Franchising Strategy: Responsible Growth

In this blog, we aim to highlight the importance of a franchise strategy in developing and supporting a franchise system. By the end of this article, you should have a good sense of what a franchise strategy is and why its important to the success of your franchise organization.

Is franchising your business the right option for you?

The concept of franchising has grown rapidly since the 1990’s and even more so now with ease of access to resources on how to franchise.  The first step in understanding if you have a concept that can be franchised is – have you proven the business model?  To franchise a concept, you should have 3-5 years of experience running the business and finding the right formula for success.  Ultimately success is determined by EBITDA.  Is the business you’re operating generating EBITDA of 20% and beyond?  This is important as with franchising, your franchisee will need to pay royalties and marketing fees of let’s say 10%.  Adding that expense to your existing business – will it still be lucrative?

This is why it’s important to prove the concept over 3-5 years as you want to demonstrate the EBITDA % return has been consistent and is not up and down from year to year.  Go back to previous years and add the additional royalty expense to previous years and see the impact to the financials – would you invest in this business as a franchisee?

Responsible Franchising

As Uncle Ben famously said to Peter Parker, “With great power comes great responsibility”.  When you think about franchising, know that you are no longer responsible for just your operation.  You are now responsible for the lives of franchisees and by extension their staff and families – there will be many more mouths to feed as a result of your franchise concept.  In my opinion, this is where many new franchisors get franchising wrong.  They are in it to grow their business.  They do not have the experience to understand they are now responsible for the success of franchisees.  Before truly going down the path of franchising your concept, ask yourself – “Can I handle the responsibility of knowing the success and livelihood of franchisees is now in my hands?”  What will you do when inevitably someone cannot succeed?  It’s now if, it’s a matter of when. 

Market share is the idea that if ten customers could spend their money at 1 business, this would mean this company has 100% of the market share.  However, if a new entrant came along and 5 customers stayed with the old competitor, and 5 went with the new, that would mean the market share is now 50% for each business.  Conversely, if the existing company added another location, then it’s possible that of the 5 customers going to the competitor, 3 will return to their brand.  Essentially, by adding a new location, you could go from 50% to 80% market share.

Franchising allows you to grow your market share within a market you are already operating in or go into a new market and take market share from those incumbents already operating.

Franchising can help you localize and diversify operations.

When choosing to franchise, it’s always wise to grow within your local geography as you are close enough to support the operation.  In the early days, support could be helping with the location buildout, being there to assist with staff hiring and training, and being there to assist with opening day activities. 

As you begin to add more than one location within your local geography, it then allows you to begin to build onto your existing operations.  You can now pool funds to hire a local marketing agency, landscape contractor for maintenance, negotiate rates for signage, and so on. 

Having multiple locations will naturally allow your franchise system to begin to take advantage of efficiencies that come with size and diversify how the system is being supported.

Risk in franchising is relatively low.

A franchise in itself does not guarantee success.  However, there are several factors that give it a better opportunity to succeed versus a non-franchise business. 

Franchise Business	Non-Franchise Business
Tested business model with financials supporting success.	No track record of financial success.
Licensed use of brand and marketing materials.	Need to create from scratch brand and marketing materials.
Established operating procedures on how to run the business.	Need to create operating procedures.
Peer group running the same business to talk to.	Hard to find others to relate to or learn from doing the same business as you.
Continuous improvement.  The franchisor is always improving the system and business.	Improvement comes as a result of having to try new things versus proactively trying to make your operation better.

Franchisor-franchisee relationships are key.

Coming back to that piece around responsibility also encompasses relationship management.  The success of a franchise company is its ability to provide a business model that allows franchisees to prosper, but it’s also about creating happy franchisees.  There will never be a franchise system where everyone is always happy.  I equate it to politics – not everyone will be happy all the time, especially when you’re making decisions for the entire system. 

This is where relationships are key.  Being able to tell someone why you have to make a decision and how it will impact them goes further than not saying anything at all and hiding behind policy.  This relationship requires honesty, and when it gets pushed to the point of being unhappy, you must be able to communicate and work through your differences.  No different than any personal relationship we may have.  When starting your system, ask yourself how you will manage these relationships now and into the future without having to rely on your contract to enforce your viewpoint. 

What is a Franchise Strategy?

A strategy is simply what you will do to win.  In the business context, it’s the competitive advantage you will take to win.  Further to this, in a franchise business, it’s a competitive advantage the franchisor and, in turn, the franchisee will take to win. 

Understanding your competitive advantage will require a bit of thinking but this is what the essence of your strategy will be based on.  Can you find the differentiator that makes your company stand out amongst its competition?  This will be the makings of your strategy.  Once you understand your strategy to win, it then has to be communicated to everyone in the organization so the same playbook is being used to win. 

Why do you need a Franchise Strategy?

When running your own business, you can get away without having a strategy.  You’re accountable to yourself to make sure you run a profitable business.  Once you venture down the path of franchising, the decisions you make for your business now have a domino effect on franchisees.  Make the wrong move and the magnitude of the mistake is multiplied by the franchisees it impacts. 

Creating a strategy allows franchisees and their teams to understand the competitive advantage the company wants to highlight or develop.  When everyone within the organization understands the strategic approach, it helps to provide visibility to why the franchisor is making the decisions it is – it’s because it lines up with the strategy.

When do you need a Franchise Strategy?

When you first start as a non-franchised business, you probably won’t need a strategy to guide you as the win you’re looking for is simply to be profitable and earn a living.  Once you figure that out, its then you’ll be thinking bigger and long-term.  This is when you need a strategy.

It becomes especially important the moment you decide to franchise.  Your franchisees must know what the franchise system intends to win and how to do it.  It’s only when you make your strategy available to franchisees they will be able to roll up into the organization’s strategy and drive behaviors that benefit the strategy. 

Elements of a Franchise Strategy

Franchise Development Strategy

Now that you’ve decided your business model can provide double-digit EBITDA returns for franchisees, it’s time to sell the concept, right?  Not so quick.  What many early franchise systems get excited about is selling a location, then a second, and so on, but they’re not taking into consideration how to find potential franchisees, business acumen, how to assess for fit, what the relationship will be like five years into the future, and whether they will be the type of operator that can succeed.

A franchise development strategy is about looking at how to find the right franchisee for your system for long-term growth.  To do this requires a roadmap on what winning looks like and how you can win.  Winning is not about units; winning is about having long-term, happy franchisees.  That starts with a thoughtful development strategy.

A Successful Marketing Strategy

Once you become a franchisor and support a system of franchisees, the primary focus is generating leads and customers.  Without customers, there is no franchise!  Returning to strategy, what will be the marketing strategy taken to win the game of getting and retaining customers?  Here, I outline 8 marketing tactics that can roll up into a winning marketing strategy.

8 Marketing Tactics to Consider

Online Reputation Management

When endeavoring to build your own franchise system, don’t overlook the power of customer feedback, whether that’s on Google or any other platform.  Your prospective franchisees will look you up to see what customers are saying.  Respond to customer feedback and ask your happy customers for positive reviews.  This is one aspect of marketing that does not require money to have an impact.  It just requires time.

Local Area Marketing

There is nothing better than using your location as a way to market your goal of expanding through franchising.   If it’s not a customer, then it will be a friend of a customer who finds out just by simply putting up a sign inside your store.  When you have a great product or service, people want to tell others about it!

Content Marketing Plan

This tactic is about having a plan for creating content for your franchise system.  Content can be anything that supports the business or talks about franchising.  Looking at the seven other tactics in this list, creating a calendar with tactics for each of these tactics would be the beginning of your content plan.

Email Marketing

The great thing about having an existing business is you have an opportunity to build a following and collect information from your customers.  I like email marketing, as you can measure your impact right away.  How many people opened your email, clicked a link, and so on.  How you go about collecting customer data will be impactful, especially when you have multiple franchised locations.

Search Engine Optimization (SEO)

The power of your organization will be felt locally, but to truly build an organization, it will require an optimized website.  SEO is intended to make sure your website and company show up in those top positions on Google when searchers are looking for franchised businesses.  I have yet to find a single franchisor who ranks on the top 10 list when googling ‘franchises to buy.’  SEO is something that can be worked on and added to your content calendar, and it can be done for free or on a small budget.

Social Media Presence

Even if you don’t intend to use the accounts, plan for the future.  Register and hold the social media accounts for your franchise across major platforms like Instagram and TikTok.  A robust content management plan will have posting to social media as a key tactic.  There is so much to unpack with social media that I believe it can benefit from having an expert to support you on this function.  In the meantime, make sure to take and keep lots of great pictures.

Public Relations (PR) Campaigns

This is one of those areas of marketing that you may never end up utilizing but the power of free PR can go a long way.  Can you work with a local newspaper or news outlet to share you’re opening a new location, community contribution, or bringing something new to the industry you’re in?  This is where PR can help you reach more than just your customers. 

Influencers

This is a growing marketing tactic as it really hones in on targeting your customer demographic through a trusted social media influencer.  The influencer through a paid engagement will talk about or promote your product/service with the hopes of driving more views, clicks, or visits to your business.  From a marketing perspective, this can definitely be hit or miss and may not be part of an initial content management plan.

Shows

Local shows and fairs could be an opportunity for you to set up a booth to promote products/services to an audience you have not reached yet.  Consider a franchise show for promoting your brand.  This is not an inexpensive endeavor and will require the purchase of floor space, exhibit props, and marketing materials.  Also, there is no guarantee you will get leads but you will have exposure.  This is a must if you are promoting a new franchise concept.

Word-of-Mouth

I personally believe that the best promotion for any franchise business should come from within.  When you have a great franchise, your profitable and happy franchisees will be more than happy to tell friends and family about their great business.  This will be a true test and measure of your performance as a franchisor.  Imagine franchises that can sell themselves because you’ve focused on creating successful franchisees.

Get it Right With an Operations Strategy

When growing a franchise system from two and beyond, careful consideration has to be made for what platforms are currently being used and whether they have the ability to support future scale.  I believe the best franchisors think about the future and build platforms that can be added onto or scaled.  The ones that do a poor job make mistakes and change platforms when things don’t work out.  The issue this creates is that domino effect I alluded to earlier.  Franchisees have invested time in learning and training staff on a platform, and it becomes costly when they have to learn and or train staff on new platforms.  Get it right with an operations strategy more than you get it wrong, and you’ll be building an operationally sound system.

Financial Strategy

There are two parts to the financial strategy.  The accounting side focuses on costs and scorecards and the ability to report on metrics relevant to the system and franchisees.

The second part focuses on utilizing accounting scorecards and costing to create assumptions and plans for the future.  Personally, many companies do an okay job at scorecards but where they fall short is helping a franchisee plan for the future.  This requires an understanding of financial principles such as the three activities of cash, ratios, and creating benchmarks. 

People & Culture Strategy

There are several moving parts to a robust people and culture strategy.  On the people side, there are corporate staff, franchisees, and franchisee employees.  The tools used to find the right fit for the franchisor are no different at any point in the people chain.  I have personally experienced franchise systems that have different hiring practices or approaches for each segment of their people chain.  Create continuity in finding and hiring people.  I have also found it is ideal to have a corporate team that knows franchising.  It’s challenging enough when franchisees are new to the franchise world, and the people they are asking for help don’t understand what it’s like to be in their shoes. 

The backbone of any franchise system is the culture.  Culture boils down to the customs and belief systems that everyone from corporate to the franchisees has or may not have.  It’s so important to set the tone for what kind of culture you want and to live by it.  Do you want to be a world-class company?  Well, what are the customs and beliefs associated with this type of culture?

2 Examples of Franchising Strategies

Planet Fitness

As a company in the 90’s they were following a similar business model to their competitors by offering fitness classes, childcare, smoothie bars, and free weights.  In their 4^th location, they tried something new by removing all the extra services because they required ongoing support and they just focused on machines.  This new model worked so well that it would become their new business model. 

Their current strategy is focused on fostering relationships with existing multi-unit franchisees and franchise groups to continue to grow their brand in North America.

For a more detailed look at Planet Fitness and its strategy click here. 

McDonald’s

As one of the most recognized brands globally, it’s hard to imagine that McDonald’s achieved all of this within the last 70 years.  The McDonald’s brothers started down the path of fine-tuning the drive-in restaurant experience, and it was a chance meeting with Ray Kroc that really got the ball rolling.  Ray took the concept back to Illinois and, within 5 years, had purchased the rights to the McDonald’s brand and began accelerating the growth of McDonald’s across North America at a breakneck pace.

Their initial strategy focused on a trial-and-error approach to finding efficiencies in the drive-in and creating a streamlined menu to support the drive-in, which included the infamous 15-cent hamburger.  As they grew, they focused on finding ways to train franchisees and employees in a similar manner and created Hamburger University.

Their current strategy has evolved to what they call “Accelerating the Arches.”  This is a multi-pronged approach aimed at brand awareness, value pricing, specific food offers, and overall service levels.

For a more detailed look at McDonald’s and its strategy, click here. 

As you can see, creating a strategy is not just setting it and forgetting it, it evolves with your business.  Secondly, as you grow your franchise system and your functional business areas grow you will need to add strategies that ultimately roll up into the broader organizational strategy. 

When you’re ready to discuss your organization and how a strategy can help it win, please contact us through our contact form. 

• Tactics – Franchise Marketing Strategy (Part IX)
• Strategy vs. Operations Strategy
• Unlocking the Secrets of Successful Franchisees
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• Unlocking Success with a Winning Franchise Strategy