𝟳 𝗖𝗼𝗺𝗽𝗼𝗻𝗲𝗻𝘁𝘀 𝗼𝗳 𝘁𝗵𝗲 𝗙𝗿𝗮𝗻𝗰𝗵𝗶𝘀𝗲 𝗕𝘂𝘀𝗶𝗻𝗲𝘀𝘀 𝗠𝗼𝗱𝗲𝗹 𝗖𝗮𝗻𝘃𝗮𝘀
Perhaps you are considering leaving your corporate career to go into business for yourself, or starting a venture part-time while you transition out of that career or are contemplating a move to the U.S. to invest via the E2 visa program or have graduated college and don’t want to work in the corporate world. All are valid reasons to reflect upon franchise ownership.
Let’s talk basics. A franchise location is a type of business that is operated or managed by an individual(s) known as a franchisee using the trademark, branding and business model of a franchisor. In this business model, there is a legal and commercial relationship between the owner of the brand (franchisor) and the individual (franchisee).
In essence, a franchisee pays a franchisor an initial fee and ongoing royalties. The franchisee, in return, gains the use of a trademark, the franchisor’s ongoing support, as well as the right to use the franchisor’s business system and sell its products or services.
The business model for each franchise concept is different and you will need to evaluate it as part of your due diligence. What exactly does it encompass? Many components…
From a customer’s perspective, they not only want to know how a product or service is different from the one they may already be using but also what value it has for them. Is it able to improve upon or replace the current product or service and are they receiving the best possible deal? From the potential franchisee’s perspective, the value proposition differentiates the brand from competitors.
𝗠𝗮𝗿𝗸𝗲𝘁 𝗢𝗽𝗽𝗼𝗿𝘁𝘂𝗻𝗶𝘁𝘆 𝗮𝗻𝗱 𝗔𝗱𝘃𝗮𝗻𝘁𝗮𝗴𝗲
When considering any business, you need to define customer segments that share common characteristics that meet your demand. These characteristics can be “hard” variables such as age, gender, location of residence, level of education, occupation and revenue level, or “soft” variables such as lifestyle, attitude, values, and motivations for buying.
Hard variables can help estimate the number of potential customers a business can have. For example, for an after-school STEM/STEAM program, you should know how many school age children reside in the territory and birth rate estimates for upcoming years. Soft variables can help identify motivations that lead to purchasing decisions including price, prestige, convenience, durability and design. For the same after-school STEM/STEAM program parents want to help their children to perform better academically and improve scores to be better able to attract college scholarship money or attend the desired university.
In order to offer a product or service successfully in the market and meet audience demand, evaluate the 3 Cs and 4 Ps:
𝘾𝙪𝙨𝙩𝙤𝙢𝙚𝙧: Your audience or target. If you don’t enjoy working with seniors, no matter how attractive the large market appears, an in-home senior care business isn’t really for you.
𝘾𝙤𝙢𝙥𝙚𝙩𝙞𝙩𝙞𝙤𝙣: Who are the direct and indirect competitors? Do they or will they threaten the business?
𝘾𝙤𝙢𝙥𝙖𝙣𝙮: Determine the franchisor goals, strengths and weaknesses. Does the franchise continually strive for improvement and optimization? Look for internal (franchisee validation) and external (Franchisee Satisfaction awards) analysis.
𝙋𝙧𝙤𝙙𝙪𝙘𝙩: Design-Appearance? Quality? Packaging?
𝙋𝙧𝙞𝙘𝙚: Knowing supply, demand, competitive product, other fees, pricing terms. What price will the market bear?
𝙋𝙧𝙤𝙢𝙤𝙩𝙞𝙤𝙣: Advertising, public relations and promotional strategy?
𝙋𝙡𝙖𝙘𝙚: How and where is it distributed? Is that convenient for the customer?
In 1979, a Harvard economist specializing in industrial organization, Michael Porter, wrote a Harvard Business Review article entitled “How Competitive Forces Shape Strategy.” Today it is still considered one of the best sources on the subject of economic market competition.
𝙏𝙝𝙧𝙚𝙖𝙩 𝙤𝙛 𝙀𝙣𝙩𝙧𝙮
Companies decide to enter a market for any number of reasons-the area is under-served, profit margins are unusually high or the product has a distinct advantage and/or a patent. Porter asserts that it is essential for business survival to focus on future sources of competition rather than on current products.
𝙎𝙪𝙥𝙥𝙡𝙞𝙚𝙧 𝙋𝙤𝙬𝙚𝙧 𝙒𝙝𝙚𝙣 𝙈𝙖𝙣𝙮 𝘽𝙪𝙮𝙚𝙧𝙨
Are there only a few brands supplying the product/service in the market and buying demand is high? Pricing and revenues will be high for those companies.
𝘽𝙪𝙮𝙚𝙧 𝙋𝙤𝙬𝙚𝙧 𝙒𝙝𝙚𝙣 𝙈𝙖𝙣𝙮 𝙎𝙪𝙥𝙥𝙡𝙞𝙚𝙧𝙨
Are there many suppliers of a particular product/service? Pricing will be very low.
𝙏𝙝𝙧𝙚𝙖𝙩 𝙤𝙛 𝙎𝙪𝙗𝙨𝙩𝙞𝙩𝙪𝙩𝙚𝙨
Too many similar products or services provide a threat to survival (unless the market is large and its expected duration is many years i.e. in-home care). But threats can come from a new, dissimilar product replacing an existing product (i.e. email vs. post office mail).
𝙏𝙝𝙧𝙚𝙖𝙩 𝙤𝙛 𝘾𝙤𝙢𝙥𝙚𝙩𝙞𝙩𝙞𝙫𝙚 𝙍𝙞𝙫𝙖𝙡𝙧𝙮
Porter’s fifth force is the cumulative effect of the first four. Competition can come from anywhere, from innovative new products, from the advent of strong new providers or buyers controlling the marketplace, or from product replacements made possible by deregulation, innovation, or more cost-effective manufacturing procedures, relying on innovative technology, lower-cost labor or both.
This may seem ominous since no one has a crystal ball but the Franchisor should know their competitive environment especially if they have been around many years. It is still prudent to do some investigation on your own but the brand should be able to give you good picture of their competitive outlook.
A key component of a concept’s business model is how it generates revenues. It states which revenue source to pursue, what value to offer, how to price the value, and who pays for the value. Examples: retail, subscription, advertising, licensing, transactional, etc.
How are franchisees supported?
· Type of training, duration, etc.
· Home office support: site selection, marketing (brochures, promotions, social media, advertising, etc.), operations manual, technology, meetings/conferences
· Field support: area manager, field visits
· Support from other franchisees
In its own way franchising is an expansion of the organization through either single or multi-units. Area development is an added dimension.
Within a franchise concept, a franchisee will grow the business by adding staff, services, etc. when they reach certain milestones. Ensure that the franchisor has a plan in their model as you expand.
Most of the information can be discovered via
· the franchisor through the Franchise Disclosure Document (FDD), conversations with them, through their collateral
· researching the industry and market yourself
· speaking to other franchisees during validation
You like the products and audience but does the business model resonate with you?
No-charge Franchise Consultation: 855-725-1970 (U.S.); 760-473-4659 (SMS; WhatsApp). email@example.com. View call availability on the calendar or schedule a call at https://app.acuityscheduling.com/schedule.php?owner=16315311