone.
Before you throw yourself into franchising, there are many aspects to consider. Determining if franchising is the right path for you means knowing your business and yourself.
Having spent the majority of my career working with franchise brands, I've noticed certain characteristics that set the successful ones apart from the rest. There are other factors to consider before franchising your small business, but by far the most critical for determining the future success of an emerging franchise is a franchisor's ability to validate their concept before they have results to point to.
Validate your business model
Growth through franchising depends on being able to convince a prospective investor and future small business owner that your brand will help them achieve their goals and lifestyle. Validating the business model of a mature franchise is a pretty straightforward process. They have a track record, franchisees who can speak about their experience with the franchisor and an Item 19, the "Financial Performance Representations" in the Franchise Disclosure Document that answers the most pressing question asked by prospective franchisees, "How much money can I make?"
As a new franchise brand, you most likely won't have any of these important validators. Successful emerging franchises are able to validate their business models in other ways.
Can you demonstrate that your business is successful? Do you have multiple locations? Are you profitable? What signs demonstrate continued and future growth as you head into the franchising phase? You can get around your lack of franchising experience by making it clear that you have a successful business. If you don't have specific evidence that points to profitability, consider holding off on franchising your business until you do.
Show happy customers
Does your business have positive customer reviews? Most likely a prospective franchisee who is considering investing with you will do some basic research which will no doubt include a Google search. If there is no information about your business online or, worse, negative reviews, franchise deals will inevitably fall through.
You can tell yourself that only disgruntled customers take the time to review businesses, but try explaining that to a prospective franchisee whose livelihood and future depends on the success they achieve with your brand.
Before franchising, take care of your online reputation. Make sure that Google searches return results that validate your opportunity and don't act as red flags, sending prospects fleeing.
Proof of demand
As a new franchise concept, you don't have a track record to point to. One way to get around this lack of evidence is to use market research to prove that there is strong demand for your products or services.
Conduct market analyses to demonstrate that a market exists for your goods or services and that there is a good deal of growth potential. Include competitive research.
Successful competitors indicate demand for the product. Too much competition may show that the market is saturated. No competition at all could mean that the market for the product or service isn't big enough to sustain franchises.
Express your value
You have a successful business and people should be knocking down your door to get in on the opportunity, right? Let's say that's exactly what happens. But what's next? Franchising is more than selling franchises. It’s about building a successful franchise system one location at a time.
For this to happen at scale, you must provide franchisees with quality support. Everything from the initial training to ongoing marketing support must be planned, tested and executed perfectly. You may have systems that work for you as a solo entrepreneur and business owner, but if you are like the majority of successful business owners, you may be keeping most of this knowledge in your head.
Document your systems, create support programs that add value for your franchisees and can be duplicated. As an emerging franchise brand, you likely don’t have much value in the brand itself as of yet. So, what exactly are you selling to franchise prospects? You are selling your secret sauce to success.
Share your growth plans
Prospective investors who are willing to take a chance on an emerging franchise are often looking for the next big thing. Buying into an established franchise that everyone else has gotten into doesn't excite them. They are willing to take a chance for the potential of a big payoff, the rapid growth and success of a new franchise concept.
Growth may be your goal, but it is important to be strategic about how you scale your company. Prospective investors will want to know what your growth plans are. You need to have a vision that fits with the reality of your business. Your new franchise business model may be to expand slowly to surrounding areas, coast to coast, or even internationally. It is recommended that you grow at the rate that is natural for your business.
Consider where your business model will work and how far you can reasonably expand the brand into unknown territory. Regardless of how you plan to grow, you have to be able to explain it in a way that gets buy-in from prospective franchisees.
The bottom line is that to have success in franchising, you must be proactive in providing validating information. Don't wait for franchise prospects to ask these important questions. Overcome potential obstacles to investing before they arise. As a new franchise brand, your success depends on attracting investors and communicating your potential.