Shelly Sun offers five reasons why NOW is the right time to expand your business through franchising.
Have you created a successful business and are wondering what your options are to grow in today’s ‘new normal’? Like you, many entrepreneurs have created great businesses through hard work, innovation and simply exceeding the needs of customers in a local area. But without access to significant capital, it’s challenging to contemplate growing from a few locations to hundreds or thousands of outlets. You’ve most likely invested hundreds of thousands of dollars to build your business, secured trademarks, developed your brand, documented processes, implemented technology, and hired staff. You have a solid foundation. But in today’s economic environment, when’s the best time to expand and do so in the smartest, risk-controlled way? Here are five reasons why now just might be the best time ever to expand your business.
1. Expand your thinking on expansion:
You have a great local business. You know you have a product or service that your customers want. Eventually there comes a point when you begin to wonder how to reach more customers. The traditional approach involves raising capital to allow you to open more locations. True, this approach can grow your brand and allow you to reach more customers, but it also means that expanding your business is all up to you. You will be securing and signing for the debt or outside equity and ultimately signing on the dotted line and taking on the increased risk of expansion.
Another avenue for achieving growth in revenues and customers, with limited capital and less risk, is through franchising, though many business owners do not consider it. Franchising is a great vehicle to help you reach more customers, promote your brand, and increase your visibility and credibility as a brand. Opening additional locations on your own could take hundreds of thousands—if not millions—of dollars that are not easy to access through traditional financing today.
2. Know the leverage effect:
In thinking of ways to leverage the large investments you have made already, franchising can be a great way to scale your brand to more markets, building upon those investments and years of fine-tuning that made your business a success locally. Franchising links your expertise and investments as the franchisor with the capital and personal oversight of a franchisee to replicate your model in a new geographical market. You are able to leverage the passion, commitment, and capital of franchisees to deliver your goods and services to more customers across a larger geographic region. You may want to expand regionally, nationally, or globally, and franchising is the least capital-intensive (and most proven) way to do so, with less risk and more upside than any other method of brand expansion.
Launching a franchise brand still requires an additional financial commitment of several hundred thousand dollars by the franchisor to lay and build the franchise system foundation. To open more company-owned locations requires significantly more capital than opening locations through franchising. Given that lenders are facing a stricter regulatory environment, record high and long-lasting unemployment rates, and less business collateral, creativity and innovative ideas are required to figure out the best way to expand with limited access to capital. The beauty of franchising is that the geographical expansion into new markets also uses the capital of the franchisees, in essence allowing the brand to expand using other people’s money.
3. A national strategy, creating jobs locally
It’s not just about the money. In addition to taking less risk in terms of capital investment, franchising mitigates the challenge of trying to take your great local business and manage it in the next state – or 6 states away. Franchising enables great local ownership where business owners invest not just in your concept, but in the community they serve. Franchising spreads the risk between the franchisor and the franchisee. The franchisor has invested in the pilot locations and secured their initial success. By experiencing mistakes and fixing them to develop a solid business model that franchisees can replicate, the franchisor has developed and protected the brand and the systems that the franchisee can license and use in its business.
4. Succeed and grow together
Both the franchisor and the franchisee benefit from this approach. Franchisees invest capital to grow their local business, but they don’t have to spend significant amounts of time and resources to figure out the business. As a franchisor, you’re licensing your knowledge to them. In doing so, you will leverage the investments you have already made in your brand and in your systems. In return, you earn a stable revenue stream, normally based upon the revenue results of your franchisees.
Franchising is also a powerful mechanism for accelerating growth. Franchisees provide new sources of passion, ideas, and capital. Franchisees work hard to build their local businesses and spread the word for the brand and bring great ideas back to make the business model stronger for everyone. Franchising is truly about shared success—growing smart—with less risk than going it alone. Good alone, better together.
5. Be in business for yourself, not by yourself
The franchisee is acquiring the right to use the brand and the systems to get started much faster and with much stronger resources than they would on their own, and that right has considerable value. Essentially, to be a franchisee is to be in business for but not by yourself. The franchisor benefits in offering this opportunity to a franchisee because it helps offset past, current, and future investments in the brand and in the operating systems. When done right, franchising benefits the company that wants to expand geographically and benefits the franchisee who gets to learn the business and execute the model at the local level.
Launching a franchise system is a big step – it requires evolving your leadership and growing your business from a successful local one to a larger regional, national, or international brand. You had the passion, skills and determination to get you to here. Yes, you will need to learn new things to grow your business through franchising, but you can do it. You will be the ambassador within your organization that will set the tone and the passion for the huge opportunity that franchising can provide when it is done well and with absolute commitment to the interdependent relationship with your franchisees. Franchising provides a means for you to grow and expand your business, reach more customers, empower others to own their own businesses and create countless jobs. Enjoy the journey!
Shelly Sun is a certified franchise executive and CEO and co-founder of BrightStar Care®, with over 200 locations nationwide. She is author of the forthcoming book, Grow Smart, Risk Less: A Low-Capital Path to Multiplying Your Business Through Franchising, released October 4, 2011. www.growsmartrisklessbook.com