Expert Advice You Haven’t Heard for Franchising Your BusinessMark Siebert, founder and CEO of iFranchise Group, shares his road-tested do's and don'ts.
In the last 30 years, Mark Siebert, founder and CEO of iFranchise Group, has worked with 500 franchise businesses, including Subway, Buffalo Wild Wings, Auntie Anne’s Soft Pretzels and Massage Envy. “We’ve worked with almost half of the biggest franchises in the country to help them franchise better or to prepare business owners to license their companies,” he said.
Siebert has spoken in the United States and abroad about franchising and is author of “Franchise Your Business: The Guide to Employing the Greatest Growth Strategy Ever.”
He talked to NCR Silver about why small business owners should consider franchising, the biggest mistakes franchisors make and how to franchise successfully.
Why should small business owners consider franchising their business?
Franchising allows you to grow much faster, first, because you’re leveraging off of the time of your franchisees. Your franchisees find the sites, negotiate the leases and hire and train the people. They do a lot of the local legwork to get the business up and established.
Second, it’s motivated management. There’s nothing that will get someone as motivated as their own money. If you invest your life savings in something, you’re going to be thinking about that business 24/7.
The third advantage, and probably the biggest, is capital. From a franchisor standpoint, the franchisee is making all the investment in getting that unit up and operating, and that allows the franchisor to expand using other people’s money without giving up equity in the process.
When is a good time to consider franchising?
What I tell people is if you’ve got a business that’s new and unique, and where you’ve got a point of difference, you should get to the market fast. Otherwise, if you’re doing it successfully, other people will see what you’re doing, and if you wait, it may be too late.
If you’re going head-to-head with established competitors and you don’t have strong points of differentiation, you should go a little slower. Make sure you are really slick as an organization and have your act together.
But business plans should be designed to serve the needs of the owner. Growth for growth’s sake is not something that is mandated of any business owner. If you’re comfortable, there’s no need to franchise despite the fact that you have the next big thing.
On the other hand, people who want to grow faster and have bigger goals generally are better off making that decision earlier rather than later. We started working with Massage Envy when they had one location that had been open for three months in 2002. They were planning on opening a second location, but they recognized that they had something new in the marketplace. They wanted to grow fast, so we started putting a franchise program together, and after nine months of operating history, they were ready to start selling franchises. Now they have more than 1,000 franchises. You can grow very quickly despite the fact that you don’t have a lot operating units.
What are the biggest mistakes prospective franchisors make?
They try to duplicate someone else in the marketplace as opposed to trying to create their unique value proposition. “Me too” as a strategy for success is a recipe for disaster. A lot of times people look at how someone else did it, but they have a different staff, value proposition and business model. Who knows if the first person to the market did it right in the first place.
Entrepreneurs sometimes, by their nature, are ready-fire-aim. They run off to the lawyer without doing any business planning first. You have to create a good business plan.
What are the most common misconceptions about franchising?
That franchising is highly litigious. If you consider franchising versus corporate growth, it’s probably less litigious. In franchising, you have a singular contract that the franchisee is going to sign, which is generally a very one-sided doc. It’s drafted in the franchisor’s favor and largely not negotiated. The real issues out there are typically fraud based. You have to be good at documenting systems and training franchisees.
The other misconception is that quality goes down at a franchise. Some of that is based on types of businesses that franchise, such as fast food. People don’t realize there are companies out there, like Ruth’s Chris Steakhouse and The Ritz-Carlton, that are franchises.
What should prospective franchisors consider before drafting a plan?
You have to have a business that is actually franchisable before you even start down the process. Just because your business works for you doesn’t mean it’s going to work as a franchise business.
Can you sell franchises? Do they have points of differentiation? Do you have credibility with the people who might buy your franchise? Can you duplicate the business? Is it transferrable in a lot of markets? Is it systemized? Do you have an operations manual and training in place? After you’ve taken out a royalty, which is how franchisors get paid, is there still enough return on investment in the location? If there’s not enough return on investment, then it’s not going to be a successful franchise.
The key to franchising is making sure your franchisees succeed. If they succeed, you’ll succeed as a franchisor.
Why is a franchisee’s success tied to your own?
A lot of people get into franchising thinking the hard part is selling the franchises, but franchise sales is a process. The hard part about franchising is making your franchisees successful. It’s making sure they’re following the systems. It’s about selecting right prospective franchisee. If someone comes and waves a check under your nose, sometimes it’s hard to turn that guy down. But if they’re the wrong person, then the most important thing to do is to turn that person down.