The Franchisee and Franchisor Lifecycles

Franchising is a series of successful habits formed by a few great thoughts. This magnificent system of business provides excellent price points and a branded quality of elevated services worldwide empowered by the two main stakeholders in the franchise industry Franchiser and the Franchisee. We do an assessment of what goes into the lifecycle of a franchisor and franchisee for eventually creating a successful franchise system.

Franchising is an exciting opportunity for a Business investor to own and operate a small business using a workable business plan and format which has previously been successfully used in other locations. A layout of three main growth stages in the lifecycle of a franchisee can be interesting for a business investor to explore:

Information & Research: At this stage the business investor has carefully deliberated on pros & cons of being a franchisee as against being an independent or self start up business owner, which implies the investor values belonging to a defined system rather than creating a new one. But how do you know the franchise system you are about to invest in is going to work out for you? The simple answer is you don’t and you won’t know until you bestow due diligence on understanding the Business sector, the number of units that have closed or changed hands in the franchise system, training & support etc and therefore shortlist a franchise brand.

Negotiation & Agreement: At this stage, the terms are worked out between the franchisor and franchisee who negotiate on agendas like fee, territory, term, exclusivity etc. Thereupon the formal agreement is signed and the franchisee gets ready to open his first store at this stage of the lifecycle.

Expansion: Once a franchisee a taste of success in the franchise business system, he/she looks at an opportunity to expand further. The best route towards the same is multi unit franchising. It generally begins with franchisee taking one unit and often utilizes the profits from that unit to expand into the second, third, and fourth stores. A franchisee can explore with various growth options within the same brand, in competing brands, or in entirely sectors. His expansion can also come from purchasing more territory or locations either directly from another franchisee or from the franchisor.

Lifecycle of a Franchisor:

Taking that step to expanding your business is a big decision. So the question here is your concept is hot, your margins are great, and you are ready to grow – you should be franchising. Any business which wants to expand & can be run as a branch network should at least consider franchising as one of the options. Franchise systems have distinct life cycle stages: Prospective Franchisors, Emerging Franchisors and Established Franchisors. At each stage, making informed decisions, avoiding costly mistakes, following best practices and knowing where you are in the competition are important keys to success.

Prospective Franchisors: You may either have a business concept where you were convinced from Day one, you would be expanding through franchising once it attains a proven value or you may at some point of time, when your business format began to see profit, started contemplating the idea of franchising it. Either way, as a prospective franchiser it is important to do a thorough market assessment to understand your franchise feasibility and competitive analysis with fellow peers to decipher how you stack against them and get a risk profile.

Emerging Franchisors: They are pioneering new franchising concepts which have a proven, viable business model with a well defined structure of transferability of the idea to an entrepreneur or business buyer, coupled with a vision of the franchisor to germinate the concept into a big brand. Emerging franchisors as they settle in with their new franchise business model would be faced with some common challenges like – right sizing franchisor operations, finding good franchisees, deciding where to place units, etc. But on the upside, the emerging franchisor may offer more flexibility and cost effectiveness for given conditions than an established franchisor. As an emerging franchisor, one also has to make a critical decision of whether to expand rapidly to perform controlled franchising. Both decisions have their own merits.

Established Franchisors: They offer a product or service that has been successfully developed, tested, refined and sold for over a period of time. From the franchisee’s perspective, the established franchisor represents the least risky type of franchise as the business format will have been fully tested in a number of locations. Though on the downside, established franchisors may not have too much opportunity for franchisees as their markets may have saturated.