After having recently attended the 2016 International Franchise Expo, I was struck by the number of startup franchisors exhibiting and extolling the benefits of their franchise opportunity and was impressed with a number of the franchise concepts. If some of these franchisors have the proper leadership and necessary capital (emphasis on capital) I believe they can develop successful franchise programs. A number of these startups are built upon a foundation of multiple corporate locations, which is an important predictor of future franchise success. However, an important requirement for a successful startup franchise system is having enough capital to fund the growth of the franchise.
Although, each of these items are critical in their own right, I’ve found that a frequent cause of franchise startup failure is item 3. Without the capital to build, launch and develop the new franchise program the task can be daunting. Even if new franchisors lack the experience or skills necessary to operate a successful franchise the right amount of capital can enable them to acquire these skills. On the other hand, a charismatic and skillful leader without the capital to grow and manage a startup franchise company, can have difficulty.
Startup franchisors needs to carefully invest and preserve the capital available to meet the company’s franchising objectives. This starts with building the ingredients of the franchise program without devoting the bulk of available capital for legal fees, manuals, marketing materials and the like. Too often, a startup franchisor spends a large amount of capital on the franchise before even launching the new program. There are a number of components to starting a franchise however, it’s not nuclear science. There are numerous resources that can provide guidance.
My advice is to do your homework and if you have to exhaust the bulk of your capital to constructing the franchise consider waiting until you have the required amount.
When it comes to franchising, Murphy’s Law comes into play more often than desired. In many cases, a new franchise takes off slower than anticipated.
Before a prospective franchisee invests they must review the information disclosed in the Franchise Disclosure Documents.
The most immediate consideration is usually how much is the franchise fee and other ongoing payments like royalty and advertising fees.
In the franchise industry, franchisors can view comparisons and relationships between consumer satisfaction for the products or services a franchise offers.
A good consumer experience is not a reason to invest in a franchise. It skews the decision-making process of a prospective franchisee from start to finish.