Understanding the Importance of Franchising
Any business can evolve into a franchise, provided its business model is secure and has solid foundations. Successful franchises didn’t start that way; their growth involved processes, standardization, and a replicable business model.
Eric Johnson, the global director of franchise programs at the U.S. Department of Commerce, emphasizes that “franchising success is reflected through reliable operation manuals, which are a crucial part of the value proposition.”
“To develop a professional franchise system,” Johnson adds, “requires foresight and constant attention to market needs.”
According to “The Franchise Bible,” understanding the business, legal and economic frameworks, contracts, and regulations is vital to prevent franchise model failure.
Four Key Stages for Developing a Franchise
Transitioning a business into a franchise isn’t an improvised process. It involves investment, specialized advice, and a clear structure.
A good methodology for transforming a business into a franchise is one that learns and evolves over the years.
Based on this logic, there are four key stages for developing a professional franchise system:
1. Strategic and Economic Modeling
Define the company’s values and management guidelines. Conduct a business operation diagnosis to identify strengths and weaknesses.
Establish royalties, advertising fees, initial investment per unit, and investment recovery. Royalties typically range from 4% to 7%.
External analysis is also conducted, which involves studying the market, local and global competitors’ offerings, and understanding consumer rational and emotional benefits.
2. Development of Operational Manuals
Operational manuals outline the processes, guidelines, and policies that define the franchise system.
Start by reviewing the company’s organizational chart and begin structuring the manual. In terms of architecture and design, “aesthetics should not overshadow functionality or profitability per square meter; instead, it should showcase experience.”
3. Legal Framework Structuring
Ensure franchisees maintain an appropriate labor relationship without altering the manuals or misusing the brand.
“The letter of intent for franchising is a tool that conveys transparency, security, and efficiency in the franchise purchase process,” Johnson explains.
4. Expansion Plan Definition
Develop a roadmap for both national and international expansion plans.
Determine the ideal franchisee profile, key markets, and target countries or cities within the expansion strategy.
Before considering a business as a franchise candidate, it’s crucial to analyze whether it has solid foundations or structured processes and a strong organizational culture.
Key Questions and Answers
- Q: What is the first step in developing a franchise system? A: The first step is strategic and economic modeling, which involves defining the company’s values, conducting a business operation diagnosis, and establishing key parameters like royalties and initial investments.
- Q: Why are operational manuals crucial in franchising?
- Q: What does structuring the legal framework entail? A: Structuring the legal framework ensures franchisees maintain an appropriate labor relationship, protects brand integrity, and provides transparency through tools like the letter of intent for franchising.
- Q: Why is defining an expansion plan important? A: Defining an expansion plan helps determine the ideal franchisee profile, key markets, and target locations for growth, ensuring a solid foundation before transitioning to a franchise model.
