From Entrepreneur To Franchisor

Posted on Oct 13 2016 - 10:50am by Editorial Staff


When you start out in business, you may be more excited by your independence than by anything else. No one else can dilute your standards, interfere with your plans, or tell you how to do anything. It’s an amazing freedom.

In time, you may find that your system is so good that you can compete in any market you choose. You may add locations, expand your market, and take other steps to increase the size of your business. Eventually, you may see that you are committing as much time to management as you want, but you may still be willing to allow the business to grow.

That’s when you may be able to start selling franchises of your business. Countless business owners have done so with everything from restaurants to cleaning services, with examples as diverse as Fast Signs to the UPS Store.

The key to UPS franchise profitability has been the ability of the parent company to power the success of the local franchisees. Those owners shouldn’t feel left behind, but rather should feel like partners with the company, who is always there to advise them, guide them, and help them.

When you’re the parent company, you need to have several things clearly established before you begin offering locations to people who are considering a franchise.

Product Standards & Processes

Customers and franchisors have very specific standards about what is sold by franchises. Restaurants are a great way to illustrate this.

It does no good to hang the same sign outside a dozen different restaurant locations if the food offered inside is different. Every recipe, every cooking process, every piece of equipment, and every ingredient must be explicitly specified, with standardized suppliers (or at least with very clear regulations about the suppliers that franchisees can choose).

Kentucky Fried Chicken is a perfect example. The eleven herbs and spices, the oil used, the preparation process, and pressure fryer are all very strictly managed to ensure that the KFC you eat in Butte, Montana, tastes identical to your meal in Beaufort, South Carolina.

When you stake your financial well-being on the name you built while you were doing it all yourself, you must protect your standards.

Those standards aren’t easy to develop or enforce, so you need to be prepared for a rather complex process of setting benchmarks.

Financial Considerations

If you’ve ever investigated franchising, you know that you must pay a franchise fee for the right to a territory and that the franchisee pays a certain percentage to the corporate base.

How do you make those determinations? At what point will your franchise fee be so high that potential partners decide to strike out on their own as competitors? You need to examine the profitability of a franchise and make your franchisee fee and commission in line with a realistic profit level for the franchisee.

Territory is another issue. How large a market will you allow a franchisee to tie up? It can be tough to decide this, but you can stipulate that the franchisee can take a larger area if additional locations are opened. For example, a large city could likely support several locations of your business, and it would be best if all are owned by the same franchisee. Structure things so that you don’t have franchisees competing within a single overall market.

Err on the side of caution with market areas. It’s easy to add area to a franchisee’s territory, but there’s no way they’ll stand for a reduction in area.

Orientation And Training

Once you’ve decided what you’ll expect of franchisees, you have to communicate that to them. New UPS Store owners must go to a two-week management camp to learn all the proper procedures, pricing, product offerings, and regulations about shipping processes and handling of packages. Since the 2001 terrorist attacks, the shipping business has changed dramatically, and people in the business have a very steep learning curve.

Will you go to the franchisee or have them come to you? Who will teach them? What locations will you use to train them? Will you allow them to work in the home facility? How will you cover the cost of experimented food, boxes, sign vinyl, cleaning supplies, or whatever you use to train them?

All of these issues can be covered in training, but the details must be worked out in advance.

Growing your business to the point where you can issue franchises is exciting. The important thing to maintain is a standard of excellence that’s in line with your own.

About the Author
Editorial Staff

Editorial Staff at I2Mag is a team of subject experts led by Karan Chopra.