While the vast majority of young franchisors would be happy if they were to open dozen franchises, for others, nothing short of world domination will suffice.
If you're someone with grander designs, you might well ask, “What does it take to become the next McDonald’s?”
Making it to the top of the world starts with the concept. And when it comes to the franchise concept, “me-too” opportunities need not apply. The franchisor hoping to rule the world must start by breaking new ground and not following in the steps of others.
That doesn’t mean your concept must be the first to the market—although that can certainly help. Uniqueness may be as simple as a new recipe, a fresh marketing campaign, a proprietary product or a new twist on an old service. And ideally, your unique selling proposition involves staking out a competitive position against which your competitors cannot or will not respond.
A couple of years after McDonald’s began its incredible run, Burger King joined the fray, and was able to grow in near lockstep. They did that, not by copying the McDonald’s formula, but by carving out a position in the marketplace where McDonald’s chose not to respond—allowing the customer to “have it their way.” And while they are not the next McDonald’s, one might argue that they are the next best thing.
Of course, no matter how unique the idea, it still has to work. And ultimately, that means return on investment. Nothing sells franchises as fast, especially in today’s viral environment, as the reputation that a particular opportunity is a moneymaker. And nothing can derail a growth opportunity as fast as failing franchisees.
With that in mind, you need to be certain to work diligently to maximize the franchisee’s returns. Your first order of business should be to determine if there are ways in which the initial investment can be reduced. Not only does a lower investment improve returns from a percentage basis, but by lowering the bar, it also increases the number of franchisees in the investment pool.
At the same time, you must strive to aggressively manage the franchisee’s income statement. And while top line performance will have the most direct impact on your revenue stream, ultimately, the expense side management (developing purchasing discounts, for example), will result in more successful franchisees—and ultimately in increased franchise sales.
Once you decide to franchise aggressively, you need to realize that success in franchising does not happen by accident. Success is designed from day one and happens because companies execute according to a plan.
Good planning starts with an understanding of the competitive landscape and benchmarking your closest competitors. Regardless of how unique the concept, every franchisor has competitors—and it is your job to know how your prospective franchisees view you in relation to them.
Armed with this knowledge, you need to properly position the offering, structure the business relationship and determine whom to hire and when. You should then subject these decisions to financial analysis to ensure you have the resources necessary to implement these well-laid plans.
In order to be the next McDonald’s, you need staying power. And that means building a strong value proposition into the offering. Larger, better established franchisors will have substantial value in their brand and the years of advertising that went into creating it.
For newer franchisors, however, the brand itself, at least short term, is likely to be a lesser part of the value proposition. With this in mind, you need to concentrate on other elements of the value proposition: research and development, purchasing, back room services and other pieces of “value” that cannot be obtained by an independent businessperson.
Of course, if you want to be the next McDonald’s, you are going to have to start by selling a heck of a lot of franchises. And to do so, you are going to need to motivate people to investigate—and ultimately buy—your franchise.
Call it what you will—sizzle, sex appeal or pizzazz—you’ll need it to generate interest in your franchise if you are going to really hit it big as a franchisor.
While sizzle is, at least in part, a function of the concept it surrounds, the best thing you can do is put together a first-rate franchise marketing plan. You’ll want to develop state-of-the-art franchise marketing materials, which include a great website, social media presence, etc.
Since the sizzle factor tends to be viral in nature, you may want to consider hiring a top franchise PR firm as well. McDonald’s was always a master of PR, starting with their sign that proclaimed “Over one million sold”—today, they simply cannot change that sign fast enough to keep up with the count.
Great franchise systems have great franchisees. Even the best franchise concept will fail if its franchisees are not capable of running a profitable business and delivering a positive experience to their customers. Selecting quality franchisees is most critical as you’re seeking to gain traction in the market. Financial capability is clearly a critical component to success, but other characteristics are equally important.
Franchisees must possess a passion for the brand they are representing, have the ability to lead their operations team and be willing to filter their own personal interests through those of the entire franchise system. An excellent franchisee will realize that profits can only be maximized if their interests are aligned with those of the franchisor and other franchisees in the system.
Once you have found your franchisees, one of the most challenging aspects of hyper-growth is controlling quality. But to maintain your value proposition at the consumer level, protecting brand standards must be at the top of your priority list.
If you’re opening a handful of franchises over the course of a year, you can often maintain quality without a heroic effort. But the faster you choose to grow, the more important it is for you to develop the systems and tools necessary to ensure the consumer receives a consistent experience. That means start-of-the-art operations manuals, training programs and perhaps training videos. Moreover, that means a commitment on the part of management to inculcate these standards within the organization—and the intestinal fortitude to make the tough calls when those standards are not upheld.
Of course, the best laid plans of mice and men often go awry, especially if you don’t have the capital to implement them. While franchising is a low-cost way of growing a business, it is certainly not a “no cost” means of expansion.
You need to secure adequate capital to fund your initial legal and development costs, which, for an aggressive growth plan, will likely be north of six figures.
Beyond the basic startup costs, you need to fund a budget for franchise marketing. On average, you can expect to spend between $5,000 and $7,000 on marketing for each franchise you desire to sell.
Likewise, you need to staff an organization capable of aggressive growth. That certainly means hiring people to staff your franchise sales department and people to maintain quality—field representatives and trainers.
There is no worse mistake than taking a 9-foot leap across a 10-foot ditch. That means you must start by understanding your capital needs and then ensure this capital is available to you.
Speaking of which, one of the most important aspects of any business is the development of the team responsible for growing it. Chances are, if you have built a successful concept and are about to franchise it aggressively, you’ll need an entirely new set of skills to make the transition from operator to franchisor.
Regardless of the business you plan to franchise, as a franchisor, you will now be in the business of selling and supporting franchisees. And if it is your goal to expand aggressively, you will almost certainly be stepping outside of your comfort zone.
The easiest way to overcome this challenge is to bring in an experienced team. But where to start? Often, the best route is to use a management recruiter who specializes in finding proven franchise talent.
Lastly, you must anticipate and adapt to changes in the competitive landscape over time. When McDonald’s first started franchising, it had a much more limited menu. It did not have Big Macs, Filet o Fish or salads. It did not have Ronald McDonald. It did not have drive-thru windows. But it continued to adapt and thrive.
The more successful your company is, the more certain you can be that knockoffs will follow you into both the consumer and franchise marketplace. You must anticipate these newcomers and do everything you can early in the process to erect barriers to entry, to adapt to the new marketplace and to stay one step ahead of the competition.
Establishing barriers to entry can be as simple as being first to market and establishing a dominant brand position. Or it can be as complex as obtaining a business process patent. It can be a recipe, a product or an attitude. But if you have an undifferentiated product or service with low barriers to entry, your business will quickly become commoditized. And if this happens, you will have a difficult time maintaining a leadership position—let alone the kind of growth that will help you achieve industry prominence.
Finally, as an aspiring mega-franchisor, you must remember that even McDonald’s did not become McDonald’s overnight. They did it by overcoming their competitors day after day, year after year, and continuing to evolve to meet the changing consumer—and franchise—marketplace.
Of course, there are a thousand hurdles to overcome on the road to success, but with the right planning and enough time, your company could be the business that everyone emulates years from now.