Once you've learned how to run a business in one location, you might be itching to expand your brand across state lines -- and franchising could be your launching pad to success.
I should know. In 2009, my business partner, Nick, and I were the youngest franchisors in America. That same year, Inc. Magazine listed us as one of the 500 fastest growing companies in the country, and we came in 30th on Entrepreneur's Top 50 New Franchise rankings.
Franchising allows you to go into business for yourself without having to do all the work by yourself. Many aspiring entrepreneurs are hungry to start businesses, but that doesn't necessarily mean they have the experience (or finances) necessary to endure the learning curve that comes with starting from scratch. With new nonfranchised businesses failing at an alarming rate and the franchise industry projected to leap 5.8 percent this year, entrepreneurs stand to benefit greatly from the support system for scaling that franchises have to offer.
When Is It Time to Franchise?
It can be difficult to determine if you're truly ready to start your first franchise. Through my experience, I've identified four key indicators of success.
- Polish your website and branding to look like a national brand.
- Get press coverage -- local or niche -- to establish expertise.
- Network with tangential industries (in our case, real estate) to expand your reputation.
In the early days, my partner and I did everything ourselves. We drove the truck, answered the phones and hauled the junk. Eventually, we realized we could only grow our company if we started working in the business less and on the business more, creating systems that allowed us to plug in employees as we went.
Once credibility and systemization are in place, be sure your franchise will provide an adequate return. The business should generate 15 to 20 percent return on the franchise investment after deducting a royalty (which is typically between 4 and 8 percent). In our second operating year, we generated a 40 percent margin on our revenue. Realizing that our franchise owners could earn six-figure incomes, post-royalties proved a driving force for us to begin franchising.
Finally, your business must be unique. For College Hunks Hauling Junk and our bright orange and green trucks, that wasn't a problem, but it wasn't until we created a memorable client experience that we truly captured the loyalty we wanted. Ask yourself, "What about my business gives me an advantage?" Does it have both sizzle and steak? If not, develop some!
Putting Theory Into Practice
Once you're in position, follow these steps to start the franchising process:
1. Protect yourself against legal trouble. No one told us in our early stages how expensive attorney fees would get (and that they would never end). Franchising is a highly regulated industry that requires expert legal counsel to draft and maintain franchise disclosure documents and agreements. The fees are high, but the cost of not having a good legal partner is much higher.
2. Create an operations manual and opening checklist. Once we decided to start replicating our business model, we knew it had to be as turnkey as possible. First, we created procedures and systems for every position in the organization -- even those that didn't exist yet. Then, we created checklists around every process, learning from some of the most established franchise corporations like McDonald's about keeping consistency high across locations.
3. Prepare for the initial dollar drain. We didn't realize in the beginning how much of a cash drain franchising can be. We thought our 20 junk-hauling franchises would have us rolling in dough, but the reality was rougher. It takes 10 years and millions of dollars in internal investments for a franchise system to gain traction. As our franchises grew, so too did the resources needed to support them. Be prepared to live on a shoestring budget for the first few years, both personally and within the business.
If you're ready to scale quickly, nothing beats the advantages of franchising. Evaluate your position, hire the help you need, and use the steps above to create a thorough plan to ensure your franchising efforts will succeed.
Omar Soliman is the CEO of College Hunks Hauling Junk.