Franchisor Competency: As Important as the Franchise Concept
by Ed Teixeira
There are hundreds of franchise opportunities that are based upon a sound
franchise concept but for various reasons never reach their full potential.
Newly emerging franchise companies need to have competent leadership as well as
the necessary financial resources in order to succeed. Although a sound business
model is a prerequisite for a successful franchise so too are the business
skills and the experience of the franchise leader.
There are varying reports as to the number of new franchise concepts started
each year. A report completed in 2007 by FRANdata states that there were 900 new
franchise concepts introduced from 2003 through 2005. I’ve yet to find a
comparable report since the FRANdata release; however, I would estimate that
there are a minimum of 200 new franchise concepts introduced each year. The vast
majority of new franchise concepts are launched from small businesses. The
owners of these small businesses view the franchise model as a way to grow their
current business into a larger company. In many cases, the business platform and
perceived franchise represents a sound concept featuring products or services
that have customer appeal. Having had the opportunity to consult with a number
of these companies, I’ve found many of these businesses can develop a unique
franchise with potential profitability that will appeal to prospective
franchisees. When we add new franchisors to franchises in their early growth
cycle we end up with a significant number of small franchisors. These companies
are marketing their franchise opportunities as they look to build their system.
The Franchise is One Component of a Successful Franchise Company
When individuals pursue a franchise opportunity a great deal of attention is
focused on the viability of the franchise concept, the market for its products
and services and the performance of existing franchisees. In the case of new or
smaller franchisors there may be few or even no franchisees in operation that
can aid the prospective franchisee in their franchise evaluation. This can make
the process more difficult.
What sets many of these new franchisors apart from one another is what I
refer to as Franchisor Competency. Since a small franchise company may have
limited resources and franchise experience, the importance of their business
skills and support staff can mean the difference between success and failure.
This is the reason that some franchise companies never get off the mark. For
example, not having adequate working capital and deciding to launch a franchise
company may be the result of the founder having unrealistic expectations or
failing to understand what it takes to start up and grow a successful franchise
company. Sufficient working capital is a requirement especially for developing
marketing and training programs, growing the franchise and supporting the
Judging Franchisor Competency
If you’re evaluating a franchisor with a limited track record and few
franchisees, you’ll need to dig a lot deeper into the qualifications and
capabilities of the leadership of the company. I would urge you to include a
savvy business person, be they family or professional, to assist in the
Following are some important items to consider:
- What is
the business experience of the owner? If they have weak business
credentials then who will support them in operating the
- How strong
is their business management experience?
successful was their original business? Asks lots of questions
regarding revenues, expenses and profitability. Your objective
is to confirm that they in fact ran a successful business and
aren’t using a marginal business as the basis for the franchise.
their amount of franchise experience. If they don’t have any
then who in the organization does?
- Ask open
ended questions regarding their strategy and objectives for the
franchise. Are their expectations realistic or “blue sky”?
- Is the new
franchise properly capitalized? This information should be on
the balance sheet in the Franchise Disclosure Document. Ask if
there access to additional working capital. Many franchise
companies get stalled because the franchisor doesn’t have the
financial resources to sustain the growth of the franchise.
be objective in your review of the founder/owners credentials.
Ask yourself if you’d provide capital to the founder to be used
to operate the franchise network. If the answer is no than why
invest in one of their franchises?
The franchise industry includes a number of franchise concepts that have
positive features and great promise. However, if the leadership of the franchise
lacks the business skills and financial resources to successfully develop,
administer and support the franchise then be cautious when making your decision
to invest in the franchise.
© 2011 FranchiseKnowHow, LLC
Ed Teixeira is the President of FranchiseKnowHow, LLC.
He can be reached at