Don Boroian founded Francorp on the premise of working only with companies in a position to take the next step of expansion and growth through franchising. Francorp closely evaluates every business it meets with to determine whether or not that particular business has the viability needed to be a successful franchise organization. Francorp has put together the 12 steps of franchise criteria that the company uses as a benchmark for determining whether franchising could be a successful growth vehicle.
Francorp 12 Criteria of Franchisability for a Business
While it is impossible to determine the franchisability of a business concept without a significant amount of analysis, Francorp has identified a series of 12 criteria that assess the readiness of a company for franchising and the likelihood that it will achieve success as a franchisor.
1. Credibility – To sell franchises, a company must first be credible in the eyes of its prospective franchisees. Credibility can be reflected in a number of ways: organization size, number of units, years in operation, look of the prototype unit, publicity, consumer awareness of the brand, and strength of management, to name some of the most prominent factors.
2. Differentiation – In addition to credibility, a franchise organization must be adequately differentiated from its franchised competitors. This can come in the form of a differentiated product or service, a reduced investment cost, a unique marketing strategy, or different target markets.
3. Transferability of knowledge – The next criteria of franchisability is the ability to teach a system to others. To franchise, a business must generally be able to thoroughly educate a prospective franchisee in a relatively short period of time. Generally speaking, if a business is so complex that it cannot be taught to a franchisee in three months, a company will have difficulty franchising. Some more complex franchisors offset this handicap by targeting only franchise prospects that are already "educated" in their field (e.g., a medical franchise targeting only doctors).
4. Adaptability – Next, measure how well a concept can be adapted from one market to the next. Some concepts do not adapt well over large geographic areas because of regional variations in consumer tastes or preferences. Others (e.g., dental practices) are constrained by law. Still other concepts work only because they are in a very unique location. And some work because of the unique abilities or talents of the individual behind the concept. Finally, some concepts are only successful based on years of perseverance and relationship building.
5. Refined and successful prototype operations – A refined prototype is necessary to demonstrate that the system is proven, and is generally instrumental in the training of franchisees. The prototype also acts as a testing ground for new products, new services, marketing techniques, merchandising, and operational efficiencies.
6. Documented systems – All successful businesses have systems. But in order to be franchisable, these systems must be documented in a manner that communicates them effectively to franchisees. Generally speaking, a franchisor will need to document its policies, procedures, systems, forms, and business practices in a comprehensive and user-friendly operations manual and/or computer-based training module.
7. Affordability – Affordability merely reflects a prospective franchisee’s ability to pay for the franchise in question. This criterion is as much a reflection of the prospective franchisee as it is of the actual cost of opening a franchise.
8. Return on Investment – A franchised business must, of course, be profitable. But more than that, a franchised business must allow enough profit after a royalty for the franchisees to earn an adequate return on their investment of time and money. Profitability is always relative. It must be measured against investment to provide a meaningful number. In this way, the franchise investment can be measured against other investments of comparable risk that compete for the franchisee’s dollar. Typically, Francorp would like for the franchisee to achieve a ROI of at least 20 percent by the second to third year of operations.
9. Market trends and conditions – While not an indicator of franchisability as much as a general indicator of the success of any business, these trends are key to long-term planning. Is the market growing or consolidating? How will that affect your business in the future? What impact will the Internet have? Will the franchisee’s products and services remain relevant in the years ahead? What are other franchised and non-franchised competitors doing? And how will the competitive environment affect your franchisee’s likelihood of long-term success.
10. Capital – While franchising is a low-cost means of expanding a business, it is not a "no cost" means of expansion. A franchisor needs the capital and resources to implement a franchise program. The resources required to initially implement a franchise program will vary depending on the scope of the expansion plan. If a company is looking to sell one or two franchised units, the necessary legal documentation may be completed at costs as low as $15,000. For franchisors targeting aggressive expansion, however, start-up costs can run $100,000 or more. And once the costs of printing, audits, marketing, and personnel are added to the mix, a franchisor may require a budget of $250,000 or more to reach its expansion goals.
11. Commitment to relationships – Successful franchisors focus on building long-term relationships with their franchisees that are mutually rewarding. Unfortunately, not all franchise organizations understand the link that exists between relationships and profits. Strong franchisee relationships enable the franchisor to sell franchises more effectively, introduce needed changes into the system more easily, and motivate franchisees and their managers to provide a consistent level of products and services to their customers.
12. Strength of management – Finally, the single most important aspect contributing to the success of any franchise program is the strength of its management. Franchise Connect has found that the single most common contributor to the failure of start-up franchisors is understaffing or a lack of experience at the management level. Many times, new franchisors will try to take everything on themselves. In addition to absorbing several new jobs for which the franchisor has little to no time, the franchisor needs to exhibit expertise in fields in which he or she may have little or no experience: franchise marketing, lead handling, franchise sales, ad fund management, training, and multi-unit operations management.
For more information please visit the Francorp corporate site,
www.francorp.com
