To Go “Independent” or “Franchise”

Deciding Whether To Go It Alone (Independent) or Join a Team (Franchise).

So you’ve decided to start or acquire a business. Congratulations on taking the entrepreneurial leap of faith. The journey will change you for the better, regardless of outcome. Along the way, you’ll learn, stumble, conquer, rejoice, stress, generate revenue, ideally profits – and not necessarily in that order. I sincerely hope you’re wildly successful.

Having participated in start-ups, acquisitions, divestitures, developed multiple franchise systems, and led independent businesses of varying sizes, I’ve experienced success and failure. The lessons learned along the way were invaluable, shedding light on the key ingredients of successful businesses: The Golden Nugget (your product or service), Inspired Leadership, Clear Vision, Well Defined Goals, Adequate Funding, Committed People, Aligned Teams, Healthy Culture, Sound Execution, etc.. Here’s the difference, as I see it: If you go independent, you create the recipe. If you go franchise, you follow a recipe.

As “time” is the most precious resource we have, let me help you decide whether or not to read-on.

  1. If the industry you plan to enter has competitors that use a franchise business model, then this article will help you decide whether to go it alone or join a franchise.
  2. If no competition exists, you may find the “DNA of Successful Franchise Systems” useful in considering whether to grow your new business using a franchise model.
  3. If you’re weighing options as to which industry to enter, and franchise systems exist in any of the industries under consideration, then you’ll find this article informative.

Independent vs Franchise: The excitement of working for yourself, being an entrepreneur and blazing a path through uncharted territory is a powerful motivator. However, unless you’re bringing a new product or service to market, you’re likely to have competition. If one or more franchise systems exist within the industry you’re entering, then you’d be well-served to carefully evaluate each franchise system, as they may in-fact be competitors. If you have the opportunity to make this decision, here’s a brief summary of each option: 

  • Franchise: You receive a system, process and tools to market, sell, deliver product, serve customers. You will need to embrace the vision and core values of the system, adhere to the policies, practices, and performance standards. Your job will be to fund, train and execute a business plan to operate in a designated market. You instantly become part of a family, you have peers and interact with experts from the franchisor. The franchisor is responsible for training you, evolving the system, product, service to ensure its future relevance. You’re the local face of the business, driver of local success. You pay the franchisor fees upon joining the system & on-going fees based on revenue.
  • Independent:  You have total freedom, full control over all decisions. You create everything, define the vision, mission, core values, products, services, sales, marketing, customer service processes, systems, quality standards. You have no territory constraints, can change anything in your business, anytime. You’re responsible to ensure the continued relevance of your offerings, to determine how/when to evolve them. As owner, you’re the founder, leader, driver of success, accountable when things go-wrong. The buck stops with you… period. All revenues generated by your business are yours.

Experience

 

Does Experience Matter?: SBA statistics show that half of all start-ups shut-down in five years, with the top cause of failure being under-capitalization. So what does this have to do with “experience”? If a business owner seeks funding through a lender, the lender will want to see a business plan including a proforma analysis of start-up costs, revenues, on-going expenses, approximate time frame when lenders funds will be needed, and a forecast of when break-even is anticipated. A lender’s decision is based upon their assessment of risk. Lenders will seek to understand whether or not the business model is proven. Lenders will examine the experience and qualifications of the business owner, and other key parties (i.e. franchisor). Lenders unfamiliar with the industry will want an overview of the business, inclusive of key business processes, systems, target customer-base, marketing plan, SWOT and/or competitor analysis. Franchisors help franchisees gather, compile this info and often have “approved” lenders that have already been vetted and understand the industry.  

Be “All-In”: When evaluating prospective franchise systems, you’ll find many differences in culture, size, history, systems, flexibility, support levels, etc.. The presence of certain key attributes (see “DNA” below) makes a big difference in the likelihood of success. Regardless of a franchise system’s relative strength, at the outset you will be the primary driver of your business. To succeed, you must be “all-in”, believe 100% in the product/service, be willing to do every job (or hire quality staff to do so), ask your family & friends for their patronage and moral support.  Things may not always go as planned, so have your support network (mentors, trusted advisors, etc.) in-place, committed to taking your calls whenever needed.

 

Continous Improvement

Continuous Improvement: Like human beings, franchise systems are constantly evolving. Franchise systems led by people committed to continuous improvement are stronger, and far more likely to stand the test of time. Evidence of this commitment will be apparent without asking, highlighted in the company’s stated core values. Leaders of successful franchise systems understand that best practices, innovations often come from front-line staff and franchisees. Many franchise systems openly encourage all staff, location managers, owners to share new ideas, feedback, best practices. The best franchisors recognize, showcase these contributions and share best practices system-wide.

 
Crossroads

Making an Informed Decision: If you’re considering buying a franchise, maximize your prospects for success by taking a disciplined approach to evaluating each franchise system. Establish a common set of criteria against which all can be measured. This is a big decision – you’re choosing which “family” to join, and making a substantial commitment to them, as they will to you. If you’re uncomfortable making this decision alone, engage a trusted adviser knowledgeable about franchising, who can help you “stress-test” your assumptions. Franchisors have a vested interest in your success, as they earn the vast majority of their income over an extended period of time via royalties based on your revenues. “Failures” or poor performing locations are highly undesirable to franchisors, and can substantially impede franchise system growth.

 
Human mind

The “DNA” of Successful Franchise Systems: As a franchisee and having developed, operated multiple franchise systems, here are key attributes of successful franchise systems: 

  • Core Values – clearly defined, evident to you in every interaction, consistently demonstrated on physical tours, and when speaking with references
  • Leadership – franchisor leaders and team members you respect, whose actions & words align, in whom you have confidence & believe are genuinely committed to your success
  • Realistic ROI – “unit economics” are strong, proven to be sustainable. FDD performance data is easily validated when interacting with existing franchisees
  • Performance Metrics – well defined KPIs (finance, ops, mktg, cx); reports furnished regularly, accessible online. Validate use of franchisor cited KPIs with franchisees and understand how the KPIs are used to evaluate/improve unit performance. 
  • Reputation – Any system you consider joining should have a strong, positive reputation. This should be evident online, in social media. Because problems are inevitable, the franchisor should have a crisis management plan, and share the elements, resources.
  • Brand Consistency – robust QA programs are imperative to help “police” the product; the franchisor must be clear about if and how franchisees may “localize” their business
  • Skin-in-the-Game – when a franchisor operates company unit(s) they’re better grounded in reality, can test and assess the impact of changes on staff, customers, owners, etc.
  • Training – well-defined curriculum, logical schedule, hybrid delivery (classroom, online, practical/OJT). Franchisor should also offer on-going training post-opening on relevant topics. Inquire with existing franchisees for insight on training value and effectiveness.
  • Quality Franchisees – as in any organization, having the right people in the right roles is crucial. Franchisee selection should be appropriately rigorous – you’ll experience this firsthand. If it’s as simple as “sign here”, run for the hills! Be sure to speak with a cross-section of franchisees (both those suggested by the franchisor as well as your own selections from the master list in the FDD). Ideally, you’ll find franchisees to be successful, authentically living the core values, and willing to share ways they hope to see the franchise system improve. Remember, none of us are perfect and everyone has room for improvement, including the franchise system.
  • Franchise Advisory Council (FAC) – should have a diverse membership (i.e. recent additions, veterans, single unit, multi-unit, varying markets), who are committed to serving in this capacity. Be sure to speak to a multiple FAC members, and ask what important issues they’ve addressed at FAC meetings.
  • Standards – ensure that they are thorough, clearly written, ask how frequently they’re updated, who ensures franchisee compliance, and if you can access them online. Look for absolute requirements (versus recommendations) and ask questions if you’re unclear.
  • Marketing Effectiveness – franchise systems offer template calendars for local marketing expenditures – review them carefully to understand required versus optional programs. For optional programs, inquire about system-wide participation rates. For required programs, request data on their performance/effectiveness in driving new business. You should carefully examine the franchise system’s lead generation programs, and ask what training is provided to help franchisees convert leads to customers. As the franchisor is the steward of the brand, inquire as to what advertising, PR will be done in your market to raise brand awareness. Validate marketing effectiveness by speaking with owners open <1 year, as well as those open >24 months.
  • Customer Experience – your business’ reputation, the rate of revenue growth, your share relative to competitors is all driven by the outcome of customer interactions. The franchisor should gather/share customer feedback, monitor complaint resolution, provide customer experience data (ideally system-wide rankings), and have defined standards. Ask what resources are available to help franchisees improve customer experience.
  • Initial Training & Start-up Support – the effectiveness of the on-boarding process, initial training and all pre-opening activity, will substantially affect the growth trajectory of your business. Look for documented process, with timing and key activity milestones, as well as a robust training curriculum, with dedicated pre-opening resources. Validate the effectiveness of on-boarding program/resources by speaking with recently opened franchisees.
  • On-going Support – once you’re open for business, the support provided by the franchise system will change. Seek to understand and assess the resources that will be available to “coach” you to success. Inquire as to what expert resources (on-site, online, phone) will be provided, and on what frequency you can expect on-site support from the franchisor.
  • Technology – systems are typically specified and providers often mandated. All technology should simplify/streamline the administrative requirements of operating the business. Ideally the technology will also serve as a competitive advantage, if not directly in the eyes of customers, then it should enable you to spend more time with the customer vs. doing paperwork. Seek to understand and validate the reliability, cost-effectiveness, and ease-of-use of all required systems. The best insights will be gained by inquiring with existing franchisees.
  • Suppliers – expect that “required” product/services will be mandated by the franchisor, without exception. Generic components may be available via “approved” suppliers, and/or you will be given very detailed specs. If you’re a consumer-facing retail business, please understand that consumers want the same exact product/service at all locations, so don’t expect the franchisor to be flexible on product/ingredient specs. In speaking with franchisees, seek validation that suppliers are highly responsive, products are effective, quality consistent and pricing is competitive. For franchise system that are highly dependent upon the supply chain (i.e. food outlets), be sure to inquire about what contingencies exist should the supplier be unable to perform for any reason.

Whether you choose to go independent or join a franchise system, I believe that the most important factor in the success of any business is “culture”. The attractiveness of the culture will affect all stakeholders. The champion of all things culture is the day-to-day leader of the business. Top talent is attracted to (stays with) companies that have healthy culture because it inspires people, attracts talent, strengthens ties to customers & suppliers. If you go independent, then you are the north-star of culture. If you choose to go with a franchise system, carefully examine, listen to, assess whether you identify with the culture.

Cheers to your success!!

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