Putting down roots

Franchising is a fantastic way for a business to roll out its brand. Many of the world’s greatest companies have used the core idea behind franchising to reach millions of customers.

So, once you have a winning business idea that has been tested and it is demonstrating a good return for all stakeholders, what should your first steps be?

The first thing one should do is put in place the three essential cornerstones that are the foundation of every successful franchise system: the franchise agreement, the operations manual and the network development plan.

The franchise agreement should be drafted on your behalf by an experienced franchise lawyer (bfa affiliation is key).

It should reflect the reality of franchising being based on close relationships and mutuality.

Emphasise working together and the role both parties take in making the business a success.

Be clear about the obligation on yourself to develop the brand and supporting the franchisee.

The agreement should not be a cookie-cutter used for every brand; it should be a bespoke document written with your business in mind.

One lawyer I have recently worked with took us through a 50-plus-point checklist of typical contract terms so we could fully understand what we were adding to our agreement and why.

The second cornerstone is the operations manual. Whereas the franchise agreement is set in stone and will remain untouched for many years, the operations manual should be a ‘living’ document containing frequent updates.

This document is the franchisee’s job description and should be followed to the letter. Franchisees like to be part of any update in procedures and it will be useful to have feedback before you make significant changes to operating standards.

The franchisor’s field team will base most of their interactions with the franchisee on the contents of the operations manual.

This may be by positive re-enforcement or training on best practice. Newsletters, web content and franchisee information exchange programmes will all be based upon the day-to-day practice of the business and enable franchisees to work more effectively.

The final cornerstone of franchising will be the development of network through the sale of multiple territories.

You will often read the latest announcement from another new chain that is planning to open hundreds of sites across the UK. Many will fail to achieve their goals and I think poor network planning is often the main cause of failure.

Excellent territory development has three components: location planning, quality recruitment and network optimisation. Location planning is a focus on securing the best sites, with the best demographics, to achieve high levels of unit sales and franchisee profitability.

These locations will be based upon the learning from the brand’s trial locations and will provide the franchisee with comfort that they are following a winning formula. Over time, franchise territories may change as the brand develops. 

In my early days at Domino’s Pizza, a franchise area may have 50,000 households but more recent territories have been 15,000 or less.

A franchisor should keep their territory map dynamic and update it to suit the latest performance statistics. Without a quality franchisee, however, even a great site will fail to flourish.

The franchisor must have in place a robust recruitment plan to convert their enquiries into new franchisees that are keen to take the territory.

This will be based upon compelling sales materials and a robust process to manage leads and communicate with prospects.

It is often the case that a potential franchisee is looking at a number of similar concepts, so the professionalism of their contacts during the recruitment process can have a major impact on which business they invest in.

Once a franchisee has signed up and opened their first location, success will prompt the best operators to look to open more locations / sites.

This is an attractive option for franchisors, as they will already have a relationship with the franchisee and can avoid the risks of taking on new, unproven candidates.

The franchisor needs to weigh this approach with the development of their entire network and, as with everything in franchising, it is a balancing act.

My advice is to build out a region with a small cluster of franchisees first, then repeat the process in a neighboring region. Don’t go ‘national’ too quickly. Success in franchising is based on strong foundations both in the business concept and the first steps made by the franchisor. These three cornerstones will help you build a strong franchisee base and a profitable future. Good luck.

Andrew Emmerson is the co-author of ‘Franchising: How both sides can win’ and has spent 30 years working in the franchising sector in the UK and US. He is a non-executive director for a number of franchise businesses and a partner in three Dunkin Donut franchises in the US.