Building out and starting up a business, particularly a brick-and-mortar fitness studio, takes a lot of time and financial resources.
Andrew Seid is an experienced advisor to franchisors. He works primarily with emerging brands who are seeking to grow their business through franchising.
Blending a unique knowledge of franchise law with experience in business and consulting for franchisors gives Andrew a unique perspective when assisting MSA’s wide range of clients. Andrew lives in South Philadelphia and is a true believer that franchising can help change lives and help continue to build successful business owners.
Franchising can be an incredible engine for growth in your brand, but it's just one method of expansion. There are certainly pros and cons that need to be evaluated before making the decision to franchising. It should be part of a bigger strategy t.at includes continuing to add corporate stores, potential joint venture or other investment opportunities, and other methods of growing your business.
Franchising allows you to grow your brand faster and with less investment per location through the efforts and investment of its franchisees. As all entrepreneurs know, building out and starting up a business, particularly a brick-and-mortar business, takes a lot of time and financial resources.
In franchising, a franchisee is investing their time and money to open their independent business and license your brand and system. Once a brand has a well-structured franchise system, they can have multiple franchisees opening and operating during the same time period it would take a Brand to open their own single corporate location. The second and arguably more impactful advantage is that in franchising, each location is now operated by the Franchisee who is an owner of that location and has a greater incentive to see their location succeed than a typical Location Manager might. Even the best manager won’t be as motivated to do everything possible to make a location succeed as a Franchisee who has invested their time and money into their own business.
On the other hand, most franchising disadvantages can be managed by taking the time to fully understand your system, what makes it really work, and putting in place the proper systems and methods to establish and support your brand standards.
System change can be slower in a franchise system, since you are now working with a series of independent franchisee owner/operators rather than simply mandating any changes down to Store Managers who are your employees. A good franchise agreement will almost always allow you to legally enact the changes you need across the system to protect, enhance, and promote your brand standards.
But the reality is that you are now working with independent operators, and simply pointing at the contract is an ineffective way to promote effective and efficient system changes. Being a good franchisor takes effort, most often in communicating with franchisees so they understand why decisions are being made and how the brand benefits.
There is no one single determinant of whether it is the right time, or the right decision, to franchise your business. With most of our emerging franchisor clients, we do a thorough Threshold Analysis to determine whether franchising is the right method for expansion, if there need to be any changes made, or if we need to wait before making those decisions.
Generally, you will want to have at least a few locations up and running for a few years to get a substantial understanding of how your business operates in multiple markets and over time. The type of business impacts this decision a lot as well. We’ve helped a coffee brand develop their franchise system before opening a single location because a Coffee shop is generally more fungible - easier to estimate and evaluate based on existing competition and demographic data.
But boutique fitness brands can be more complicated, so you truly need to fully understand your business before scaling up. You need to know the operations model, organizational philosophy, unit economics, labor needs, and customer base, and that’s before you even begin to evaluate how the brand will operate as a franchise.
Externally, it is worth its weight in gold to invest in good advisors who understand franchising as a model—both in terms of franchise legal counsel and franchise strategy consultants—before you decide to franchise. You can avoid a lot of complications and heartache if you take the time on the front end to get it right first.
Internally, it depends on your growth goals and your resources. Most of our emerging brand clients begin their franchising journey with the founder and their best general manager as the entire franchising team, so big things can grow from the efforts of a few passionate people.
The most important thing is understanding your business model through and through, not how many people you have on your team. You need to avoid growing faster than you can support your franchisees, so having the proper support structure at the corporate level is important. It's better to think about the roles that need to be filled, not necessarily the individual people or titles that need to be brought on to fill them.
You need someone that can effectively train franchisees on your brand standards, someone that will be able to support franchisees as they begin and continue their operations, and someone to recruit franchisees into the system. In the early stages of franchising your brand, those three roles are often filled by only a few people who are wearing multiple hats. franchise growth and franchisee support always need to be in a constant balance. Getting too far out ahead on one or the other can be debilitating to a franchise system.
You need to fully understand your brand. That includes your operations on the unit level and as well as your overall culture. On the unit level, knowing your unit economics is crucial. You need to understand whether your business model will allow franchisees to generate enough revenue to send you a royalty while still making a sufficient profit for themselves. What that profit margin needs to be is different system to system and franchisee to franchisee, so don’t get caught just comparing your unit economics to your competitors.
Similarly, your culture needs to be fully established and understood before you begin bringing franchisees into your system. While franchising is technically a contractual agreement, effective franchise management comes through communication and developing a culture of compliance. The moment you pull out the franchise agreement to enforce something, you’ve lost.
Understanding your culture helps you determine the right franchisee profile for your business, how best to communicate and protect brand standards, and overall, the expectations across the franchise system. This doesn’t mean your culture can’t and won’t evolve, but it is important to know and understand your culture at the beginning of your franchise journey.
Being a franchisor is a completely different business than being an operator of your business, or even of overseeing the business and brand. As a franchisor, you are now managing franchisees and a franchise system. Your competition at that level is other franchisors, not other operators in your industry. Your customer is other potential franchisees, not consumers of your product or service.
For that reason, getting yourself out of the daily operations of your business is a crucial initial step for emerging franchisors. If you are unable to effectively run your operations without you, as the founder, knee deep in the weeds of daily operations, there is zero chance you’ll be able to effectively oversee the brand’s franchise system. If you can’t find and train a general manager to take your role from your internally, you have no chance of being able to identify, train, and support franchisees to do the same thing in a different market without your direct support.
This will be determined brand to brand, but there are a few overarching things to think about. Your first few franchisees will likely be people who are already interacting with your brand, either as customers or as employees in your brand. They already know and love your brand, you already know them and have developed some level of trust and understanding with them, and they are committed to taking a bit of a leap to grow with you as you begin your franchise journey. This initial group does not always produce the best franchisees, but they will be the ones who help establish the system and serve as validation for future franchisees.
My major piece of advice for emerging franchisors when they begin franchisee recruitment is to understand what your core competencies are as a franchisor. If you are confident in your ability to train and support franchisees on how to be fitness instructors, but you are less confident in your ability to support them in managing their P+Ls and unit economics, then you should look for franchisees with significant prior business experience who don’t necessarily have experience as fitness instructors. Its as important to know what you are good at as a franchisor as it is to know what you want your franchisees to be good at.
Technology has become an incredibly important aspect of franchising and has changed the game is so many ways.
Simply being able to automatically view each of your franchisees daily sales and other information through a POS system has completely changed how franchisors run their systems. Legacy franchise systems that do not have the authority or the technology to fully look down into each of their franchisee’s P+Ls are significantly hamstrung in determining and helping franchisees meet KPIs, and simply having a true understanding of the unit economics of their business.
In terms of customer experience, technology that ensures each customer has a consistent experience from location to location is vital in a franchise system. While we want customers to know that individual franchised locations are owned and operated by franchisees who are members of their community, we want the experience to be consistent throughout the system.