This article explores the criteria for franchising a business suitability.
Franchising and licensing are very successful ways of growing and improving a business, as proven by many household names in New Zealand (e.g. Columbus Coffee, Green Acres, Harcourts and Fastway Couriers), and globally (e.g. McDonald’s, Coca-Cola and Snap-on Tools).
All are looking to grow a valuable business by harnessing the many advantages franchising or licensing can bring, for example:
- Access to capital from external owners
- More motivated unit managers in the form of franchisees / licensee owners
- Bulk purchasing and group marketing
In New Zealand alone, there are now more than 400 different franchise brands and 20,000 franchisees across a range of different industries.
Yet franchising and licensing are not suited to every business. Indeed, not all are successful. Therefore, it is very important to determine whether franchising and licensing is suited to your particular business and your ownership structure. Accordingly, there are many valuable aspects to think about when considering for your own business.
Criteria for franchising a business
There are many useful areas to consider when assessing your readiness for contemplating franchising or licensing. In my view, the following six are important examples:
- Profitability. Unit-level operations, whether they be location or van-based, need to be sufficiently profitable to provide a solid return on investment.
- Proven over time. A business should have two or more years in operation, ideally more. Several outlets are an advantage – and prove adaptability. No franchisee or licensee should be a guinea pig.
- An appealing concept. It helps to have an attractive business concept many others would like to operate.
- Intellectual property. The business needs to own or access Intellectual Property. Ideally much IP will be unique and valuable (e.g. exclusive products, brands and/or systems etc.) providing differentiation and competitive advantage.
- Initial capital. Developing a proper franchising or licensing programme requires upfront capital. The amount depends on the situation.
- Leadership and management. The following are all important facets – strong vision, ability to delegate, sales & marketing skills, relationship building, management, strategic thinking, and, good planning.
- Commitment to good franchising /licensing. Successful franchising / licensing requires a commitment to being a good franchisor / licensor, and achieving great results through first supporting franchisee / licensee success.
There are other aspects to consider as well. And, of course, developing a franchising or licensing programme first requires a detailed assessment, and then development.
Franchising and licensing both offer established businesses exciting possibilities. However their appropriateness and implementation needs to be considered and approached carefully, and in the right order.