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What is The Biggest Risk to Franchising a Business?

In the fast-paced world of business, franchising has always been a popular way for someone like yourself looking to scale business operations. However, amidst the excitement of growth and profit potential, there lies a critical pitfall that you and many other aspiring franchisors often overlook, hence the biggest risk to franchising a business which is growing too fast that can lead to self-destruction.  This risk, compounded by a sales-centric approach rather than a focus on franchisee success, is one of the biggest problems you will face as you venture into the world of franchising. 

The Allure of Rapid Growth: A Double-Edged Sword

For you and many other business owners, the allure of rapid expansion can be irresistible. The idea of expanding your footprint, multiplying the sheer number of businesses out there doing the same thing as you (read more about Duplicating Your Business) and maximizing your profits is undoubtedly enticing. However, the danger lies in prioritizing quantity over quality. If you adopt a sales-focused mentality then you may find yourself trapped in a cycle of chasing numbers, neglecting the crucial aspect of ensuring each of your franchisees succeed.

The temptation to sell as many franchises as possible can lead to a lack of due diligence in selecting suitable franchise candidates. This rush to meet sales targets jeopardizes the careful vetting process necessary to identify people who not only have the money to invest; but also possess the skills, experience and dedication required to successfully operate your business in another market.

Sales-Centric vs. Support-Centric Approach

It is important to recognize that the foundation of a thriving franchise system is built on the success of individual franchisees. It is not merely about selling a franchise; it is about fostering an environment where franchisees receive the necessary support to operate, grow revenues, expand their customer base and enhance operational efficiencies.

The critical shift lies in moving away from a myopic sales-centric focus towards a holistic approach that prioritizes franchisee success. This involves investing time and resources in providing comprehensive onboarding, training, support and a robust framework for addressing operational challenges. A successful franchise system is not built overnight. Nope, it requires your commitment to the long-term success of each franchisee.

Aligning with the Wrong Companies

The problem is compounded when you align yourself with companies that offer franchise marketing or franchise sales support (often times they refer to themselves a franchise consulting companies).  It is no secret that these companies have a vested interest in driving rapid franchise sales. This alignment can exaggerate the problem since these franchise consulting companies (read more about Franchise Consulting Companies Who Are They) have a vested interest in getting you to sell a ton of franchises quickly too fast. Your focus as a franchisor should be on ensuring your future franchisees’ operational excellence.

As true franchise developers, we do not provide any franchise marketing or sales services. Our focus is on building a solid franchise program that not only protects you and the business you created but also teaching you how to navigate the landmines of franchising so you stay out of trouble (article).  This approach focuses on what is most important, which is how to award franchises and execution. To be successful at franchising, when working with us you will come to realize how important it is to maintain an unwavering commitment to guiding franchisees through the complexities and constant challenges of business ownership. All of this takes time, energy and commitment on your end which can be dangerously diluted if you are bringing on too many franchisees too fast.

Premature Franchise Area Development Arrangements

Lets touch on area development arrangements. We cannot stress enough how important it is to exercise caution when considering offering a franchise area development agreement (we do not do them for new (emerging) franchisors). While these type of arrangements may seem like a shortcut to rapid growth, they often prove to be premature for emerging franchise systems. An area development arrangement boils down to selling a block of franchises to someone who is an unknown performer. In most cases, the person never gets the businesses operational, the franchisor does not have the experience working with multi-unit operators and this type of arrangement typically leads to tons of legal nightmares that manifest in years to come. All in the spirit of selling franchises (too many too soon).

Franchise area development arrangements are frequent tools used in the toolbox of franchise brokers (sometimes known as franchise advisors, franchise consultants, franchise marketing experts or even franchise coaches) who prioritize quantity over quality (learn the Differences Between a Franchise Advisor, Consultant and Broker). This is very dangerous for emerging franchise systems who must resist the temptation to sell franchises in blocks to people just to collect a pay day and rack up franchise sales numbers.

The FDD will Expose Rapid Growth

The Franchise Disclosure Document (known as the FDD) plays a crucial role in exposing franchise systems that grow too fast or experience rapid expansion (learn more about the Franchise Disclosure Document). These documents have sections in there that purposely to serve as a warning flag to someone looking to buy into your franchise as well as to franchise examiners. And if you do not know, franchise examiners work for state agencies who have the power to prevent you from offering and selling franchises in their state. There are a handful of states (read more about Franchise Registration States Some States are Tougher) that require a franchise examiner from that state to review your FDD to determine if you abide by not only the federal franchise laws but also the franchise regulations in their state.

The purpose of the FDD is to provide the person looking buy into your franchise program a realistic idea of what to expect out of the relationship with you. In other words, everything from startup costs to the rules of the road along with specific disclosures that are setup to serve as warnings (read more about the Elements of a Franchise Disclosure Document). Along with those warnings, you guessed it, are required disclosures about your system’s growth. So while you may think it is impressive to show big growth numbers insinuating to “jump in now while its hot”, the astute person looking to buy a franchise typically knows better.  You are required to provide this FDD to each person interested in becoming a franchisee and they must have it for a minimum amount to of time to review it before signing on with you.

Diligence, Discipline and Realistic Growth Expectations

So, do you want to avoid the biggest risk to franchising your business? Then set realistic growth expectations. The ultimate victim of a franchise system that grows too fast is the franchisee. Remember slow and steady wins the race. Prioritize diligence and discipline over rapid growth and stay the course. Resist the urge of selling franchises for the sake of numbers. Do not get roped into the hype of franchise sales, instead subscribe to the commitment of helping newly minted businesses become successful and focus on shepherding them through the intricacies of business ownership. Properly vetting franchise candidates, awarding franchises to individuals with the right qualifications, providing consistent (and in most cases regularly scheduled) ongoing support and being a pioneer in your industry by continuing to innovate are essential components to being successful at franchising. If you are interested in wanting to franchise your business then give us a call at 1-877-615-5177 and we will be more than happy to have an open and honest conversation with you.

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