It is quite normal for a new franchisor to be eager to develop its new network as soon as possible.
Indeed, such new franchisor has already invested a lot of effort, time and money in the design and testing of his business model, as well as in the implementation of the tools necessary for its franchise operation.
Like any good entrepreneur, he is also convinced that his new network will be a great success, especially since he has often already received several requests from people interested in obtaining a franchise.
It is therefore not uncommon for a new franchisor to see its network expand and become successful in several Canadian provinces, the United States of America and even elsewhere in the world. We even assist franchisors who, at the drafting stage of their first franchise agreement, already want to obtain the legal documentation required for expansion outside their province of origin.
However, except for businesses that already have significant financial and human resources, the initial development of a new franchise network often poses serious challenges and presents significant pitfalls.
In making decisions regarding the allocation and use of its resources (which, at this stage, are still limited), a new franchisor must maintain a sometimes delicate balance between, on the one hand, its need to establish and develop its network through the granting of franchises, and, on the other hand, the support it must relentlessly provide to each of its new franchisees in order to allow their franchised businesses to get off to a good start and quickly reach their growth rate and their sales and profit objectives.
Unless the franchisor has the financial and human resources to focus on these two very different objectives (growth of the network and support of its new franchisees) simultaneously, the franchisor may have to make some difficult decisions quickly.
Which should be given priority: network development or franchisee support? How can we achieve these two equally important objectives when our resources are limited?
Three strategies can help us: by waves, by clusters and by concentric circles...
Three practical strategies for the initial development of a new franchise network
A first strategy consists in alternating the development phases with those during which the priority is given to the support to new franchisees.
This allows the franchisor to concentrate its resources, during certain periods, on the development of its network and, during other periods, on the support of its new franchisees who need it a lot, especially before the beginning of the operation of their franchised businesses as well as, at least, during the first year following their opening.
This method also allows the franchisor to make the necessary adjustments to the operation of its network as it develops.
For example, a new franchisor can, for a period of four months, devote a significant portion of its resources to adding two or three franchised outlets and then, for the next six months, concentrate its efforts on supporting its new franchisees to ensure their success.
Thereafter, it can repeat this strategy in successive waves, each time increasing the number of outlets added during the growth phase according to the increase in its resources and the experience acquired during the previous phases.
Obviously, during the development phases, the franchisor will still need to retain sufficient resources to ensure adequate support for its franchisees and operations.
The second strategy is for the franchisor to focus its development rather than spreading himself too thin.
Many new franchisors make the mistake of developing their network according to opportunities (a promising franchisee, an interesting site, a request received, etc.).
This can lead them to quickly open a few franchises, each of which is located in a different market.
By doing so, they miss the impact of a network in each market (since they only have one, or two, outlets per market) and increase their costs both for the distribution of goods and for their own follow-up and support activities for franchisees.
An often more profitable strategy is to develop in clusters, i.e., by setting up several outlets in the same market in a short (or relatively short) period of time.
This allows the network to ensure a better presence, to have a better impact and to maximize the benefits of its advertising and promotional efforts (which then benefit several outlets rather than just one).
By concentric circles...
A third strategy, which complements the second one (growth by clusters), consists of expanding its network by concentric circles by progressively attacking markets located around those in which the network is already known and well established before attacking more distant markets that the franchisor is less familiar with, and in which it is also less known.
The advantages of this mode of growth are similar to those of cluster development.
We can add to this the fact that the franchisor will be more familiar with the new markets it chooses to attack (since they are located near markets in which his network is already active) and that he will often benefit from a certain notoriety from the outset, due to the presence of establishments of his network not far from these new markets.
Preparation, planning and patience are therefore the three key words in the initial development of a new franchise network: prepare an appropriate development plan, plan the franchisor's resources well, as well as their use, in order to maximize their effectiveness and impact on the network, and be patient in order to ensure that the franchises it has granted are successful before granting new ones.
To a large extent, in the initial phase of the development of a new franchise network, the franchisor does not have the right to make mistakes: if the first franchises granted are not successful, they will quickly become a major hindrance to any further development of the network and will monopolize the franchisor's resources in the resolution of difficulties (and, sometimes, disputes) which, in many cases, could have been prevented by sound planning of the initial development phase of the new franchise network.
Fasken has all the experience and resources necessary to help you properly plan, prepare and execute any project involving the design, implementation, start-up and expansion of a franchise network, whether in Quebec, other Canadian provinces, the United States or anywhere else in the world.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.