To be successful in a franchise business, you must be willing to do certain things to ensure that success. Franchises are unique in that you are taking a product and service that the franchisor has formulated — and to some extent already proven successful — and starting a “new” business. This requires that you maintain a good relationship with your franchisor, find the best business location, develop a marketing plan, take care of financial matters, and manage your resources so that everything works smoothly. Franchises that fall short in one or more of these areas are often the franchises that fail.
Maintain a Good Franchisor Relationship
While most of the time the franchisor helps the franchisee, there are times when the relationship with the franchisor can become a hindrance. A constructive franchisor-franchisee relationship is more often than not the key to a successful franchise business.
If the franchise has a poor relationship with the franchisor, and/or gets little or no assistance from it, then the business’s chances for success diminish considerably. Many large franchises, such as McDonald’s, weed out any franchisees that don’t follow the franchisor’s prescribed standard. This standardization is often what makes these companies a successful franchise business. If the business model as outlined by the franchisor is not easily duplicated, the chances for success decrease.
Find the Best Spot to Set Up Shop
One way to improve your chance of success is by finding the best real estate for your franchise. Being on a busy street or in crowded mall is preferable to being located just this side of Outer Mongolia. Many franchises have failed from being in the wrong location, and many have succeeded from being in the right place at the right time.
Another important factor is how much protected territory you are granted by the franchisor. A study by the Institute for Operations Research and the Management Sciences (INFORMS) showed that 91 percent of successful new franchises had been granted exclusive territory in their contracts. For the same period, a revealing 31 percent of franchises that failed were not given exclusive territory, and thus were prey to encroachment by other shops that siphoned off potential customers.
Develop a Marketing Plan
Within franchises, advertising is almost always the domain of the franchisor. Typically, what happens is that franchisees are required to contribute to an advertising fund that is then used by the franchisor to promote the product and/or service.
Marketing problems usually stem from a bad product and/or service, no market share or customer base, too much competition, and poor advertising. Developing a marketing plan is the best way of bringing to light any inherent marketing problems that your new franchise might have.
Take Care of Your Finances
A primary reason why franchise businesses fail is that new franchise owners go into business lacking the funds to meet their startup and operating expenses. The best way to anticipate these costs is to develop a solid business plan early in your process so that you have a realistic idea of the money you will need to start your new franchise.
Because it is often a “known” product, the franchise brand is normally a benefit to a franchisee. But if the product or service is simply a bad idea, no amount of marketing and financial backing is going to make the franchise a success.
Manage Your Resources
Savvy franchise management involves using all of your resources to their optimum. This starts with you and trickles downward from there. You are your own best asset, from your own experience and training to the delegating you do to your managers and employees.
Fortunately, most franchisors offer training to their franchisees. Taking advantage of this training is important to your success as a franchise.
In addition, hiring and managing employees so that they reflect your business in a positive way is one of the best ways to improve your business. If your customers are satisfied with your product and service, they will come back for repeat business. And that’s a sure recipe for success.