May 1, 2012

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Build Out

How to Turn Your Small Business into an Expanding Franchise

Di Lewis

May 1, 2012

At some point many small business owners have to make a decision: to franchise or not to franchise.

But it’s never quite that simple. A lot goes into making that decision. The owner has to know the business and understand if it’s a franchisable concept. Even if it is, some owners try to jump into franchising too early. And with the first two pieces in place, there are still plenty of details that go into creating a successful franchise.

Building on Success
To even consider starting a franchise, the business must be something that’s not only reproducible, but already doing well, says Brad Smith, general counsel at Franchise Foundry in Orem.

However, having one booming business is not usually enough to take the leap into franchising, Smith says. “If you have a pizza restaurant, then No. 1 is that it needs to be making money; it needs to be a successful model. And it can’t be a standalone joint on the corner because there could be several factors to your success.”

Having more than one location doing well shows that it’s not just a good location, it’s probably a good idea. While it’s not necessary that the business has already been duplicated, Smith says it’s very helpful because it paves the way for duplicating the business when franchising, as well as helping the owner understand where the pressure points of the business are.

“The vast majority that don’t [have more than one location] experience significant growing pains and ultimately fail because they don’t understand what it takes to have a multi-unit operation.”

Finding Support
Once an owner is ready to take on the world of franchising, there is still a lot of hard work to be done. Mikelle Despain, Sub Zero Ice Cream and Yogurt brand manager, says it’s helpful to get assistance from a franchising company.

Despain says the owners of Sub Zero originally tried to do as much as they could on their own when they began franchising in 2008. The growth soon became more than they could handle, and two years later they got help from Five Star Franchising, where Despain works. Working with a franchising company offers a level of support that is difficult to find alone, she says.

Smith says franchisors also must be prepared for how expensive franchising can be. At bare minimum, hiring an attorney and getting agreements, financial documents, trademarks and other needs in place is pricy.

“On top of that, you’re going to have growing pains. The needs of your system and revenues don’t match, and you’re going to have to deal with that.... A good emerging franchisor is always expanding and well funded. If they plan to subsidize the business as they go along, they’ll probably do better than if you have to bootstrap everything,” he says.

Working with Franchisees
As a franchisor, providing support and being hands-on with franchisees is critical, says Sean Collins, Costa Vida co-owner. Collins and his business partner, David Rutter, began as the first franchisee of Costa Vida’s previous owner. In 2009 they bought the franchise. Collins says that experience allowed him to understand the needs of his franchisees.

“You do have to wear two hats of franchisor and franchisee,” Collins says. “We feel what makes us successful is bridging that gap properly. We still today operate our own stores, so we’re very aware from day to day what our franchisees are facing.”

Putting together an all-star franchise team was also critical to the support Costa Vida offers franchisees, Collins said. Whether through a franchising company or a hand-picked team, making sure nothing is left to chance ups the odds of success.

Keeping franchisees happy is key to the short- and long-term success of a franchise, Smith says. To get happy franchisees, they need to know the daily details. He says a potential franchisor must identify their “secret sauce.” What makes the business unique? What is the marketing plan? Who is the customer? Will distribution models need to be adapted to go national?

Collins says it’s also important to remember that every franchisee reflects on the franchise as a whole. When he and Rutter bought Costa Vida in 2009, Collins says they took a year without opening any new franchises to evaluate the ones that were already open, close those that needed to be closed and bring others up to par. That paved the way for the growth the franchise has continued to see since they began opening new franchises in late 2010.

“Never lose touch with the franchisee,” Collins says. “Don’t allow any of your agenda, your goals, your growth to be inconsistent with the goals of the franchisee, because it will hurt you long term.”

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