The Keys to Success in Franchising

Steve Murphy

By Steve Murphy, president of Franchising at Winmark Corporation

For many people, starting a new business can be an overwhelming and intimidating experience. The mere thought of writing a business plan, formulating a pro forma, documenting processes and procedures in operating and training manuals, hiring and developing staff, and capitalizing the venture, all on the hope that it will work out and generate a profit, is mortifying to the average business person.

2016_May_Legnon_OwnersThat is why many people turn to franchising as an alternative to satisfy their entrepreneurial drive. With proven business models, a track record of success, and profitable franchisees to mentor them, people looking to get into business for themselves can make a smart investment and own their own business, while leveraging the brand equity of a well-known and well-established franchise.

However, just buying into a franchise and making the initial investment does not guarantee your success. Like any start-up business, even a franchise must be well run by an involved and committed owner operator who will listen, follow the model and execute every day. At Winmark, we tell all new franchise candidates that the business does not run itself, and if there was a franchise that existed that did, where you would hit the ‘Go’ button and watch the cash flow in the door, every one of us would be in line to get one. The degree of separation between the top and bottom performers in any franchise usually comes down to a few things – and those who prioritize them as important are typically the franchisees you will find with the best results in the system. Following are three common things that separate the best franchisees from the average franchisee.

The number one reason most small businesses, including franchises, fail comes down to proper capitalization. A great franchisor is one who awards the franchise, and does not simply sell a franchise to anyone with a check and a pulse. A great franchisor will not allow a candidate to attend Discovery Day until they have properly vetted that candidate and they have passed the minimum liquid capital and net worth requirements. Once assured they meet the requirements, the next steps are up to the candidate. They must select the right lending partner, ask for the appropriate levels of financing to properly capitalize the business, and finally, they must be sure to invest all of that money into the business. Capitalizing a business, especially a start-up, is not fun. A lot more money goes out the door before it comes back in, but a franchisee must be committed to the concept and trust the hundreds of franchisees who have come before them that the model will work for them as well. It is a huge leap of faith in both the franchisor and the brand, but the alternative is far worse. Undercapitalize any business, and even the best franchises in the world cannot save an underfunded franchisee.

Second, stay involved in the business, even if it is a franchise that does not require you to be there every day. No franchise is so hands off that you can literally invest your money and walk away. If you do, two things are bound to happen. One, your employees, with no clear direction or management, and certainly no vested interest, will inevitably fail in your business. That is not a failure on their part – that is a failure that sits squarely on the shoulders of the franchisee for not managing their investment. Franchising is not a passive investment like stock ownership; it is an active investment that requires the investor to stay involved in the business to keep it on track. Second, perhaps you will be one of the lucky ones and hire and develop all the right people and your wildly driven and successful employees will have the dedication and determination to make your business a success in spite of you. It will all work for you – as long as you don’t lose those great employees. But employee turnover is part of any business, and you cannot establish a business plan that assumes all your best employees will stay with you forever. As soon as they walk out the door, so does your investment. Employees need to know that you know how to run the business without them, and that you are more invested than them to make it successful. That type of leadership will go a long way toward ensuring your success.

And finally, the best franchisees are the ones who follow the brand model the closest. Why do all the research, find the right business opportunity, and invest in the perfect franchise, only to decide that you will re-create the wheel and write your own script? You invested in the franchise for a reason – it works! So don’t start your investment by deciding you know more than the franchisor and the hundreds of franchisees who have come before you and had success. Enhance the model, improve the model – but don’t change the model. Make sure you understand why the model has worked and been so successful over the years, execute that model as flawlessly as possible your first two or three years, and then work with your fellow franchisees and the franchisor to continue to enhance and improve that model for the entire system. After all, you were smart enough to make the right choice in the first place – now be equally as intelligent in ensuring your investment provides the ROI you desire by doing what has worked for everyone who has come before you.


Posted in General - Small Business