Starting a new franchise business can be a challenging and rewarding experience, but it is not without its fair share of obstacles. As a new franchisor, you will face a variety of challenges that can impact the success of your business.
Whether you’re launching a new franchise brand or are simply looking for ways to expand your existing business, there are many challenges that can stand in the way of success. Here are 10 of the most common challenges facing new franchisors today:
1. Developing a strong franchise model
A well-designed franchise model is essential for the success of your business. It should be easy to understand, replicate, and adapt to different markets. This means having a profitable and scalable business, an effective operating system, product-market fit, staying compliant with franchise laws, and ensuring the franchise is appealing to potential franchisees.
A well-established franchise model can make the franchise more attractive to potential franchisees, as it provides them with a proven and successful business model to follow. This, in turn, can increase the overall success of the franchise system, as franchisees are more likely to succeed when provided with the necessary support and resources.
In terms of due diligence, franchisors are equally responsible for ensuring their business is fit for franchising as a franchisee is in ensuring the franchise is the right fit for them.
Franchisors can overcome this challenge by taking the following steps:
1. Clearly defining their target market and what makes their business unique
2. Conducting market research to validate the business model and identify any potential challenges
3. Continuously monitoring and fine-tuning the business model based on feedback and performance
4. Establishing systems and processes for franchisees to follow
5. Staying up to date with industry trends and adapting the business model accordingly.
By having a solid franchise model, you can attract more franchisees, and increase the chances of success for all parties involved.
2. Having the right skill set and executing best practices
I have often been asked why some franchises fail while some thrive.
In my twenty years in the franchising arena, my conclusion is that most of those that are thriving know the importance of excellence and pursue it with persistence.
I often advise my clients to take their time and carefully consider their decisions, especially when it comes to quality. Moving too quickly without proper thought can result in making the wrong choices.
Franchisors who do not prioritise excellence will very quickly find themselves surpassed by new entrants many of whom are more enthusiastic, younger players who are a lot hungrier for success.
One effective way seasoned franchisors drive excellence is by implementing a research and development (R&D) department. This department can focus on improving existing processes, identifying efficiencies, and streamlining operations, leading to better overall performance and profitability.
New and emerging franchisors can impart excellence and innovation even in the early stages of their franchise journey by having a mindset of continuous improvement. This is actually a good practice early on instead of transforming the company only when the situation calls for it.
By simply having innovation as part of the company culture championed by the CEO, it shows that the company is continuously searching for ways to improve. This also boosts franchisees’ morale as they feel confident in the franchisor’s commitment to excellence, making the franchise more competitive and the business more secure and solid.
3. Financing
In Australia, franchising is subject to strict regulations, and navigating the requirements outlined in the mandatory Franchising Code of Conduct can be challenging. It is crucial for franchisors to have a thorough understanding of financial responsibilities before embarking on the franchising journey.
Finding the right financing options is essential for the success of your business. You need to consider all of your options, including traditional loans, crowdfunding, and angel investors. This means researching the various financing options available to you, and determining which one best meets your needs. It also means having a strong business plan in place and being prepared to present it to potential investors and lenders.
It’s also best to speak with a franchise accountant and a legal professional to help you navigate the process and determine the best funding options for your specific situation.
4. Finding the right candidates
The right franchisee is a critical part of the success of any franchisor, and finding them can be challenging. A good fit between the franchisee and the brand will ensure that they are engaged with the business model and motivated to succeed.
You’re not alone in your struggle to find the right candidates, and you won’t be able to close every deal that comes through the door. But if you want to succeed in today’s competitive marketplace, it’s essential that you put together a clear strategy for how you’ll attract new partners and employees–and then stick with it over time.
But you may also be wondering, how do I know if this person will be successful?
The first step in finding great franchisees is figuring out what kind of person would make an excellent franchisee candidate (i.e., someone who has an aptitude for business ownership). The best way we’ve found is by using a set of specific questions to help you assess and provide insight into each individual’s personality traits that may indicate success as a business owner.
These behavioural assessments are a great way to get started in the process of finding franchisees. As part of this process, you’ll want to consider some basic questions about your potential candidates:
– What are their goals and aspirations?
– How do they respond when things don’t go as planned?
– What motivates them to succeed?
If it’s appropriate, another recruitment tip is to provide potential franchisees with a business experience trial. This allows both parties to evaluate each other’s abilities by giving the prospective franchisee the chance to work within the franchise before committing to a franchise agreement.
A good fit between the franchisee and their location can also help ensure success by making sure they have access to customers who want what you’re offering, as well as an understanding of how local regulations apply to your business model.
Finding good candidates takes time–and patience. It’s important not just for finding people who want your product or service but also for ensuring that those individuals are committed enough to stick around long enough for you both to get what you need out of this partnership: mutual prosperity in today’s competitive marketplace.
5. Providing support and training
Managing relationships with your franchisees is an important part of being a franchisor. You need to build trust and establish clear lines of communication to ensure that your franchisees are successful.
You are also responsible for providing support and training to your franchisees. You need to provide them with the tools and knowledge needed to run their business, as well as ongoing support to help them improve their operations and increase their chances of success. It is also important to have a system in place for addressing any issues or concerns that may arise.
This can be a challenge as there are drawbacks associated with franchise training such as cost – for both franchisor and franchisee as this is sometimes built into the initial franchise fee and difficulty in finding suitably qualified personnel to conduct training.
However, due to tighter economic conditions, franchisors are now using more cost-efficient and effective methods of communicating with and training their franchisees, such as system intranets and online learning management systems (often self-directed learning modules which offer convenience).
It is widely recognized that the success of a franchise system is closely tied to the quality of training provided to franchisees. Despite economic challenges, it is essential to maintain a high standard of training to support franchisee productivity and performance, and ultimately ensure the longevity of the franchise system.
6. Legal and regulatory compliance
There are a variety of legal and regulatory requirements that franchisors must comply with. This includes registering your franchise with the appropriate government agencies and adhering to state and federal laws. This means being familiar with the franchise laws in your state, and complying with all registration and disclosure requirements.
The first step to starting a franchise is ensuring that you have the right legal documents in place. These include:
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- A franchise agreement, which sets out the terms of your relationship with your new franchisors and outlines their obligations to you (and vice versa). This should be drafted by a franchise lawyer;
- A franchise disclosure document, which provides prospective franchisees with information about what it means to become a franchisee, including potential costs and risks associated with opening up shop under another company’s name; and
- A marketing plan outlining how your business will market itself once it opens its doors for business.
It is also advisable to establish a system for keeping track of legal changes and regulations, and for promptly addressing any legal concerns that may come up.
7. Marketing and advertising
Marketing and advertising can be a challenge for franchisors because it requires the right balance between consistency and customization. As a franchisor, you need to develop a strong marketing and advertising strategy to attract potential franchisees and customers. This includes developing a brand identity and creating marketing materials that effectively communicate your message and value proposition.
Brand identity and promise are important to provide an attractive and consistent brand that resonates with your audience, but they are not the only things that make up a brand. A company’s culture and values are equally as important as any other aspect of its identity.
These are the things that make up a company’s character and personality. The problem with many companies is that they focus so much on their brand identity that they forget about other elements of their brand such as exceptional customer service, which can lead to an inconsistent experience for customers.
The way in which you approach your customers is just as important as the product or service that you offer. To ensure a consistent brand experience, franchisors can implement guidelines and standards for the overall customer experience, marketing materials, and platforms, including graphics, messaging, tone, and content.
They can also provide training and support to franchisees to help them implement the guidelines correctly. Regular communication and review of marketing efforts can help ensure that the brand remains consistent across all locations.
Additionally, franchisors can appoint a central marketing team to oversee and coordinate the marketing efforts, ensuring that all materials align with the overall brand strategy.
8. Managing growth
As your business grows, it can be challenging to manage the expansion of your franchise. You need to have a plan in place to handle growth and ensure that your franchisees are able to keep up with the demand. You also need to provide ongoing support and resources to help franchisees manage growth and improve their operations.
Franchises who want to have faster franchise unit growth can improve performance with a targeted strategy, which in part involves adapting franchisee support in line with sector best practices.
Delivering support with a focus on cash flow drivers, franchisee engagement and accountability, and simple techniques to better leverage the resources invested into support and business development are the key – techniques that emerging (in fact any) franchises can easily apply.
9. Staying competitive
In today’s fast-paced business environment, keeping up with industry trends and staying aware of new technologies and innovations is essential for franchisors to stay competitive. Innovation is about finding new ways to satisfy customers or even connecting to customers in a way that is profitable to franchise partners and to the franchisor.
A lot of people tend to tune out when they hear the word “innovation.” However, it is important to understand what it truly means and how small to medium franchisors can utilize it in their operations.
As I’ve discussed in the Thriving Franchise Business Model, there are three important factors in innovation:
(1) commitment in time and money to improving the business over time; (2) testing and trying new ideas and building business cases before launching; and (3) the ability to move quickly when needed.
But how can you make innovation an integral part of your business?
This depends on making sure that it is led and encouraged from the highest level of the franchise. In fact, the current perspective is that the responsibility for innovation lies solely with the CEO.
The CEO can set the tone by making innovation a priority, allocating resources towards it, and creating a culture that encourages and rewards creative thinking and new ideas.
Moreover, having the CEO at the forefront of innovation can also demonstrate to franchisees the importance that the franchisor places on staying ahead of the curve and continuously improving. This can help foster trust and confidence in the franchise system, as well as improve overall performance and competitiveness.
10. Setting Franchise Fees
Setting a competitive price can be challenging for franchisors due to several factors. Firstly, the franchisor needs to balance the desire to receive a return on their investment with the need to keep franchisees happy by not pricing them out of the market. Secondly, the franchisor needs to consider the cost of goods and services, as well as the cost of running the franchise system, such as marketing, training, and support services.
Additionally, the franchisor must also consider the local market conditions and competition in each franchise location. Lastly, the franchisor must consider any legal restrictions or guidelines related to pricing, such as anti-trust laws or industry-specific regulations. All these factors combined can make it challenging for franchisors to set a competitive price that works for both the franchisor and the franchisee.
To overcome these challenges, franchisors can consider the following strategies:
1. Market research: Conduct thorough market research to understand the current market trends and pricing strategies of competitors.
2. Cost analysis: Analyze the costs associated with operating the franchise, including franchise fees, royalty fees, marketing costs, and other operational expenses.
3. Collaboration with franchisees: Engage with franchisees to understand their unique needs and price sensitivities, and take their perspectives into consideration when setting prices.
4. Flexibility: Offer franchisees flexibility in pricing, such as setting local prices or providing them with the ability to offer promotions and discounts.
5. Embrace technology: Utilize technology and data analytics to track and analyze sales and pricing trends, and make data-driven decisions about pricing.
6. Regular review and adjustment: Regularly review and adjust prices to ensure competitiveness in the market and maintain profitability.
By considering these strategies, franchisors can balance the need for competitiveness with the need for profitability and ensure that their franchise system is successful and sustainable in the long term.
Starting a new franchise business can be challenging, but with the right approach and support, it is possible to overcome these obstacles and achieve success. By understanding these challenges and taking the necessary steps to address them, you can set your business up for long-term success.