Franchises are often held up as shining examples of businesses which cannot fail. However, according to a report on franchising by the US Small Business Administration, while there are many successful franchise concepts out there, the majority actually do fail! Clearly, then, not all franchises are created equal. Separate the good franchise opportunities from the bad with Franchise Finder's guide to what makes a good franchise.
What distinguishes a McDonald's burger from any other burger? The Macdonald's brand; universally recognised as one of the world's most valuable brands. While a big brand franchise doesn't guarantee automatic success, it does make things easier. Investors - whether they're banks, family members, business partners or government funding agencies - tend to be more comfortable providing franchise finance solutions for franchises with strong, established (i.e. more credible) brands. Driving sales can be easier, too, with such brands already having considerable brand recognition and brand loyalty.
Good franchises are built around a unique concept - a really good idea which fulfills a need in the marketplace. Consider why these franchises are so successful:
- KFC - the most popular fast food chain in South Africa* satisfies a market need for quality food and good service, at very low cost.
- 7-Eleven - ranked one of the top ten franchises in America, this convenience store franchise supplies convenience goods (like bread and milk) around the clock.
- Kumon - considered one of the top three 'Franchises for the Money in America' by Forbes Magazine, is an education franchise designed to up Maths and English scores in schoolchildren.
Support and Training
Going it alone in business can be hard; having support along the way can make the difference between success and failure. Good franchises know this, and have support systems in place for their franchisees. Take Macdonalds, which recognizes that, in the long term, helping franchisees helps the franchise. Full, ongoing support and training - from human resources, accounting to IT business controls and more - is provided to franchisees via Macdonald's field consultants.
The Franchisor's Experience
Prospective franchisees should be wary of buying into unproven concepts, or signing up with inexperienced franchisors. It goes without saying that a franchisor who has built up a successful first business, and then replicated that business several times, knows what they're doing. A case in point: Fred Deluca, founder of the Subway sandwich franchise. Deluca opened his first store, originally to make money to fund his university fees. On the back of that outlet's success, he opened another. Only after establishing several successful outlets, did he franchise Subway. Subway now operates 35 000 franchised outlets in 98 countries, including South Africa.
The Franchisor's Reputation
As they say, your reputation is everything. Do you really want to work alongside a franchisor embroiled in dodgy deals or scandals? Before you jump into bed with a shady franchisor, do some background checks on their character. Franchisors with good reputations will be held in high esteem by their peers and will conduct business in an ethical manner. A good franchise is led from the front - Canadian Brian Scudamore, founder of junk hauler franchise 1-800-GOT JUNK is a good example. His honest work ethic and charisma has helped him grow one of North America's fastest growing franchises.
The Franchise's History
The best franchises have good financial track records, are litigation-free and have been operational for some years. Franchises to be avoided include those:
- In precarious financial situations
- Facing a barrage of lawsuits
- In which the flagship business itself has yet to get off the ground and prove itself.
Before buying into a franchise, get in touch with existing franchisees and find out if they're satisfied with the way in which their franchise system works, and happy with how they're treated. If you sense resentment or dissatisfaction, move on. You don't want to become part of a dysfunctional system.
Tough Franchisee Selection
The best franchises are notoriously difficult to get into to. They're choosy when it comes to selecting franchisees, for good reason - a franchise system is only as good as the people it has on board. While sought-after franchises - like Macdonalds or KFC -demonstrate their commitment to success through a rigorous selection procedure, bad franchises lower the bar with few (or no) selection criteria.
Reputable franchises are accredited by the Franchise Association of South Africa (FASA), and subscribe to their Code of Ethics and Business Practices. In addition, says FASA, every franchise seeking membership undergoes a full assessment before membership is granted. This includes assessing the viability of the franchise concept, ensuring that the Franchise Disclosure Document complies with FASA's specifications, and verifying that the franchised concept has been successfully operational for at least a year.
Solid Marketing Strategy
Says online business magazine, AllBusiness.com, if a franchisor doesn't have an effective marketing plan in place, you'll go nowhere as a franchisee. Most franchises require franchisees to contribute to a central marketing pool. These funds are used to promote the franchise brand in broadcast, print or online media. Consider fast food franchise, Nando's - its quirky, cheeky through-the-line marketing and advertising campaign helps keep the fast food brand top-of-mind in a tough trading climate.
*According to the 2010 Sunday Times survey.
Author: Franchise Finder, Online Directory of Franchises and Business Opportunities in South Africa