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As a former franchise owner and current franchise consultant, I am frequently asked about lessons learned both from personal experience and from working with more than 800 franchise candidates over the years.
Below I’ve included a few practical insights that offer actionable ways to help you on your franchise journey.
1. Key in on necessary general manager skills
Traditionally, as a general manager — or as I like to call it, the OEO (Only Executive Officer) — you are a jack of all trades. You’ll need to know upfront whether you (the franchise owner) plan to take on the role of general manager or if you are going to hire someone to run day-to-day operations.
Note: The necessary skills for a general manager vary depending on what type (location-based brand or service-based brand) of franchise you own.
Location-based brands:
When I was running a boutique fitness franchise, I discovered some important indicators that looked great on paper, but didn’t translate to sales.
As a fitness business, we attracted people who were great instructors and passionate about fitness. However, we soon discovered that this passion didn’t translate to sales. Additionally, after working with one general manager who had a great personality and worked hard, we discovered that he did not have a great deal of foresight. If nothing was wrong, he didn’t know how to plan or look ahead to develop future opportunities for success.
In turn, we had to define that the ideal general manager was someone who lived and breathed sales and had excellent marketing savvy, plus a passion for fitness. Defining these critical skills for success allowed us to hire more effectively. Generally, the operations for location-based brands are very checklisted, leaving the critical skill for your general manager as marketing and sales.
Service brands:
In general, service-based brands are more hands-on and are more likely to follow an owner-operator model. (As opposed to my location-based boutique fitness brand, consider a home-service brand like painting.)
In years past, these franchise owners would not only perform skilled labor and manage customer requests/ticketing, but also manage marketing and sales projects. Fortunately, about 5-10 years ago, advancements in technology streamlined service-based sales needs. Now, these owners have robust operations software that is structured for marketing, ticketing and sales. In turn, those brands have become more semi-absentee and managers don’t have to be sales and marketing geniuses.
Thus, for service-based brands, rather than worrying about getting customers, their necessary skills must center on the delivery/execution of services and managing employees.
Related: Which Franchise Model is Right For You? Here’s How to Choose.
2. Prioritize the right location
It seems obvious: Choose a location in a populated area. However, it’s not quite that simple. When I first started out, I failed to appreciate the importance of density for location.
The goal: You need a high density of your profile customers.
As a general rule of thumb: The more frequent the customer, the more convenient it needs to be to their home (the more density you need within a 10-minute driving radius.) If people are coming to you once a month or once every two months, they are going to be a little less sensitive to location.
As a franchisee, you have a major leg up in site selection because of the relationship with your franchisor. For example, your franchisor should have access to a demographic profile of their customer which includes household income, age ranges, etc. Beyond traditional demographics, many also use psychographics that indicate how people spend their money (lifestyle characteristics), what their flexibility may be (traveling empty nesters, for example) and some of their economic capabilities (Dual Income No Kids or “DINKS”).
Note: While some of these tools can be very sophisticated, it isn’t the only thing to consider. You need local real estate expertise and your own gut check. Don’t blindly rely on the franchisor — they should green-light it, but you need to triangulate.
3. Invest in effective tools
It’s important to invest in tools that will give you the best bang for your buck. For example, in my fitness franchise, we invested in an inexpensive scheduling software that was highly effective.
First, we defined three basic job roles: manager, shift leader and staff.
By cross-training, we ensured that a manager could perform their duties and the duties for a shift leader or a staff worker, a shift leader could perform their duties and those of a staff worker, and a staff worker could only perform within their defined role. Anyone above could work any role. If anyone had to miss a shift, they could offer their shift to anyone trained in their role and it automatically made it available for another person to take.
This tool saved us time and managerial headaches while empowering our employees to determine their schedules. Take the time to research effective tools for your brand — you’ll thank yourself later.
4. Ensure you have enough working capital
At the end of the day, you are running a business and must have enough startup capital.
One major cause of failure in young franchises isn’t that franchise owners don’t have a good business, but that they may be undercapitalized and don’t allow for enough margin for error. Maybe a pandemic hits, maybe their general manager quits, etc. People tend to underestimate the value of having “extra” capital.
Item 7 of FDD (Franchise Disclosure Document) outlines the “Estimated Initial Investment” that a new franchisee will be required to have before getting started. This document will have a breakdown showing a low column and a high column (ex: vehicles, equipment, etc). The law requires a minimum of 90 days liquid capital.
Related: Is Franchise Ownership Your Next Wealth Move? Here’s How It Compares to Four Other Income Streams
The reality is that few new businesses will be cash-flowing (earning money) in 90 days — even though that’s the requirement, it’s not realistic. Make sure that you are giving yourself a little more wiggle room than you think you’ll actually need.
There is no way to side-step all the obstacles that come with franchise ownership, but it’s important to learn from people who have experience in franchising before diving in.
