Signing out of account, Standby…
Preparation and mindset make you a better franchise candidate as well as entrepreneur.
Strong franchise systems are built on the shoulders of franchisee talent recruited into the brand. Great operators build a great franchise. It’s that simple. So, during the recruiting process, smart franchisors screen for evidence that you are not only a fit but will also elevate the brand. Can you run their type of operation? Are you culturally aligned? Do you understand, and will you work well with customers and staff?
But increasingly, franchise systems also screen for resilience. After the financial crisis and pandemic, even newer brands are pickier about selecting franchisees who are likely to weather challenges and market dislocations. It’s also a worthwhile thought exercise for you as you think about your options. What do you bring to the business, and what should you be looking for in a resilient franchise concept?
Related: Are You an Ideal Franchisee? Here’s How to Find Out.
Is the franchise model and this particular franchise really a good fit for you and your goals? Will your “why” stand the test of time? Are you prepared to put the necessary effort, time and capital in to make it a success? Do you have the right support system in place?
If you are absolutely certain the franchise model and this particular franchise is a good fit for you, then you are bound to be more resilient in your mindset. Second-guessing yourself adds stress and causes you to lean back when you should be pushing forward. Take the time upfront to ensure you’ve done thorough due diligence on the franchise concept. And also ensure that it’s a good fit for your skills, level of investment and desired lifestyle.
Poorly run franchise systems will allow under-capitalized franchisees to stretch their way in by cobbling together resources to barely meet the financial requirements. You should easily clear the minimum requirements bar. Avoid any franchise that appears to be cutting corners on this. You also need at least 9-12 months of living expenses saved to truly be comfortable and not under additional stress.
Look around. Be wary if it appears that anyone could buy this franchise. In other words, if you don’t see any evidence of screening candidates out but rather rushing buyers forward — don’t buy. This is a signal of an immature franchise system that is likely to hit the rocks. Only join a franchise system that takes operator quality and capabilities seriously. Are they selective?
New franchisees often get themselves into trouble because they try to save money. They don’t do enough marketing or hire enough staff when they start their business. The business fails to catch on or early customers are disappointed and don’t return. This leads to franchisee burnout. If you are under-capitalized, then under-investment in the business will stunt your growth prospects. Don’t stretch your way into any new franchise business. Take the time to accumulate enough resources and a financial cushion, or look for lower-cost options.
Related: Is Franchising a Fit for You?
Great franchise systems continue to innovate and keep up with the times. Over the period of your ten-years-or-more license agreement, the franchise will change. You need to be prepared mentally and financially. Maintaining an open mindset and coming into your franchise knowing and anticipating that things will change is important.
Proactive change can make your business more resilient. How can you incrementally improve your business every day? Even a well-run enterprise can get stale, and employees can actually get bored when things are going well. Routines are good but can also dull awareness. Maintain a constant state of improvement, and look for ways to take your business to the next level. This means being open to improvement suggestions from your franchisor and best practices from fellow franchisees. Find accountability partners. Talking to other franchisees can help you challenge your assumptions and look for new options for personal and professional growth. The market is too dynamic to assume you can continue operating in the same way indefinitely.
Your franchise requires ongoing financial investment. Too many new franchises look at cost estimates in the Franchise Disclosure Document and think that’s the sum total of what they have to put into the business. Cost estimates are backward-looking based on historical reported franchisee costs. Pad the estimate to account for inflation. Franchisees opening during 2021, especially in fixed site retail concepts requiring construction and fixtures, saw dramatically increased costs. But over the life of your franchise, you’ll need to constantly refresh, replace and potentially add services or upgrades. This is both wear-and-tear related and because business conditions change. Your franchisor may require new products or services that will require incremental expenses.
Another big area of investment is technology. Not surprisingly, technology fee-creep is one of a franchisee’s pet peeves. Technology innovation can be simultaneously empowering and disruptive. Some concepts have made staying out front from a technology perspective core to their customer brand value proposition. This means franchisees have to keep up, which costs money.
If you think about the pace of innovation, it is unrealistic for any franchise system to be able to perfectly predict what technology may be needed five to ten years from now — or what they’ll need in order to stay competitive and maintain operating margins. Franchisees signing a long-term license agreement are often caught off guard by technology upgrade costs several years into their business. Keeping up is a co-investment responsibility between the franchisor and franchisee. The best franchise systems disclose ongoing upgrade investments at the corporate level.
Franchisees can be understandably frustrated by corporate parents who take years of profits out of the business but don’t reinvest to keep up with the times. But the same is true at the franchisee level. Franchisors can get frustrated by franchisees who deny that things have changed and ignore dated fixtures or technologies that need to be updated. Many franchisees view technology fees as a tax or additional royalty. They don’t see the fees as funding competitive differentiation and just a cost of doing business in our modern technology-driven world. Add this line item to your pro forma planning. Talk to longtime franchisees who have kept up their units with the times about their ongoing investments in upgrades.
Related: How to Create a Resilience Plan for Your Business
Some franchise models advertise themselves as passive investments. But no business involving human beings can be 100% passive. And of course, the more units franchisees own, the more removed you can become from daily human resources issues via site managers and regional leadership. Labor costs and shortages in certain sectors will continue to be a problem, based on demographic trends. Do you know how to build strong teams and retain staff? Do you know how to develop people and keep them engaged? If you have a superpower here, you are uniquely valuable as a potential franchisee.
Since talent development and retention is so critical, more and more franchise systems are looking for ways to help their franchisees in this area. This is sticky, due to joint employer constraints. But as you evaluate franchise opportunities, look hard at the operating model. What is daily life like for employees in this franchise system? What does it take to attract employees, train and keep them? Does the franchise provide meaningful training and strategies to help franchisees be successful? Do operating margins allow you to pay competitive and attractive wages? Can you create meaningful growth and promotional opportunities? Would you want to work in one of the front-line positions?
You’re only as strong as the team you build. Get into the weeds and think about the employee experience you have to create as a franchisee in order to be successful. This thought exercise will help you make a better franchise purchase decision upfront and be a more successful leader once you’re running the business.
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Chuck H. Shelton
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