From Corporate Store Owner to Franchisor

NUMBER 9 – January 14th, 2008.

Question (Potential franchisor):  What are the principal challenges that await a retail (corporate) store owner who wishes to become a franchisor?

Answer:  The main challenges derive from the changing of the business model from one where the company uses its own financial and human resources to grow its business to one where the company will use the human and financial resources of third parties to grow its business.

This implies fundamental changes to the operations of the business of a retail store owner.

One of the first challenges of the owner is to redefine the business from top to bottom, starting with the corporate mission of the company. In effect, for the owner, the target market changes from being the consumer to being franchisees.

It follows that the owner is no longer offering “the best products at the lowest prices” to consumers, but will be providing the best quality services to franchisees (training, publicity, site selection, purchase of products, the choice of suppliers, information technology, etc.).  The owner will have to decide which services to offer and at what cost to sell them to franchisees.

The business culture will also need to adapt to this new reality and the challenge here is reorientation towards an internal customer service (vs. in-store).

At the beginning of this transition, it is important for the owner to surround it with people that are specialized in franchising (accountant, general contractor, attorney, architect, publicity company, etc.).

With time and as the franchise network grows, the challenge of the owner (new franchisor) will be to build an internal management team that is as solid and specialized as its external resources.

Of course, there are the challenges related to legal and contractual matters that accompany this business model.  The main challenges are to protect the franchise concept (including all intellectual property), to ensure conformity and uniformity in the network and to ensure that the contents of the franchise documentation reflect the franchise concept, how the franchisor operates its business and clearly defines the rights and obligations of the parties. The franchise agreement will be used to protect all intellectual property and an operations manual will be prepared to assist franchisees in the operation of their stores.

For franchisors that offer franchises in the provinces of Ontario, Alberta, PEI and New-Brunswick, a disclosure document will need to be prepared and submitted to eventual franchisees.

Another challenge resides in the ability of the management team to change its management style.  Managing employees is quite different than managing franchisees, be they operators or business people.  The franchisor must be a source of motivation, information and development to the franchisees. This involves developing a management style closer to that of partnering, the instauration of a communication network, organizing annual and/or regional meetings with franchisees, etc.

For certain owners, the principal challenge lies in making the transition from being an owner/operator running corporately owned stores to eventually becoming the owner/leader of a franchise network. The owner must literally “get out of the kitchen” and start working in an office to develop a franchise concept.

Another challenge will manifest itself in the relationship with business partners (suppliers, distributors, landlords, service provides, etc). The owner will want to reap the benefits of growing its business and predict the effects this will have in the industry pipeline, competitors and the business partners mentioned above.

Personally, I think that the principal challenge that an owner faces is to always be proactive in the operation of the franchise network.

In today’s business world, things change so quickly, what is in style one year disappears from the market the following year. To meet this challenge, research and development, continual communication with the franchise network and other business partners, following and anticipating factors of influence in the environment that will change and/or affect the franchise network and deciding how to react it before competitors are necessary.  That’s the best way to stay ahead of the game.

In general, the franchise business model has the potential for rapid development.  The franchisor decides the rhythm of its growth and if that decision is to grow rapidly, the challenge is being well prepared and knowing how to recognize and address the additional needs that will present themselves as rapidly, including the risks of such a strategy.

In summary, the challenge of a “new” franchisor is being an agent of change: of its business model, of the corporate mission, of the management style, of the business culture, of the relationship with business partners and eventually, of its franchise network. The agent of change communicating the challenges, providing the tools for the necessary changes and has those changes accepted by all those concerned (employees, franchisees, suppliers, etc.).

It goes without saying that certain of the above-mentioned challenges also apply to existing franchisors.