What Makes a Successful Franchisee?
There are certain minimum requirements you must meet to be a successful franchisee. The same applies to any other job or occupation. For example, engineers need a strong foundation in mathematics and physics. Doctors require clinical knowledge, as well as high ethical standards and empathy. Pilots must have sharp vision and the ability to make precise decisions under pressure.
This also happens in the world of franchising. As a franchisee, there are certain minimum requirements you must meet, not to guarantee, but definitely to increase your chances of success.
This blog post will discuss the three most important requirements for becoming a successful franchisee.
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The Right Person
To become a successful franchisee, or at least to improve your chances of success, the first requirement is to be the right person. How can you tell if you are an ideal franchisee? You must have certain characteristics, such as:
- Franchisees are humble. You should remember that it was the franchisor or founder who spent months and years creating the proven franchise brand you invested in; it wasn’t you. If you're humble enough and understand this fact, you're more likely to accept, follow, and trust the systems the franchisor has created and proven effective.
- Franchisees respect their franchise brands. The proven brand you selected has a product, service, and image, and you must be willing to follow the brand standards that the franchisor has spent time, effort, and money to make it successful.
If you want to do business your way, franchising is not for you. Not only could you fail, but you are going to be miserable. - Franchisees are committed. Buying a franchise does not mean that you have everything resolved. Like any business, it will take hard work, and you need to be committed enough to see it through.
If you do that and have a proven brand, you're more likely to succeed and see a return on your investment. However, if you're not committed, you might quit when things get tough, wasting a lot of money. - Franchisees have financial adequacy. That means you need to have enough capital not only to cover the initial investment to open the unit, but also the first few months of operational expenses to get the business off the ground until you reach the break-even point.
This is directly related to the brand's maturity. If you invested in an emerging franchise brand, people might not know who you are or what you offer, so it could take more time, money, and resources to generate enough revenue to cover expenses. But if you are financially adequate, you will be able to sustain your investment until you reach breakeven and beyond. - Franchisees are entrepreneurs. You have to be humble and respectful for somebody else's brand and standards, but at the same time, you must have an entrepreneurial spirit in many other aspects of the franchise business. You may not have much flexibility in how you produce the product or service, but you have a lot of flexibility in how you lead your team and manage your business.
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The Right Brand
The second element for franchise success is choosing the right franchise brand. How can you tell if you have the right brand? There are four characteristics that you need to look for in that brand to discover it:
- The right unit economics. This means that an average person in an average situation can manage their business and achieve profitability. It also means that the brand can generate enough revenue to cover costs, and that its operating expenses are not so high that profitability is achievable if you manage the business properly. Also, the leftover profitability is enough not only to get your money back but to have a healthy cash flow.
- The right leadership. Many franchise brands are no longer led by their founders, and their future is now being decided by a private company that has acquired them. As part of your research, try to find out who owns the brand. Are the founders planning to sell to another company, or is it already owned by a private company or private equity firm? Who is that parent company? How do they treat the organization? Are they a buy-and-squeeze-and-sell-it-off type, or do they buy, hold, and try to improve it?
The leadership of your brand really matters in your success as a franchisee because their decisions will affect your business, and many times, you won’t have control over that. - The right values. Whether it is owned by the founder, a private company, or a private equity firm, you must discover what the brand values are. Do they believe in franchisee first? Are they committed to their team development and success? Or is it all about the money? Do they have a charter, mission, vision, and values? Do they live by them?
You're gonna have to do some research to really, truly understand their values. - The right support. One thing is the very intense support you'll have from the discovery day through the opening day. But there will come a day, maybe a week or two after your unit opens, when they're going to leave, and you're gonna be on your own.
How will they support you after that, and how available will they be to answer your questions? Will you have a franchise business consultant? Do they have ongoing networking events where you can get together with fellow franchisees to learn from each other? What types of support does the franchisor provide?
Keep learning: 4 Things You Need to Know to Be a Successful Franchisee
The Right Education
The last element you need to improve your chances of franchisee success is the right education. Now, it is true that when you invest in a franchise, you get the knowledge to produce the product, deliver the service, build the image, and market that brand.
The franchisor provides you with the training, support, and tools to help you implement the brand exactly as it was designed to succeed. However, you are not going to get a business degree in franchise management. That’s why having the right education is so important. Otherwise, you won’t know or understand how to manage your franchise successfully.
What should the right education include to help you succeed?
- People Management. The first thing you need to learn is how to be great at managing the workforce that will work for you in this particular franchise. Even if you have experience managing people in the past, consider that these team members will be very different from those you have worked with, worked for, or who have worked for you in the past.
- Sales Management. You need to know how to increase sales in this particular industry and business, using both local store marketing and enterprise marketing if you are or plan to be a Multi-Unit Franchisee. This requires the development of very specific skills.
- Costs Management. Every penny matters for a small business like a franchise, so managing labor costs, supply, and maintenance costs, and measuring the cost of goods, will be critical to your success as a franchisee.
One thing is that the right brand can generate revenue if you follow through on the standards. But revenue does not guarantee success! Cost control with revenue is what will give you success, and you must have the education to do it the right way. - Financial Management. To succeed as a franchisee, you need a certain level of financial management knowledge. This includes, among other things, being able to read a profit and loss statement (P&L) so that you not only understand it but can also take actionable steps based on it and make the necessary changes to ensure the business's success. Keep in mind that this financial knowledge has to be specific to small businesses, not large corporations.
- Infrastructure Management. Hopefully, you got into franchising to become a Multi-Unit Franchisee, not to just have a single-unit job. If that’s the case, you need to manage your infrastructure effectively to support your organization's growth plans. This includes figuring out how many people you need to be able to grow, whether you need an office and where to place it, when to add headcount, and how much to pay those employees.
Those are the three elements you must have to be a successful franchisee: you need to be the right person, have the right brand, and have the right education. If you have these elements, the possibility of franchisee success is very high.
Most franchisees are the right people, because otherwise they wouldn't be interested in franchising. And, if they do enough homework and due diligence, they will have the right franchise brand. The one element that is the most difficult to attain is the right education.
If that’s the case, I would like to invite you to explore our educational program called COMMAND. This is a Multi-Unit Franchisee training for men and women who want to build a multi-unit enterprise and lack the right education.
The COMMAND Program, by the American Franchise Academy, provides franchise business management education in a very highly professional, structured way, allowing franchisees to master franchise operations at the unit, district, and enterprise level, and build a scalable business.
Reflections:
- Do you understand the unit economics of your franchise?
- Are you able to manage your expenses effectively?
- If you're struggling with your franchise, is it because you lack knowledge and skills?
- How or where can you acquire the education you need to succeed with your franchise?
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