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As a former franchise owner and current franchise consultant, I am often asked about lessons learned each from personal experience and from working with over 800 prospective franchisees over the years.
Below I have included some practical tricks to aid you on your franchise journey.
1. Focus on Essential CEO Skills
Traditionally, as the CEO—or as I call it, OEO (Only Executive Officer)—you are the jack of all trades. You have to know up front whether you (the franchise owner) plan to take on the role of CEO or whether you intend to rent someone to run the day-to-day operations.
Note: The required skills of a General Manager vary depending on the form of franchise (location-based brand or service-based brand) you have.
Location-Based Brands:
When I was running my very own fitness franchise, I discovered some vital metrics that looked great on paper but didn’t translate into sales.
As a fitness company, we attracted individuals who were great instructors and passionate about fitness. However, we quickly discovered that this passion didn’t translate into sales. In addition, after working with one CEO who had a great personality and worked hard, we discovered that he didn’t have much foresight. If nothing was flawed, he didn’t know learn how to plan or stay up for develop future opportunities for success.
In turn, we needed to define the ideal CEO as someone who lives and breathes sales, has a great sense of selling, and a passion for fitness. Defining these key skills for success allowed us to rent more effectively. In general, operations for location-based brands are very detailed, leaving the key skills for the CEO as marketing and sales.
Service brands:
In general, service-based brands are more hands-on and more more likely to adopt an owner-operator model. (In contrast to my location-based boutique fitness brand, consider a brand that gives in-home services, reminiscent of painting.)
In the past, franchise owners not only did expert work and managed customer requests/ticketing, but also managed marketing and sales projects. Fortunately, about 5-10 years ago, technological advances streamlined the needs of service-based sales. Now, these owners have solid operational software that is structured around marketing, ticketing, and sales. In turn, these brands have turn out to be more semi-absent, and managers do not have to be sales and marketing geniuses.
Therefore, service brands do not have to worry about customer acquisition, but focus their essential skills on service delivery and worker management.
2. Choose the right location
It seems obvious: Choose a location in a populated area. But it is not that straightforward. When I began, I underestimated the importance of density for location.
Goal: High density is needed your customer profile.
As a general rule, the more frequent the customer, the more convenient the location should be (the more population density should be provided inside a 10-minute drive). If customers come to you once a month or once every two months, they might be less sensitive to location.
As a franchisee, you have a big advantage in selecting a location because of your relationship with your franchisor. For example, your franchisor should have access to a demographic profile of their customer, which incorporates household income, age ranges, etc. In addition to traditional demographics, many also use psychographics, which indicate how people spend their money (lifestyle characteristics), what their flexibility is perhaps (e.g., traveling in an empty house), and some of their economic options (dual income without kids, or “DINKS”).
Note: While some of those tools could be very sophisticated, they are not the only thing to think about. You need local knowledge of the property and your personal intuition. Don’t blindly rely on the franchisor – they need to offer you the green light, but you’ll want to triangulate.
3. Invest in effective tools
It’s vital to take a position in tools that gives you the best value for your money. For example, in my fitness franchise, we invested in inexpensive scheduling software that was very effective.
First, we defined three basic job roles: manager, shift manager, and staff.
Through cross-training we ensured that the manager could perform his duties and the duties of the shift leader or worker, the shift leader could perform his duties and the duties of the worker, and the worker could only perform duties inside his defined role. Anyone above him could work in any role. If someone had to depart a shift, they might offer their shift to anyone trained in their role, and this robotically made it available to another person to take over.
This tool has saved us time and management headaches while also empowering our employees to set schedules. Take the time to research effective tools for your brand—you’ll thank yourself later.
4. Make sure you have enough working capital
After all, you are running a business and you’ll want to have sufficient start-up capital.
One of the primary reasons that young franchises fail is not that the franchise owners don’t have a good business, but that they might be undercapitalized and not leave themselves enough margin for error. Maybe a pandemic hits, perhaps their CEO leaves, etc. People are inclined to underestimate the value of getting “extra” capital.
Item 7 of the FDD (Franchise Disclosure Document) sets out the “Estimated Initial Investment” that a latest franchisee might want to have before they begin. This document will include a breakdown showing a low and high column (e.g. vehicles, equipment, etc.). The law requires minimum liquid capital over a period of 90 days.
The truth is that few latest businesses might be money flowing (earning profits) inside 90 days—regardless that that’s a requirement, it’s not realistic. Make sure you’re giving yourself a little more wiggle room than you think you’ll really need.
There’s no option to avoid all the obstacles that come with owning a franchise, but it is vital to learn from individuals who have franchising experience before you jump in.