Is your business ready to become a franchise?
Over 60 businesses have been franchised by me. Some were from concept, others where we converted existing businesses to franchised models. I’m happy to handle either path with one important condition.
A business owner should have a good understanding of what it takes to successfully run a franchise.
Unfortunately, this was not an easy task.
If done well, franchising can help you structure your business in a way that maximizes its chances of success. Franchising helps you put great business practices into place. The most important aspects are money management and systems. However, I believe that there are certain aspects of business success that need to be reviewed. Without having business experience, it is unlikely to be possible to create a franchise.
It is important to understand how businesses work because franchisors will often train less business-savvy franchisees on the best business practices.
My favorite way to think about business success was to consider the stages of business development. This is because many people learn valuable business skills as they grow.
The 5 Stages to Business Growth
In an article in Forbes published by Neil C. Churchill, Virginia L. Lewis in the 1980’s, the idea that businesses develop through stages was first discussed. This article is still used to explain the importance and success of fundamental business elements.
One important point must be made before I get into the five stages.
Companies do not have to go through every stage. You can speed through the stages to reach your goals. Understanding what is needed is the best way to achieve this. Richard Branson, for example, is able to create new businesses every day by understanding the requirements. Richard will already have all his ducks in order before he begins. However, even his businesses must go through these stages before he can create an empire.
These are the steps in a nutshell
Stage 1: Existence
This is the most important stage of any business’s start-up. The owner of a business has no income and the main focus is to get customers and deliver the product or service. The owner will always be involved in the business, sometimes filling all the roles. It is important to have enough money to cover the start-up phase. This strategy is to simply stay alive.
Stage 2: Survival
Although the business is now profitable and viable, it still has a simple structure. Although there may be only a few employees, they will all be overseen by a sales manager and a general foreman. However, neither of them will take major decisions on their own. They execute the well-defined orders of their owner.
The development of systems is still very limited. Formal planning is, at best, cash forecasting. Survival is the main goal. The owner of the business is still responsible for the operation and is still a part of it. The primary goal is to make the business profitable and get a return.
If the business wants to grow, however, it is crucial to start to understand the need for systemisation and how the business works.
While some small businesses may choose to remain here and make very little profit, others move on to the Success Stage.
Stage 3: Success
The company is now stable and profitable, and cash is no problem. Effective delegation can be enabled by having basic financial, marketing, production, and administrative systems in place.
The company has become large enough to have functional managers who can take over certain duties that were previously done by the owner. Some planning and operational budgets also support this delegation.
Strategic planning should also be in place. The owner, and to a lesser degree, the managers of the company, should monitor this according to the goals.
Cash is abundant, but the main concern is to not let cash run out in good times to the detriment the company’s ability and resilience to future challenges.
Some people choose to remain in the current phase, while others move on to a new phase of growth.
Stage 4: Rapid Growth
If growth is decided beyond the Success Phase, the key issues will be how to achieve it and how to finance. Cash management will be a key part of growth once again.
Churchill and Lewis reported that they discovered the key to success were a solid understanding of delegation, and managing risk in cash flow.
Systems must improve as staff numbers increase. This will ensure efficient delegation. Both operational and strategic planning are essential to ensure everyone is on the right page.
The owner is no longer involved in the business, but has a strong presence and control over its management, including stock control.
Churchill and Lewis are in agreement:
“This is a crucial period in a company’s life. It can be a huge business if the owner is able to rise to the financial and managerial challenges that a growing company presents. It can be sold if the owner is able to recognize his or her limitations quickly enough.
Stage 5: Maturity
Now, the company is here. It is large and has financial resources. The company also has managerial talent. It will be a strong force on the market if it is able to keep its entrepreneurial spirit.
It may also enter the sixth stage, which is ossification or death.
Franchises do it better often
Yes, franchised businesses performed better than non-franchised ones in the stages of success and rapid growth, even back when they first published their article in 1980.
Franchises have these advantages:
They have, in most instances, a franchisor that has a lot of experience in the business. This makes sure clear structures are in place right from the beginning so they can move quickly through Existence and Survival.
They will at the very minimum have:
A marketing plan that was developed after extensive research
Promotion and other support for start-ups such as branding
High-tech information and control systems to monitor the entire franchise
Standardized and well-designed operating procedures ensure that delegations are consistent and efficient.
I’d add that if the franchisor really did their homework, they will also have:
A strong leader for the group, and an understanding of managing equal partners in teams
A good strategic and operational plan that includes input from all franchise partners
A clear understanding of how to manage money in the franchise group so that every level of the franchise is profitable
It is a fact that not all businesses I know have these aspects in place before they consider franchising. The franchise process will make it easier to set them up. As the franchise structure is created, systems will be developed. It will also be important to understand money management. Even if you’re still working in your business, you might find that the additional work required to convert the franchise structure and the emotional energy it requires can be overwhelming.
These are the Pillars of Successful Business Growth
What’s the solution?
It is really easy…
Lewis and Churchill discussed the five stages in business growth and identified skills that were needed. They also showed that these skills can be cultivated through business growth.
Leadership, delegation and people management are key to leveraging your time away from the day-to-day business operations
Operational and strategic planning
Currently, I believe there is at most one more skill that can be acquired.
Marketing and your brand
It is a fact that I know very few people have the ability to handle every aspect of business. It is important to be able to comprehend each area and to identify the right people to join your team in order to help you and your company move forward.
Here are some details.
Marketing and Your Business
It is crucial to have a clear understanding of your target market and the expectations of your brand from the beginning of your business.
This is why you should seek help right from the beginning.
It is fundamental to know that people respond positively to Why. You should check out Simon Sinek’s Ted Talk about this topic.
After you have established your brand, it is time to start thinking about how you can get your message across to the different markets of today. Your internet presence is key to all of this. If a business does not have an internet presence, they will struggle to expand beyond their local market.
Marketing today relies on the ability to communicate with your customers in the current language. Unfortunately, that’s what kills 80% of businesses.
A good knowledge of money is essential for managing a business through its various stages of growth, from inception to maturity. How to manage cash flow, how to manage risk (some is unavoidable), expense management and how to invest to grow.
Another requirement is capital for funding different stages of growth. Capital is essential for survival, rapid growth and existence. Having cash insufficiently can severely hinder your progress.Tags: Business Growth, franchised businesses