By Matthew Stanton, Chief Development Officer, WellBiz Brands, Inc.
When it comes to business ownership, franchising is an attractive option for entrepreneurs because of the turnkey processes, established brand name and proven track record of the entire system.
Even with these advantages, you still need to do your due diligence based on your individual skillset and goals as an owner. For example, some brands require more operational execution, which is a completely different skillset from a business that is more marketing driven.
So, before signing on the dotted line with any franchise, here are five key tips to consider to ensure you are set up for success:
1. It’s going to take work.
Some entrepreneurs have the idea that owning a franchise is a passive investment, but, in reality, franchising is running a small business– which is anything but passive. While franchise systems have a support structure and more processes in place than you would have if you started something on your own, it’s still imperative that you are involved in all facets of running and improving your business.
Even if you hire a manager to run your location, it takes an active owner to be successful because you will always care about the business more than anyone else. There is no substitute for an owner that is actively engaged in the business and looking for continuous improvement. Franchisees can be successful in running multiple units of the same brand, and multiple units of different brands, but by and large, the biggest commonality between franchisees who are successful and unsuccessful are those who are engaged in their business and those who are not.
2. Talk to franchise owners in the system.
The best way to understand what the intricacies of a franchise are that drive success is by talking to other franchise owners in the brand’s system. What are the key performance indicators (KPI’s) that identify and help you understand the business, and what drives success forward? For example, in a membership-based business, learn information about the trial, conversion rates and attrition rates. In a restaurant, you’d want to understand the operational complexity and cost management amount several metrics. If you’re a convenience-oriented food provider, how do you efficiently run the kitchen to provide proper speed of service that is critical to customer retention? Really understand what those success drivers are so you can know if it matches up with your skillset. Having that full understanding from the get-go will set you up for running a successful business.
As you speak with franchise owners be aware that every brand will also have advocates and detractors, strong-performers and poor-performers. Just because you hear a few negative comments doesn’t mean the brand isn’t a good fit for you. When speaking with a franchise owner, don’t be afraid to ask them about their specific KPIs and how they rank within the system. With enough data points you should be able to differentiate between poor performance in an otherwise good system, and systematic issues with a brand.
3. Get clear on the state of the industry and market conditions.
When it comes to the industry and market conditions, it’s important to be clear on what growth looks like for the overall brand. For example, is the pie getting bigger? Or do you grow by taking market share from others? What are the risks associated with that industry? Can you win despite those things?
Every brand and every industry have competition, both directly within and with others that come up against it. For example, there can be a brand that’s the national category leader, but regionally, another brand may be stronger. So, it’s important to understand the competitive environment and how the unique value proposition of the brand you’re looking at compares to the competition, and how you can win in your marketplace.
4. Find a business you enjoy.
You’re going to be in this business day in and day out, so it’s important to know whether you will enjoy it or not. Franchise businesses are not a ‘set it and forget it’ model, and this is especially true in industries like retail, services and hospitality, where giving customers a good experience every single day of the year is critical.
Before you go all in, ask yourself: Is this something I’m still going to be fired up about four to five years from now? Will this energize me, or drain me? It can be fun to run your own business, so long as you make sure you understand what is required from you for it to be successful and are doing something you enjoy.
5. Make sure you are supported.
Every franchisor will say they have good support and will help you in marketing, real estate, operations and the like, but I always advise potential franchisees to understand what, specifically, that support is going to look like on a day-to-day basis. What resources will they provide you with? Who are the people they have in those positions that are going to be supporting you? When you go for discovery day, make sure you meet those key people and understand what their expertise and capabilities are.
Take marketing, for example. Some franchisors manage the marketing almost in totality for you, while other brands require the franchisee to manage a more local marketing strategy. Therefore, you’ll need to understand what areas the franchisor has invested in expertise to help make you successful, and where you’re expected to step in; make sure those pieces all lineup with what you’re good at and enjoy doing.
Overall, be honest with yourself about your skillset and what motivates you, and how those factors match up with the opportunity and support that the brand is going to offer. If you truly understand those elements, have done the due diligence and determined that it’s the right fit, then you are well on your way to being set up for success.