Every business owner wants his or her business to evolve whether it moves slowly in the pursuit of short-term goals or swiftly in the achievement of long-term growth. For those entrepreneurs primarily interested in the latter, franchising a business is a means of accomplishing such growth.
It’s crucial that the brand of the franchise is part of a business model proven over time, and, therefore, has more than the reasonable potential to provide a successful operating prototype for franchisees. Also, the past experience of the franchisor as an owner and operator of similar businesses means the franchisee’s learning curve is significantly lower than that for most owners of brand new businesses, thus expediting franchise development.
To be franchisable, this business model of the franchise and brand must be attractive to potential franchisees. Is the business unique? Does the brand have something that makes it “special” to the extent it would attract potential franchisees? As it operates, does the business as conducted pursuant to the business model have a good reputation? Also, is there some sort of trade secret or other intellectual property that needs to be protected?
The simplicity of replication is one of the primary reasons a business is franchisable. The aspects of the business model must be related to simple concepts that are capable of replication and not dependent on a unique location, the work of a particular employee, or excessive efforts or unique skills of the franchisor. Is the franchise capable of operating and achieving success in a variety of markets? What unique or special skills does the franchisee offer? (The latter is a question that is often overlooked by franchisors.)
Hand-in-hand with replication is the concept that the franchised business must be teachable to franchisees so that they may easily grasp the keys to its prior success. The business and its operations must be substantially systemized so it may be replicated and operated in a non-centralized fashion.
Of course, operating a new franchise also requires capital to train employees, create marketing strategies, and develop customers. Franchisees typically provide the initial investment, thus allowing for growth with a minimal investment of capital by the franchisor. However, at the end of the day, franchisees want some value for the personal commitment of a significant amount of resources, whether money, time, or effort.
Yet, even sufficient capital, a valid idea and the best planning for the development of a franchise will result in failure if it’s simply not the right time for a business owner to franchise a business. Determining the “franchisability” of a business is a complicated analysis.
For more information on this topic, contact your Franchise Law counsel at Smith, Gambrell & Russell, LLP.