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Five Indicators of a Successful Franchise Program

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There are certain attributes that all successful franchise programs share. This article presents five of the most important attributes. Whether you’re a franchisor or an individual looking to purchase a franchise read this article to learn about what successful franchises have in common.

Modern franchising arose in 1932, when Howard Johnson established the first modern restaurant franchise. It was based on the successful Howard Johnson restaurant located in Quincy, Massachusetts and founded in the late 1920s. The idea was to let independent operators use the same name, food, supplies, logo and even building design in exchange for a fee.

Although franchising concepts, regulations and structure has changed in the past eighty plus years, there are certain constants when it comes to successful franchise programs.

Franchisor, franchisees and prospective franchisees would be well served to keep the following factors in mind. These are the pillars upon which a franchise program should be built.

1. Franchisees are meeting their financial expectations. Whether it’s a Subway or McDonalds, franchisees are earning the financial return that they expected to. A commonly used phrase in franchising is: “Are the franchisees making money?” The last two words should be replaced with “meeting their financial expectations?” The key point is to determine if the franchises are profitable.

2. The demand for purchasing the franchise is driven by referrals not just advertising and PR. In today’s business and high tech environment it’s possible for a franchisor to generate fast franchise growth by dynamic advertising and extensive promotions. Recently, there have been several examples of weak franchise programs that grew to a significant size by overly aggressive franchise marketing. In many cases the growth was so rapid there was no history to indicate favorable franchisee performance. This led to a lack of proper validation. Be wary of fast track franchise growth.

 

3. The franchise program began with unit franchises. If you review the leading franchise programs you’ll find that they began by selling unit franchises before offering area development or master franchises. Today, some franchises launch their program by selling large territories and relying upon others to develop, train and support their new franchisees. Without an initial foundation of unit franchises, the franchisor risks launching a program without having gained the knowledge and experience necessary to build a successful franchise network

4. Franchisor leadership is actively involved in the franchise operation. Go back in franchise history and you’ll find the most recognized franchise brands were founded and led by individuals that played an active and highly involved role in the franchise. Fred Deluca of Subway, Ray Kroc of McDonalds and Bill Rosenberg of Dunkin Donuts are a few examples of franchise builders. However, there are many other individuals that have founded and operate countless franchises with distinction. To recognize these leaders look for these indicators; they understand the business thoroughly, they are actively involved in meeting and evaluating franchise prospects, they are readily accessible to franchisees, the franchise has minimal litigation and positive franchise relations.

5. The franchise concept is operationally simple, fills a basic customer demand and is well organized. If we review some of today’s most successful franchises these are the common attributes they all share. Consider a Panera Bread operation, which on the surface appears to be fairly complex. If we look at it in greater detail we’ll find simplicity to the operation that provides an attractive and quality product with fast service.

There are other attributes that a successful franchise program has, however if these 5 attributes are present, chances are you’ve chosen the right franchise.

Copyright 2010

Ed Teixeira is the President of FranchiseKnowHow, LLC. He can be reached at franchiseknowhow@gmail.com

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