Evaluating an Emerging Franchisor’s Potential for Future Franchise

When most people think about franchises & popular franchisor, they envision well-established brands such as McDonald’s, Subway, Marriott, and others. This history and established “brand equity” is a major reason why franchise ownership might be a wise investment.

Nonetheless, brands must begin somewhere. Many of the most successful franchise systems in existence today are less than twenty years old. Starting a franchise business with correct concept, franchise expansion can be rapid, especially if the concept serves a new or developing consumer market. A lack of history does not always imply a long climb to regional or national brand importance, but getting in on the first floor of a newer franchise system can be an immensely exciting and rewarding experience. Understand that there may be hazards involved.

What is an up-and-coming brand?

There are numerous definitions for what qualifies as a “emerging” franchise brand. They range from companies that haven’t started franchising to existing brands undergoing system modifications owing to rapid growth. When I say “developing brand,” I usually mean one with less than 20 franchised locations.

Advantages of a Franchise Business

Emerging franchisors have undoubtedly committed their life savings in building and expanding their firm, as have many new franchisees. Because of this, a developing franchisor will be compelled to ensure the success and sustainability of their system and franchisees. The success of these early franchisees typically determines the fate of the franchised business as a whole, so a new franchisor will frequently do everything possible to assure the success of these early adopters.

This initial group of franchisees not only serves as “proof of concept” (in terms of the brand’s ability to succeed outside of a corporate-owned location), but they are also frequently the most crucial element of the brand’s franchisee recruitment process because they can validate the system for future candidates. Ensuring that these initial franchisees have a positive experience is the most effective franchisee recruitment tool a new franchisor possesses.

Franchisee Assistance

Great franchise systems acknowledge that not all franchisees require or should receive the same amount of support from their franchisor. Well-managed franchisors often provide more franchisee support than required, even for the first group. This is especially true for well-managed developing franchisors, whose founders frequently provide franchisee support. This direct contact with a company’s creator gives founding franchisees a unique bond. They frequently have a greater sense of ownership over the entire brand and greater influence over its development.

Market availability

Emerging brands have access to more markets than established brands. There may be greater possibility to select more desirable or specific territory. And a developer of many units may have the ability to buy entire regions or greater geographic areas than if they had signed with a more established system. Franchisors ask early franchisees to develop new areas and offer them more time to grow larger regions.

Greater capacity for negotiation

As they begin to sell franchises, fledgling franchisors may be more receptive to negotiating certain aspects of their franchise agreement, simply because many prospective franchisees will view their offering as riskier than contracting with a more established brand. While each candidate is evaluated on an individual basis, care must be taken when negotiating adjustments, as some of these modifications must be reported in future FDDs and frequently become the topic of discussion with future franchisees.

Do not assume that every new franchisor will be willing to negotiate significant insurance franchise cost offering terms with you. But do not fall for the fallacy that they will not. Aspiring franchisors should offer “Founders Club” franchisees discounts and incentives to be the first to commit to the brand.

Disadvantages of a Franchise Business

First, the brand in which you’re investing may have little brand equity or cultural awareness. Through the success of your own enterprise, you will contribute to the growth of the franchise’s brand equity. This means a new brand’s franchisee may take longer to establish themselves, delaying income levels as in more well-known places.

Because a developing franchisor may lack a company background, potential franchisees may have trouble securing funding. Typically, franchise lenders base a portion of their selections on the performance history of existing franchisees within a certain system. Even though there are numerous sources of finance accessible to new franchisees, it might be difficult for some franchisees (especially those with no previous business record) to receive the necessary funding directly from lenders without a track record of success.

Lastly, while an emerging franchisor typically has a great deal of knowledge in their particular field, they usually have limited experience as a franchisor, particularly in how to successfully support franchisees and determine how franchisees might achieve success. Guarantee that the management team can adequately describe what they do to help their franchisee network thrive, and determine if they rely on any professionals in the industry (consultants, experienced mentors, etc.) to ensure they understand how to franchise their brand successfully.

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