So You Want to Franchise Your Business?
(FORTUNE Small Business) – Others front the money and do the hard work while you sit back, watch your brand grow, and collect a tidy royalty stream from your franchisees. It sounds like a can't-lose proposition, but does franchising truly make sense for your small business? Like most ventures, franchising is far harder than it appears, so before succumbing to its easy-riches allure, ask yourself some tough questions.
For starters, does your business occupy a genuine niche? "Many businesses," says Michael Seid, a West Hartford, Conn., franchising consultant, "are simply one-market wonders." Not Pizza Patrón, a restaurant chain founded by Antonio Swad, a man who knows how to carve out a niche and build up a franchise. Swad previously grew Wingstop, a chicken-wings-only restaurant, to 100 locations before selling it in 2002. His current project is even more precisely targeted: pizza for Hispanics. Swad opens Pizza Patróns only in heavily Hispanic communities, such as North Oak Cliff in Dallas, the city where the chain is headquartered. The menu features toppings such as jalapeños and chorizo, served while salsa music and reggaeton--a type of Spanish-language hip-hop--play in the background. Pizza Patrón, which began franchising in 2003, has 51 locations and expects $20 million in chainwide revenues this year. "The restaurant industry is so competitive," says Swad. "I knew I needed to offer some sizzle, not just another Pizza Hut."
Does your business have a workable financial model? Richard Cole founded Geeks on Call, a Norfolk outfit that dispatches techies to small businesses and homes to fix computers, in 1999. When he decided to franchise, he figured he needed a franchise fee structure high enough to fund expansion and provide profits, yet low enough to attract potential franchisees--a very delicate balance.
Coles went for a modest (by franchise standards) $60,000 initial investment, which covers training and advertising. Because he provides substantial support to franchisees, including a dedicated call center, he knew his royalty would need to be high for the industry: 11%. With the right balance of fees in place, Geeks on Call has been able to expand to 294 franchises in 25 states. "You can't do well unless your franchisees do well," says Cole.
Are your techniques easily teachable? The success of a franchising operation can often depend on the founder's ability to translate his methods into a blueprint that franchisees can really use. Frank Fiume started i9 Sports in 1995 based on a quirky observation: "Amateur sports are run very unprofessionally." Fiume organizes leagues for adults and kids in everything from softball to flag football to lacrosse. Before franchising his business in 2003, he compiled a 500-page manual that lays out everything from how to attract players to how to obtain insurance coverage. "You want to provide every ounce of your formula," says Fiume, whose Tampa company has 50 franchises and hopes to generate $3 million in revenues this year.