Bundy Law Firm PLLC May 10, 2012

Every prospective franchisee wants to identify the best franchise opportunities for them. Every good franchisor wants to know how they can create a successful franchise.

Of course, success is always in the eye of the beholder. It could be measured by the shear number of franchises sold; by the profit on the franchisor’s financials; by the profit showing on the franchisees’ financials; by how happy the franchisees are with their investment; or by the level of customer approval of the products or services.

A franchise is a business investment by both parties. Any factor that skews the profitability quotient too far in favor of either the franchisor or franchisee will ultimately doom the franchise system to failure.

Franchisors have a unique responsibility in striking that balance. Presumably they have intimate knowledge of the business and its position in the competitive marketplace. Presumably they have experience with the profitability of the business model. Presumably they are competent in running the core business and in training and supporting franchisees in operating according to the system. With such superior knowledge and experience, a responsible franchisor will set aside greed and strive for a fair and balanced relationship with a fair allocation of responsibility and potential profit. Every franchisor should understand that, if franchisees fail under their system they may ultimately fail-because either people will stop investing in new franchises or current franchisees will be unable or unwilling to pay ongoing franchise fees. The franchisor drafts the contract-so the franchisor must strike that balance because no one else can.

The other elements affecting the success of a franchise follow from that essential balancing equation. They include financial capital (money), human capital (qualified people in positions to support the franchisees), a good brand (that people looking for the offered product or service recognize) and a system (a method of operating the franchised business that has been tested in the marketplace). Further quantifying any of these elements is possible only within the context of a particular set of facts. If the franchisor is offering franchises in only one state, it will require a lot less in capital (financial and human) than a national roll-out. If the franchisor is offering franchises only in areas near existing company outlets, a less well-developed brand may succeed. If the Franchisor has a lot of money for advertising, a new brand may succeed. If the franchisor is only offering a small number of franchises and makes full disclosure, a less well-developed system may succeed.

Before launching a franchise system, every franchisor should consult with their franchise attorney and other franchise advisors about all of these matters.  These actions can help place a franchise on the prospect’s list of best franchise opportunities.