Franchising the right way
Starting any business is a risky proposition. In fact, studies have shown more than 90 percent of new, non-franchised businesses fail within three years.
So, it should come as no surprise that, for many business owners, becoming a franchisee is the answer to building a long-term, profitable business.
People become franchisees in large part because they want to be part of a proven program which reduces their financial risk. They recognize the value in partnering with an organization experienced in the industry and staffed with people who are experts in specific functions of the business.
Is franchising for you?
Franchising isn’t right for everyone. So the first step is to decide if you would be comfortable in such an arrangement.
Ask yourself these questions:
- Does the business fit your personal lifestyle?
- Is the financial risk reasonable for your comfort level?
- Do you have experience in key functions of the business, such as marketing, training and operations?
Before you go any further, the answer to all three questions should be “yes.”
As a franchisee, you must follow the franchisor’s business formula. That means giving up some of your independence.
While some small business owners find this takes a little getting used to, doing so will enable you to focus on serving your customers, not on development and implementation of operations, training, financial, marketing and human resources systems.
You’ll also make royalty payments to the franchisor. Think of royalties as rental payments for use of the franchisor’s established brand and business systems, as well as access to the operational, financial, training and marketing programs which have been tested in the real world.
Becoming a franchisee makes you part of a group, which gives you the opportunity to share ideas and learn from the experiences of fellow franchisees. It also means that you will need to work with fellow franchisees in the same market which, on occasion, will require negotiation and compromise.
What to look for in a franchisor
Clearly, there are many advantages to becoming a franchisee. The question is: What should you look for when reviewing your options?
I launched franchising efforts for Oil Can Henry’s quick lubes in 1987, and I encourage prospective franchisees to evaluate franchisors on how they invest in their brand and business systems, as well as the financial, operations and training support they provide to their franchisees.
Make sure they provide the complete package and continue to invest in the company.
A franchisor should offer a strong brand and demonstrate that it continues to invest in that brand.
When it comes to buying a franchise, nothing is more important than the brand. After all, the brand is the essence of your company. It’s what consumers think of when they hear or see your name.
A strong, well-communicated brand will separate your company from the competition, build an emotional relationship with your customers, and motivate purchase decisions. It can even enable you to charge a premium for your service.
Developing, managing and expanding an effective brand is an intensive and expensive process. Everything a company does — from the look of its service centers and employee uniforms to customer service procedures and advertising, even how employees answer the phone — contributes to the strength, or weakness, of that brand.
Maintaining a strong brand also requires constant attention and investment. Prospective franchisees should ask franchisors for specific examples of how they manage and build their brand. The franchisor’s response should show an on-going commitment to the brand.
A franchisor should provide its franchisees with marketing programs designed to build the company brand and generate sales at the center level.
Marketing is an area where many independent business owners fail. They don’t proactively market their company and, instead, react when business is down. By that time, it may be too late.
A strong franchisor offers a variety of marketing programs, including advertising materials, promotions, point-of-purchase materials and employee incentive programs, the franchisees could not afford on their own.
A franchisor should have extensive operating systems in place and should offer training and assistance to help franchisees follow those systems.
Clearly defined and detailed operating systems that cover everything done at the business, from opening to closing, are critical to long-term success. The best system leaves nothing to chance.
Product development & testing
A franchisor should offer an active product development and testing program. While oil changes continue to serve as the foundation of a quick lube’s business, it is absolutely critical to seek out new products and services to attract customers and increase sales.
Most independent business owners don’t have time to carefully test new products and equipment, or the critical mass of units to negotiate favorable prices. A franchisor provides value to its franchisees by taking on these responsibilities.
A franchisor should act as a resource on financial matters, providing franchisees with guidance tailored to specific needs. It includes the critical, and often overwhelming, process of applying for a business loan.
Franchisors should be careful not to neglect their business and their franchisees to start selling franchises. Selling franchises should not be the business. Franchising is a distribution method. The service should be the business.
Becoming a franchisee can be an effective way to achieve business success. A franchisor invests the time and effort to develop the brand and business systems necessary for success, enabling the franchisee to focus on building the business by concentrating on attracting and serving customers.
John E. Shepanek is chairman, CEO and majority shareholder of OCH International, Inc., the franchisor of Oil Can Henry’s quick lube centers. Since 2000, OCH has shared a partnership with Castrol Americas, owned by BP/Amoco. John can be contacted at firstname.lastname@example.org.