A strong operating business is only the starting point. Franchising asks whether you can create successful owners without being in the room.
By Dan Bish
I’ve spent a lot of years in franchising, and one thing still surprises me.
Smart businesspeople can become bad franchisors.
They may have built an excellent company. Great product. Good margins. Loyal customers. Capable team. Maybe several successful locations.
Then someone says the word franchise.
The spreadsheet gets exciting very quickly.
Sell 20 franchises at $40,000 each. That’s $800,000 in franchise fees. Get to 100 units paying royalties and the story starts to look even better.
Except franchising doesn’t work that way.
Franchising is not simply a cheaper way to open more locations. It’s a different business. Your customers, in a very real sense, become your franchisees.
And those franchisees are investing their own money, signing long-term agreements and trusting you to know what you’re doing.
That deserves more than enthusiasm.
The first mistake happens before the first sale
Most new franchisors ask, “How much does it cost to franchise my business?”
Wrong first question.
You can get an FDD written. You can create an operations manual. You can build a website and hire someone to generate leads.
That gives you the paperwork and tools to offer franchises.
It doesn’t necessarily give you a franchise company.
The better question is how much money it will take to build the franchise business until royalties can support it without needing the next franchise sale.
That’s a different number.
You need training, field support, technology, legal work, compliance, marketing, franchise development, accounting, travel, recruiting and enough reserve to handle mistakes.
Especially mistakes.
If you don’t have that capital, the business can start making decisions for cash rather than franchisee success.
The trap closes quietly
An undercapitalized franchisor eventually discovers it needs to sell franchises to pay bills.
That’s when good judgment gets tested.
The candidate has enough money, so maybe the weak operating background isn’t a deal breaker. The market isn’t ideal, but maybe it can work. The financial capacity is thin, but maybe they’ll figure it out.
Red flags become yellow flags. Yellow flags become green.
This is not okay.
You should sell a franchise because you believe the person has a reasonable chance to become a successful franchisee.
You should not sell one because payroll is Friday.
Your first franchisees are not practice rounds
A franchisor may launch before the model is ready because the team figures it can improve things as it goes.
Of course you’ll improve as you go. Good franchise systems always do.
But there is a big difference between improving a proven system and figuring it out with someone else’s money.
Your first franchisees matter disproportionately.
If they do well, speak positively and tell candidates they would buy again, you’ve created a powerful growth asset.
If they lose money, feel unsupported and warn prospects away, you’ve created the opposite.
No amount of polished franchise marketing fixes bad franchisee validation.
Eventually candidates talk to franchisees.
They should.
Running the business is not the same as franchising it
If you’ve built a successful business, you deserve credit. Most people never do that.
But operating a business and franchising a business are not the same job.
Now you have to recruit the right owners, train adults who may not know your industry, help them select locations, get them open, teach them how to acquire customers, monitor standards and support struggling operators.
You also have to manage a relationship that is different from employment.
Franchisees are not employees.
They are independent business owners who invested their own capital.
That changes how you lead.
I’ve seen capable executives struggle because they keep trying to manage franchisees like staff. That usually creates frustration on both sides.
The successful franchisee is the product
This is the point I would want every emerging franchisor to sit with.
The product of a franchise company is not the hamburger, haircut, cleaning service, tutoring program or retail concept.
The product is the successful franchisee.
Once you believe that, many decisions get clearer.
Should you spend more on training? If it helps franchisees succeed, probably.
Should you hire field support earlier than planned? If the first operators need it, probably.
Should you reject a candidate who is ready to write a check? If they’re unlikely to succeed, yes.
This is where strong franchisors protect the brand by protecting the franchisee.
If you are not ready, wait
Before franchising, answer three questions.
Can someone who is not you reproduce the business?
Do you have people who understand franchising, not just the operating business?
Do you have enough capital to support the franchise company before royalties can carry it?
If the answer to any of those is no, I wouldn’t say never.
I’d say not yet.
Fix the model. Build the team. Raise the money. Open another company location if that’s what it takes.
There is nothing wrong with having a strong business that isn’t ready to franchise.
There is something wrong with convincing other people to invest while you find out.
The U.S. franchise market can reward a good concept and a serious franchisor. But it will also expose a company that enters before it’s ready to create successful owners.
About the author
Dan Bish is a Senior Partner in FranLaunch USA, where he helps international and U.S. franchise brands enter, adapt to and grow in the United States. His work focuses on U.S. market entry strategy, franchise development, operator readiness and the practical decisions that determine whether a franchise system can create successful franchisees.