When rapid business growth is on the menu, you might be considering franchising as a way to sky-rocket infrastructural development and revenue acceleration. For many this is a good choice, however for others it just isnt going to work. In this article we explore traits that make your business model suitable for franchising, and therefore allow you to put more thought into whether its right for your business.
One of the most popular reasons that businesses franchise off their assets is to grow a presence in other markets. Fast food chains are among the most popular franchise-dependant businesses as they require a local presence throughout the country.
You might wish to consider franchising if you need a sales team at a local level, a store-front at a local level, or even if you need the provision of services to happen at a local level.
One of the strongest reasons why people opt to buy a franchise is the brand. When you buy a franchise from a popular brand, you can set up shop and expect people to know what you stand for right away. This is a privilege that most businesses would die for.
Its never usually a good idea to start franchising a commodity business. Although its possible that the business operates on low margins, its important that it has a means of differentiating itself. If it does not, then you have to step back and consider what value you are offering to the franchisee.
Some business models scale better than others. For example, some people are extremely creative, and they will often use their creative talents to start a business. However, unless they can find lots of other creative people, just like them, they find that it is hard to allow their business to grow beyond a few staff.
Thats why you have to ensure your business is built in a way that means it scales well. This will often mean that systems and processes are in place that automates processes, and that a system is in place that allows for anyone to be replaced without it being detrimental to the success of the business.
Often franchise businesses will be low margin, high volume businesses. Franchising is a perfect fit for this model because the franchise owner only needs to earn themselves a good wage, and service their capital investment. The business is then able to grow in an, almost, risk-free way.
Economies of Scale
If your business is likely to have increased margin with scale, then this can often mean your business model is perfectly suited for franchising. Some industries, like business services, for example, often report decreased margins during certain phases in their growth cycle. Consider what your margins will look like as you grow.
Each of your franchise owners will have skin in the game. For some businesses this will be more important than for others. If it is important for your business, then maybe thats a sign that franchising is right for you.