The Most Common Challenges You'll Face in the First Year of Building a Franchise
Business owners often envision rapid growth when they consider franchising. While franchising can lead to quick expansion, it doesn’t usually start off that way. Challenges lie ahead in the first year of franchising that may slow growth as you build your franchise if you do not first take the time to develop a plan of action. Here are some of the most common challenges experienced in the first year of building a franchise:
The Temptation to Take Shortcuts
The goal of achieving brand dominance is understandable and admirable. But, there’s no getting around growing your brand steadily. Quite simply, there are no shortcuts when franchising. Avoid seeking out shortcuts for your business and the lure of attempting them. Franchising is a marathon, not a sprint.
Having Insufficient Capital
Franchising is more than signing an agreement with an eager entrepreneur and opening a location. You will first have to spend money before you make money. Expenditures are required for attracting franchisee candidates and for supporting them when they sign on with your brand. Emerging franchisors need at least twice the start-up amount they originally planned to truly be prepared to spend money where needed to attract franchisee candidates, to have funds allocated to grow their support system as they grow their base, and to have enough rainy-day capital to get through the slow times. But before that, you will have to spend money on putting systems in place, creating manuals, and developing the Franchise Disclosure Document and franchise agreement.
To avoid not having enough capital to grow in the first year – and beyond – develop a realistic budget and growth plan. Consider all sources of funding and financing options. And, remind yourself that reaching royalty self-sufficiency does not happen fast.
Growing Without Solid Infrastructure
If you can’t support your first franchisees with operations, training, technology, marketing and site selection, franchise system growth will be stunted. New franchisors are forced to spend an inordinate amount of time fixing inconsistencies among existing franchisees to help them achieve profitability. When this happens, expansion slows or stops. You risk poor validation marks from unhappy franchisees, which can also bring growth to a crawl.
Building a solid infrastructure will require you to analyze systems regularly to make sure you’re delivering an adequate amount of support to every franchisee. Make sure you are able to develop support systems that keep up with the growth so that no franchise partner is left behind.
Accepting a Franchise Fee from Anyone
The temptation to award a franchise to anyone with enough money in the bank to cover the franchise fee is strong among emerging franchisors. It’s understandable since you want to grow the brand, develop recognition and attract more potential franchisees. But you run the very serious risk of sullying the brand you spent years building if you sign unqualified franchisees. Franchisors in a rush end up signing the wrong franchisees who may:
- prefer to do things their own way
- have a poor work ethic
- lack passion, dedication and commitment
- have no regard for your vision of the brand
When this happens, the quality of product and service suffers and you end up with lackluster validation scores, struggling or closed units and no new franchisees.
To avoid franchise development taking a hit from unqualified franchisees, know the type of person you want to represent your brand, and then recruit franchisee candidates that meet your criteria. In other words, choose quality over quantity. Vet prospective franchisees thoroughly by asking the right open-ended questions and invite them to discovery days, which will allow you to get to know them better and them to know you better. Discovery days are a great way to determine if you and the candidate are a match for a long-lasting, professional and profitable relationship for both parties.
For help developing strategies to take on the most common challenges emerging franchisors encounter in the first year of franchising, contact Winmark Franchise Partners. With 30 years of franchising experience and more than 800 franchise owners representing over 1,200 locations for five brands, Winmark Franchise Partners can help you build a strong franchise system. Contact us here or at (844) 452-4600.