Franchise Management For Dummies. Mazero Joyce

is always the first question asked of us by reporters and every prospective franchisee we meet. We will give you the same answer we give to them: It depends. With all the industries that use franchising and all of the companies offering opportunities in those industries, it is hard to give a meaningful answer. What is hot this year may not be next year. And most importantly, what we may consider hot may not be something that fits what you are looking for. Becoming a franchisee and choosing the right opportunity is a very personal decision – one that you must ultimately make yourself.

      Start by looking for the trends and see who is capitalizing on them:

      ❯❯ If health and wellness is what attracts you, and fresher, locally grown, upscale, and grown-up food are what you’re looking for, then maybe one of the brands populating the fast casual segment, like Blaze Pizza, may be the right choice for you. If food is not something that excites you, then possibly a fitness concept like Kaia Fit or a nutraceutical concept is where you should look.

      ❯❯ If you think that having Mom and Dad working longer hours outside of the home has created an opportunity for helping families save time and parents better bond with and care for their children or parents, take a look at franchise systems that provide children’s education and entertainment or home healthcare like the Goddard School, School of Rock, or Bright Star.

      ❯❯ Paul McCartney wrote “When I’m 64” when he was 24, and in 2006, when he reached that magic number, he was glad to learn that today’s 64 is yesterday’s 44. Servicing the senior citizen who is living longer and healthier may be your magic ticket as demographic and sociographic trends support those industries’ growth. Fitness concepts like Blink or Orangetheory or maybe a golf business like GolfTEC may be attractive to you.

      Every year, new trends even in legacy industries unfold. Consider that quick service and fast casual restaurants are going through rapid changes to their labor models as apps replace waitstaff and robots begin to replace back-of-house staff. Similarly, hotels are lowering their operating costs by using online reservation systems, even providing guests with room keys before they arrive. Many are changing their décor and services to attract millennial travelers, like Marriott’s Moxy or Hilton’s Tru.

      Because of changes in demographics, consumer trends, technology, the economy, and geopolitical events, existing franchises will change, and exciting new opportunities will continue to emerge. Follow the trends, look through the fads, and somewhere on the other side you will find a company that has started a franchise system designed to capitalize on the opportunity interesting to you or an older brand like Popeye’s Louisiana Kitchen remaking itself for the same reasons.

      

If you choose to invest in a franchise in one of the popular industries, you might consider a newer or smaller franchise system. Emerging franchisors are often more flexible with respect to development, training, and fee structures than the larger, more established ones. Alternatively, you may want to go down the less-worn path and look closely at opportunities in less-popular industries that you believe, based on your research, are just now starting to become popular.

      

Keep in mind, though, that the smaller systems, while possibly more flexible in working with you, may not offer all the benefits and services of the larger, better-established franchisors. A strong legacy system – one that can provide you with the operational support and efficient supply chain you need – can be a very attractive investment. Although you may need to invest more in marketing your location, becoming established in a new market can have some terrific benefits as well.

Adding Franchises, One at a Time

      The number of franchisors, the variety of industries represented in franchising, and the range of investments available create opportunities for the smallest single-unit mom-and-pop operator to a large multimillion-dollar investor group or established businesses that are looking to add a franchise investment to its portfolio.

       Flying solo: Single-unit franchises

      A single-unit or direct-unit franchise is just what it says it is: As a franchisee, you obtain the right to own and operate one franchised business from a franchisor.

      Over the years, most franchise systems have grown one franchise at a time. It is the classic method and, until the past few decades, was the most common type of relationship in franchising. As people looked for a way to get to their dream of independence through business ownership, franchising became their chosen vehicle. In a single-unit franchise, the franchisee (often along with family members) generally manages and supervises the business on a day-to-day basis. It is how their family makes a living.

      Although a single-unit franchise is the classic method for franchise system growth, it does have some weaknesses for franchisors:

      ❯❯ Franchisors generally experience slower growth with a single-unit strategy than with a multi-unit approach, and the growth can be more costly on a unit basis because franchisors have to locate a new franchisee for each location.

      ❯❯ The franchisor has many franchisees to work with, and those franchisees may be less sophisticated and less interested in taking business risks than larger, multi-unit franchisees.

      ❯❯ Because each location is individually owned and operated, single-unit franchises tend to be more expensive to support than when one franchisee owns and operates multiple locations.

      ❯❯ In some markets that may be attractive to a multi-unit franchisee, the presence of single-unit franchisees in the market may make the opportunity less attractive to multi-unit operators who don’t want to compete for customers or locations.

      Although there may be some disadvantages to franchisors, there are more single-unit franchisees looking for opportunities than there are multi-unit investors. Also, because the locations are managed directly by the franchisee and generally are a significant part of the franchisee’s family income, single-unit operators tend to be better focused on operating their locations to brand standards and contributing to the neighborhoods in which their businesses are located. That’s because they usually live in the community, their children go to the same schools, they attend the same churches, and their customers are their neighbors.

Figure 2-1 displays the single-unit franchise relationship tree.

      © John Wiley & Sons, Inc.

       FIGURE 2-1: The single-unit franchisee family tree.

       Growing a family one franchise at a time

      As single-unit franchisees prosper (see the preceding section), eventually they will want to acquire another franchise from the same franchisor. After all, they have an understanding of the business, have a relationship with the franchisor, can project the return that an additional unit can generate, and know the types of locations that work best. Initial training likely won’t be needed, and some of the key employees they already have may be perfect managers in their second and third locations.

      As they add additional locations, their little chain now can leverage off of the prior locations by sharing staff, inventory, storage, and back-of-house resources like bookkeeping and payroll processing. Investing in additional franchises is a terrific way to grow, because with experience their risk is generally lower than when they made their initial franchise decision, and even though they have more franchises, the relationship between the franchisor and franchisee is substantially the same.

      However, growing one location at a time is different from agreeing to operate multiple locations from the beginning, because you don’t usually obtain a reduction in initial or continuing fees and you’ll continue to share the market with other franchisees. But with more units and more money invested, you will tend to be noticed more often by the franchisor and its staff because they are hoping you will continue to grow and grow and grow.

      It’s important to understand that franchisors will periodically update their franchise