Growing a Business via Franchising – The 6 Biggest Pitfalls to Success
Franchising offers brands an excellent and proven means to grow, however it is not always plain sailing. All too often a lack of planning for growth, combined with a rush to get new franchisees on board leads to significant issues, and can destroy forward momentum writes Bruce Waddington.
With over 70+ combined experience of developing strategies to help businesses grow, the Directors at Geotech have witnessed franchisors, both large and small, making the same kinds of mistakes over and over again. While franchising can assist with growing a brand, if this growth is executed poorly, picking apart the damage can at best stunt growth, or at worst potentially contribute to a brand’s demise.
While significant resources are spent securing good franchisees, often not enough time is dedicated to planning a clear, well researched and well communicated growth strategy. Adding to this, recent happenings in the franchise world have raised questions in the sector.
Developing a robust and defendable growth strategy is now critical, therefore we felt it is important to share the 6 biggest mistakes we believe franchisors make whilst trying to grow.
1. Unnecessary or Ill Designed Franchise Territories
One of the biggest problems for long term growth is borne out of territories. While formal franchise territories can seem an attractive way to entice franchisees in the early days, all too often ‘hard and fast’ territories (that are invariably too large or ill considered) can become a nightmare that severely limits growth.
If we had a dollar for every franchise network we have worked with that subsequently wanted to turn back time and re think their allocation of territories, our pockets would be busting at the seams.
We generally advise to avoid territories wherever possible. The only exception tends to be mobile based franchises, where a franchisee does need some tangible area to work within.
Outside of this, we find a more favourable option is to assign non binding Marketing Areas for franchisees. This gives them some sense of allocation, without all of the pitfalls that go along with defining formal territories.
2. Managing Cannibalisation
One of the main reasons franchisees like the idea of having formal territories, is that they feel it will insulate them from cannibalisation impacts as a network grows. This is ill-founded thinking, as any franchisor worth their salt will manage cannibalisation as to not detriment individual franchisees significantly.
If a franchisor can demonstrate to a franchisee that they take cannibalisation seriously and have a robust methodology to estimate and manage it, this fear largely dissipates.
Further to this, an important point to make with franchisees is this - having a same brand in a local area is preferable to a competitor, as it limits competitors gaining traction in an area. Additionally, the multiple points of presence in an area can reinforce a brand, benefiting all.
Cannibalisation is a very real issue, and one that has seen many a franchisor come unstuck. Planning is necessary in order to manage the issue effectively.
3. Lack of Planning for a Large Network When Small
We regularly see examples of store networks that were planned initially with a small business mindset, only to run into issues around this later (as the brand develops). Giving away too large a territory is one example of this.
Another that we see regularly is servicing of regional towns or large shopping centres. Often a brand will enter a town or large centre that should be able to support two stores, and place the first store in the dead centre of the town / centre. All too often this makes it more difficult to establish a second store, which limits growth moving forward in markets where multiple stores could have been sustained. A bit of forward planning (with an eye on the grand plan) helps to avoid these types of issues.
4. Allowing Franchisees to Dictate Unreasonably to Franchisors
Often a new emerging franchise business will be so keen to secure a franchisee that they let them have unreasonable influence on critical issues, such as site selection. Just because a prospective franchisee lives in a particular suburb (and wants to get quickly from home to work) does not mean that a site in that suburb is appropriate for the brand. It is important that franchisees understand the overriding growth plan for the business and agree to work within that framework. Failure to do so might get a franchisee onboard, but a failed site will do more damage than good (by many times over).
5. Forgetting the Basics when Selecting Sites
There are some absolute basics when it comes to selecting sites that are, unfortunately, all too often overlooked. Issues such as effective visibility and branding is one that we often see not being adequately considered. At the most basic level, if a customer cannot see you, they will not come to you!
Another issue is understanding the nature of your business, and how this relates to the types of sites you should be selecting. Impulse businesses need passing traffic, and therefore need a high rental, high exposure site. Destinational businesses on the other hand (businesses where the customer makes a pre considered decision to seek you out and visit you) do not require such a high profile location. All too often we see impulse businesses in low exposure locations and destinational businesses paying far too much rent to be in a high traffic location. These absolute basics of selecting locations should always be kept top of mind.
6. Not Learning from stores or franchisees that have gone before
This one is probably the biggest pitfall a medium sized franchise makes – failing to learn from the sites in the network that are currently trading (or that may have closed).
An existing network presents a unique opportunity – to undertake some analysis to identify what makes the best stores perform well, and the worst stores perform poorly.
By identifying what the critical sales drives are for the brand, this then ensures that the best sites are selected by focusing on the things proven to be beneficial to sales.
This type of analysis can then lead to the development of site selection tools and models to predict site potential. It can then lead to a strategic network plan, highlighting future pipeline sites based upon the findings from the analysis.
Having a plan to manage growth is critical, especially within the franchise sector. Failure to do so may have dire consequences for your brand into the future.