Transforming an idea into franchising: what are the operations to be carried out?
Only very ambitious projects manage to achieve great success. For this reason, if you believe you have a truly winning business idea, consider proposing it to other entrepreneurs so that it can be replicated. That is, think about the possibility of starting a franchise.
Ambition is certainly not enough: to achieve success, you need to know perfectly how to open a franchise and know exactly how this particular business model works.
Open a franchise: market analysis
First of all, let’s clarify what franchising is and how it works: it is a business model that provides for an agreement under which a franchisor (generally a brand already established on the market) authorizes the franchisee (the affiliate) to start the sale of products and services under its brand.
As we will see below, the collaboration formulas underlying this model can be different, but the most common include the payment of an entry fee and a percentage of sales, in exchange for the transmission of the corporate know-how and the transfer of the sales rights.
Market analysis is one of the first steps you need to take when you find yourself evaluating whether and how to open a franchise. This is a necessary step for anyone wishing to start their own business but, in this specific case, it is even more fundamental: not all business ideas, in fact, have the characteristics to be able to transform themselves into a franchise and, often, the difference is made by the peculiarities of the market, on which the possibility of successfully replicating the formula elsewhere depends.
Often, for example, the basis of franchising is the need, for a company characterized by a strong territorial connotation, to replicate its business in a different place, in order to overcome its growth limits in a specific territory (for example, due to the absence of additional customers in that specific area). Understanding if and how this is possible is therefore fundamental.
Registration of the franchisor’s trademark
Registering the franchisor’s trademark is the next step: if you want to open a franchise, you need to know that this step protects you both against competitors and the affiliates of your network and prevents these subjects from illegally using similar distinctive signs, creating confusion and damaging your brand value.
The brand can be registered nationally, EU or internationally: in the first case you must submit the application to UIBIM (Ufficio Italiano Brevetti e Marchi) or to the Chambers of Commerce, while in the second case the application must be submitted to the EUIPO (European Union for Intellectual Property Office) or in one of the central industrial property offices of the Member States, which will then forward it to the EUIPO. The registration of the trademark at an international level allows you, on the other hand, to protect the brand in all the countries that have signed up to the Madrid Agreement and Protocol.
Definition of the contract with the franchise
The definition of the contract between franchisor and franchise is another absolutely fundamental step to avoid unwelcome and dangerous surprises. Specifically, you must remember to define in time and unambiguously with the affiliate the duration of the agreement, the entry fee, the percentage of sales, the obligations and duties of each of the two parties and the protection clauses.
The amount of the entrance fee for the franchisee must be commensurate with what, as a franchisor, you give to the franchisees: it can be the “simple” idea and strength of the brand or company know-how but also, in some cases , plant engineering and the material necessary to carry out the activity.
Royalties on sales are not always provided: in some cases, in fact, in order to facilitate affiliation, they can be avoided or can be triggered starting from the second year of the contract.
The various aspects that you need to regulate include, for example, the franchisee’s exclusive territory and the conditions for renewal of the agreement or possible cancellation.
Transmission of know-how and creation of the operating manual
If you want to know how to create a franchise you must pay particular attention to the transmission of your business know-how to the affiliates. The tool that allows this is the operating manual: it is a document, more or less long, in which all the techniques, strategies and management, administrative and commercial procedures that the franchisee will have to put in place to replicate your business must be included. Not only that: the operating manual must contain all the details relating to your brand’s commercial policy and further instructions in the visual and marketing fields.
For obvious reasons, the operating manual is a document that you must periodically update with new indications, which can supplement or replace what was previously defined.
Business plan creation
To avoid misunderstandings with affiliates, you must also create the business plan in a precise and complete way: it is a design and analysis tool that allows you to clearly define the business idea and the structure of the activity and its methods of management and to verify its performance over a given period of time, evaluating the possible achievement of the objectives you have set.
Successfully profiling leads to better build your franchise network is just as important. In this regard, it is appropriate to pay attention to some aspects in particular, such as the possibility that potential affiliates already have experience in your area of expertise, the complexity of their organizational structure and the way in which it affects decision-making processes, but also the amount of budget available to them.
Remember that, only by asking the right questions, you will be able to find the ideal allies for your entrepreneurial adventure and do not forget that, as also suggested by Robert T. Kiyosaki,
“An intelligent person hires people who are smarter than him”.
Finalization or possible adaptation of the contract
As for the drafting of the franchise agreement, you must know that there are, in detail, 3 different types of commercial affiliation:
- distribution franchising: as a franchisor you develop techniques and business methods that you transfer to the franchisee;
- service franchising: in addition to products, you also grant a knowledge package for the provision of services;
- production franchise: you offer the franchisee the right to produce goods, using your brands, your production processes or your formula for the manufacture or processing of goods, as well as the possibility of reselling them on the market according to your sales techniques.
The specific obligations for franchisors and franchisees also depend on the type of commercial affiliation, which must be written down in the contract.
In this regard, know that, in the event that the franchise agreement is for a fixed term, you will have to guarantee the franchisee a minimum duration sufficient for the amortization of the investment, in addition to the option of early termination for non-fulfillment.
It should also be noted that failure to achieve the economic results indicated in the business plan cannot result in a breach by the franchisor, since it only contains forecasts regarding the performance of the commercial activity, inevitably linked to imponderable factors driving the market.
Marketing plan and management of potential affiliates
Do you know what a marketing plan is? Building an effective one is very important if you want to start a successful franchise. The first rule of franchising marketing is to focus on the positioning of your brand, which must be able to distinguish itself from competitors. The visual identity for a brand that wants to start a franchise is, in fact, fundamental.
Define your organizational structure and the identity of your brand, find the concept that differentiates your brand and communicate it. But where and, above all, to whom?
The means at your disposal are many: among those that are generally most used in the world of franchising, online portals, trade fairs and sector magazines stand out. Do not neglect, however, social networks because they allow you to directly reach a well-defined target. In this regard, keep in mind that, for obvious reasons, the target audience that identifies your potential future affiliates is linked to your core business.
Information material, dossiers and brochures
A clever mix of traditional means and new tools offered by the web allows you to better build your corporate identity and to present your franchising system in the most appropriate and effective way. Do not neglect the traditional brochures in which to describe how to open a franchise with you: be concise and use a few simple words to define your commercial affiliation system (a more extensive description can be reserved for the presentation brochure and other informative material) but make sure you answer with care and precision all those questions that potential future affiliates might ask themselves after seeing your advertisement done on other media.