Trending Upward: Balancing New Ideas with a Solid Business Model in Franchising
Franchising is an exciting business. There’s a brilliant, new idea born every minute. Some trendy concepts catch fire quickly, generating a lot of interest including drawing the attention of enthusiastic entrepreneurs. Like any other potential business investment, though, before investing in a trendy franchise idea, it’s important to do your due diligence.
How to Evaluate
When you get down to the basics, evaluating a trendy new franchise is no different than investigating established franchise brands. Entrepreneurship through franchising is one of the most important financial decisions of your life, so take your time and check the new brand out thoroughly:
- Attend a Discovery Day. An important step is meeting the executive team during a Discovery Day. This gives you a chance to learn about the leaders of the brand and get a feel for them personally. Due to current circumstances, this very well might involve a virtual visit, but, in the months and years ahead, in-person visits will once again be a feasible option.
- Investigate the executive team/Culture. The franchise disclosure document (FDD) is an invaluable resource when evaluating franchises. Check whether any previous litigation or bankruptcies have been disclosed. Take the time to get to know the executive team personally. What is their professional experience? Do they have a background in franchising? Have they been involved in a string of businesses in a fairly short time?
- Talk with franchise location owners. This can be little tricky when it comes to very new franchise brands with only a handful of locations that might not have been operating very long. Still, the experiences of existing location owners are an indicator of what you might expect. Get a feel for their satisfaction with the franchise. Do they regret the choice? Are they doing well financially? Does the corporate team support them? Does the brand provide the services and support they were promised?
- What kind of support is offered? One of the main benefits of joining a franchise is the behind-the-scenes support provided by the corporate team. Do they offer training? Is there operational support, financial, and HR processes? Is there ongoing coaching and education? Does the franchisor embrace changes to technology? Joining a brand that only offers a name and concept, but little ongoing support, will lesson your chances of success.
- Do your homework on the fees. Once you join a franchise, in addition to the initial franchise fee, there will be ongoing charges to deal with. Be sure to do your homework on what to expect. This generally include royalty and ad fund fees. Find out whether the brand charges a license fee for things like proprietary software or for technology. Make sure to compare the fees to those charged by other franchisors. Do they seem excessive in comparison?
Test of Time
Instead of focusing on trendy, it can be more useful to evaluate whether a franchise is trending. An exciting value proposition is one thing. Whether the brand has an established track record for fully capitalizing on the value proposition is another. The test of time helps determine whether franchisors are able to fulfil their promise over the long run.
A mature franchise can often offer more stability and a higher level of support, but even younger brands benefit if they are led by corporate leaders who have long-term experience in the franchising industry. Make sure that the guiding vision and strategy for the brand looks beyond just the first 3-4 years. Is there a solid plan for growth?
Can They Pivot?
Another consideration is the resilience of the franchise brand. Is the value proposition dependent on a very specific fad? Does the brand have the ability to pivot when times, tastes, or economic conditions change? Can the corporate leadership support franchise location owners during widespread, unforeseen circumstances? The past year has certainly shown the need for franchise brands to be flexible in responding to radically changed circumstances.
Look for Value
Joining a franchise brand should never be on impulse. It is a financial investment that can affect the rest of your life. Keep in mind that franchising success depends on more than a flashy idea. It requires dedicated and well-thought-out corporate support, experienced executive leadership, and a long-term strategy. Do your research, shop around and investigate many other franchise brands, carefully weigh the expenses and potential income opportunities. If the franchise brand has the solid business foundation to successfully execute on the new idea, then consider pulling the trigger. The franchising industry can offer great opportunities. Just make sure it is the right opportunity for you.
Bill McPherson is vice president of franchise development at AlphaGraphics, one of the largest U.S.-based networks of locally-owned and operated Business Centers, offering a complete range of print, visual communications and marketing products and solutions. For more information about AlphaGraphics services, visit www.alphagraphics.com. To learn about franchise opportunities, visit www.alphagraphicsfranchise.com.