In franchising, restaurants often represent the upper crust since there are many known success stories in this industry. Although restaurants account for more than 50% of the franchisor pool, it represents less than 40% of franchise market in Canada.
Indeed, franchising in Canada is present in more than 65 business markets. Truth be told, if your growth requires setting up local service points in large numbers, whether they need a physical location or not, you probably have potential as a franchisor.
Now that you think franchising might be for you, what are the questions you need to ask yourself to evaluate if you have the potential to become a franchisor.
I believe that there are 5 big questions to ask yourself before considering becoming a franchisor
1. Is my business a success?
Your success is fundamental to the creation of your network because everything will emanate from your current company. By success, I do not mean only financial success but also competitive factors that make your company a hyper-efficient business model.
2. Can I develop a high volume of service points?
As a franchisor, you only have access to a small part of the revenue generated by your franchisees. Therefore, if you do not have many franchises in your network, your revenues will not give you the ability to offer quality support, the possibility to invest in your systems and resources, and generate interesting profits. Unfortunately, this is a reality for many franchisors who have underestimated their market or granted too large territories.
3. Can my business model be replicated and mastered quickly?
If your business model is complicated to master, the risk of failure for a franchisee will be too great for you to entrust them with the use of your system and your trademark.
However, when we work with entrepreneurs who want to become a franchisor, we are regularly called upon to simplify the business model before launching it as a franchise. For us, it is quite simple, and the key is the Operations Manual. More often than not, the complexity lies in the fact that the processes are not documented and explicit. By organizing everything, we solve the problem.
4. Do I have a team to support me in the start up of this new business?
” Alone we go faster, together we go further ” this proverb applies to franchising from the start of the project. As an entrepreneur, you can’t do everything alone. You will need to build a quality external team: franchise expert, lawyers, marketing expert, finance expert, architects, etc. They will be your advisors and supporters. In addition, internally, you will have to develop a small team to take care of franchisees’ recruitment, selection, training, and operational support. Depending on your business model and the type of industry, this team may include several other specialists.
5. Am I willing to invest money and time to create and grow this new business?
Becoming a franchisor will require investment. In franchising, improvisation costs a fortune, so it is better to be ready before starting. The magnitude of the investment comes from the complexity of the business model you franchise, the relevance of your operating systems, and your branding and marketing. The less organized you are, the more expensive it will cost you. Most of the franchise projects we manage require an investment of between $100,000 and $250,000 in the first year.
Here is a very transparent view of the investment for a project we carried out in 2020.
| Activity | Budget |
| Feasibility analysis | $5,000 |
| Franchising value creation strategy and plan | $35,000 |
| Operation Manual | $ 10 000 |
| Geographic development strategy and plan via geo-marketing (Canada) | $35,000 |
| Legal strategy and tools (Canada) | $35,000 |
| Digital marketing strategy and tools for recruitment and selection of franchisees | $30,000 |
| Total | $150,000 |
| Note 1: The client had a high-quality website and branding
Note 2: Advertising expenses for recruitment are not included |
How do we obtain a return on this investment?
We can affirm that your investment will pay for itself with a single franchise by simplifying the process.
By calculating the royalty income generated throughout a 5-year contract, this investment can typically be made profitable.
The other part of the investment is your time, and the time of others you will need to invest to succeed. Believe me, this factor is not to be neglected.
Conclusion
As an entrepreneur, growth is a daily concern. In franchising, you will no longer be alone because your franchisees have the same goal as you, to grow their business to be as profitable as possible. No, restaurants are not the only business models that can successfully franchise. You can become a successful franchisor with the right vision, a solid organization, and a wise investment.
Okay, disagree, let me know! (Comment, this feeds the debate)
And if you encounter issues that you would like to discuss with an expert who knows your reality since I have lived it as a CEO, I would be more than happy to do so.
Contact me privately for a free strategic brainstorming session!
No sales, just a CEO to CEO conversation to reflect together on your growth and get to know each other.
