Franchising has long been one of the best ways for businesses to quickly yet sustainably scale. It is one of the lowest cost and lowest risk channels for expansion.
However, that doesn’t mean there aren’t barriers to entry and continued growth. In many cases these barriers are seriously underestimated – tripping up would-be franchisors.
The good news is that armed with the right knowledge upfront, businesses interested in expanding through franchising or emerging franchisors currently growing their franchisee numbers can overcome these challenges.
So, what are the largest barriers to entry and expansion for new and emerging franchisors and how can they be overcome?
5 problems, 5 solutions
1. Not having enough capital
Because franchising tends to require less capital than other methods of expansion, new and emerging franchisors often underestimate just how much capital will be required.
New franchisors will bear a number of significant establishment costs including the costs of infrastructure, technology and staff recruitment. Then there are the ongoing costs of operations, staff, franchisee recruitment, sales, systems, compliance and the cost of supporting new franchisees.
In the early days, it can be expected that the setup and operational costs will exceed the return from franchise fees or royalties.
However, new franchisors will discover that it’s not uncommon for this to continue for some time. Most won’t break even until they have at least 20 franchises operating (sometimes more, dependent upon your industry type) in the market for a couple years. Until the business is in the black, it needs to have enough capital and cash flow to be self-sustainable.
The best ways to overcome the capital challenge are to accurately predict the required capital, access reliable channels of finance, and create efficiencies to streamline operational costs. This will help bridge the gap between launch and profitability.
2. Not having the right systems in place
Emerging franchisors will quickly realise the costs of expansion can be high, which can be a deterrent for some franchisors when it comes to investing in the right systems and infrastructure upfront.
The problem with that, of course, is that without the right infrastructure in place from the outset, inefficiencies will be baked into the business from day one, ultimately costing far more down the track.
Emerging franchisors should prioritise investing in a comprehensive franchising system which will give them one true source of data, reporting capability and transparency.
Emerging franchisors also need to consider which systems will best support franchisees. Do they require a job management system? Timesheets? Project management tools?
If emerging franchisors invest in the right things from the beginning it will save a huge amount of money, time and energy down the track.
Six years ago, Hire A Hubby realised that unless we improved how we handled data and automated our processes, our growth would plateau. As a result we embarked on a digital transformation project to develop a bespoke franchising system to manage every part of the business digitally.
The end-to-end franchising system we developed has since been launched as an industry wide solution, Franchise Cloud Solutions. Building and investing in the system was a huge undertaking, but it absolutely transformed our business.
Leveraging cloud-based software and accessible on all devices, Franchise Cloud Solutions offers franchisors real-time reporting, a single source of truth for data, accounting integration, benchmarking capability, simple compliance and marketing automation.
What can be achieved through technology today is miles ahead of what was available when Hire A Hubby first launched 21 years ago. My advice for new franchisors is to embrace it upfront – it’s one of the best things you can do to set up the right foundations for your franchise.
3. Not having the right knowledge
A franchise business is very different from your standard business. The regulation, compliance requirements, rights and responsibilities and other factors are unique to franchising.
Stepping into the role of franchisor requires a completely different skill-set and knowledge base. Not all new franchisors are prepared for just how a big leap it will be.
Franchisors are primarily responsible for supporting and training franchisees, and setting up the right systems and processes to enable those businesses to thrive. Instead of focusing on the day-to-day operations of one business, suddenly the franchisor has oversight over the day-to-day operations of multiple businesses, which are usually run very differently to each other.
My advice to emerging franchisors is to commit to building your knowledge before and during your expansion:
- Surround yourself with the right people
- Talk to established franchisors about what has worked for them
- Read as much as you can
- Attend industry events
No two days in franchising will be the same and you won’t be able to adapt unless you are open to learning something new everyday.
4. Not having the right team
The team in a franchise is the engine of the business. They are absolutely critical for ensuring that your expansion and ongoing operations are successful.
Ensure you have a great team which is across the nuances of franchising – from legal, to compliance, to marketing, to franchisee recruitment.
Most importantly, make sure you have an excellent field management team.
Field managers are the go between for franchisees and the franchisor. They are responsible for supporting franchisees and guiding them on how to ensure their businesses thrive. The best field management staff are passionate about seeing franchisees succeed.
At Hire A Hubby we’re lucky to have some of the best people in the business. Queensland field manager Tim Spreadborough recently won the FCA Excellence in Franchising, Field Manager of the Year award in QLD/NT and our marketing director, Caragh Welford, was a finalist in the national awards in the category of Excellence in Marketing.
5. Not attracting the right franchisees
The success of a franchisor rests entirely on the quality of its franchisees. Expanding too quickly and taking on the wrong franchisees is an easy trap to fall into, which will cost you dearly in the long run. Your goal should be to grow sustainably by sourcing franchisees likely to be successful in the long term. Otherwise you’ll face several problems down the track including low franchisee retention and potential damage to the brand’s reputation. It’s important to employ a comprehensive assessment process before you agree to work with anyone.
For businesses interested in exploring franchising or emerging franchisors currently growing their franchisee numbers, the major lesson is to never get complacent. The most successful franchises have got to where they are today by continually adapting to challenges.
The same applies for those starting out. If you are keenly aware of what the challenges might be going in and you take steps to address them early, then you will have set the foundations for success.