Many years ago I represented a franchising company with a philosophy that the sale of franchises was paramount no matter how it was done. The company stressed franchise sales so much that their only qualification to become a franchisee of the company was whether the prospect had enough available credit to pay the initial franchise fee. As the company began selling more franchises, problems began to occur. With no solid foundation upon which the company had been built, litigation became common-place. The more sales – the more litigation. The company continued to ignore the real problems and adopted a mindset that even if only 50% of new franchisees survived, the company would still grow.
Imagine a franchise company with a Franchise Disclosure Document (“FDD”) which told the story of a 50% failure rate! But how could this franchise company have expected anything more? Signing up franchisees who did not have sufficient capital to run a business was a death spiral. The franchisees started business with two strikes against them. It wasn’t long until the franchisor found that franchisees who weren’t able to pay royalties and who were losing their businesses, led to multiple lawsuits which then led to a complete drain on the franchisor’s resources, and ultimately the demise of that company.
So is bigger always better? The answer is definitely no if the company fails to start with a solid foundation under it. A solid, successful foundation starts with a truly good management team. In the beginning, that team may consist of franchisees or that team may consist of only a couple of key people. As your company grows, search for and bring in qualified team members who understand the market, your competition and the kind of franchisees that will help your company get name recognition and dominate in your field. Perhaps you are in that interim stage where you are not quite big enough to attract the team members you know you need. Consider using a Consultant who has the expertise you need and can fill the void until you are able to afford those essential members on your team. There are any number of good franchise consultants who have the essential knowledge needed and have the years of experience that help provide the solid foundation you may be lacking.
So before your company leaves the starting gate, make sure you have the building blocks under it to be successful. Build the team that will lead your company to success. Use consultants when necessary to bridge the gap. Create a plan that helps your franchisees become successful. Successful franchisees build a successful franchise system. With a solid foundation you can then have the type of company that can be as big as you want it to be!
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