The 3 Stages of Franchising

Franchising your business will likely be the biggest business decision you will ever make. Like many creative founders of business concepts, I had spent years owning and operating ten retail corporate stores and was approached regularly by investors interested in purchasing a franchise. We were profitable, and I was excited about the opportunity to train others on how to do the same. Therefore, I decided to launch a new franchise company. In the beginning, I carefully considered the following options:

  1. Hire a franchise attorney to prepare our Franchise Disclosure Document.
  2. Retain a former mid-level franchise executive, acting as a consultant, with experience in one of these specialized areas of franchise sales, marketing, training, operations, management, or information technology.
  3. Retain a large franchise consulting firm (packager) and invest from $100,000.00 to $250,000.00 for the acquisition of legal, sales and operational manuals and templates.
  4. Consult and train with a former founder/CEO who has a deep understanding of my entrepreneurial style, and who has started, developed and sold a successful franchise system.

The decision was made to hire a franchise attorney. This would allow the efficiency of preparing legal documents and the benefits of part-time operational consulting. I had strongly considered a large consulting firm or a mid-level franchise executive. After intensive research, I was convinced mid-level executives would only offer expertise in their respective core competency, and not in the overall experience of starting and developing a franchise company. As to retaining a large franchise consulting firm, I had enough experience to know that it was unnecessary to invest $50,000.00 to $100,000.00 to draft a FDD, business operations manuals, and simply be assigned what is referred to as a franchise analyst or consultant. (I have since learned that large consulting firms’ business success is highly dependent on soliciting you to franchise your business.) Additionally, higher fees are charged to cover a much larger overhead. Well intended, these firms market very aggressively on the Internet, performing seminars and promoting this high cost to franchise your business.

I later discovered that before I had even started my franchise company, I had already made my biggest mistake! I overlooked the importance of hiring a franchise consultant, who could offer expert advice in all areas of organizational, operational, and financial aspects of starting a franchise company, before meeting with a franchise attorney to prepare my Franchise Disclosure Document. Asking a franchise attorney to prepare a Franchise Disclosure Document (FDD) before any key operational advice is one of the root causes of why new franchisors fail. (I have since learned that “85% of my success is in the first 15% of my decision-making process”).

For my first eight years as a franchisor, my wife, Valerie, continually encouraged me to hire a franchisor consultant who had previous experience in starting and building a franchise company. My challenges were operational in nature and she thought that I should seek advice outside of my franchise attorney. After years of resisting her advice, I finally consulted with Bernie Browning, who was the founder and CEO of a highly successful franchise company. He has since passed away, but he single-handedly transformed and reengineered every business process of my company. He taught me the art of thinking in reverse, focusing on efficiency and profit!

“Experience is the name that everyone gives their mistakes,” author Oscar Wilder once wrote. And how right he was. But what if we could gain the benefit or our errors without having to pay a painful price.

I was creative and stubborn, and felt that my determination could fix any problems along my journey. After all, I knew how to run a business and my attorney knew the law. Take it from me, that was not enough. You do not have to experience what I did before you enjoy the pinnacle of your success. I am passionate about preventing you from making any of my expensive mistakes. I learned as much from my failures as I have from my successes.

I was trained by many within the franchise industry that I would need to experience three distinct stages of a franchisor development cycle before I could achieve my goals. This message went right over my head. I was either a poor listener, didn’t know what this meant, was too young or arrogant to admit it, or all of the above! Otherwise, I would have reduced the size of my ego (and my overhead), thereby avoiding my bad decisions by just listening to my wife. I still hear it over and over in my head, “Hire someone who has actually built and managed a franchise company from scratch.” Apparently, a lot of other franchise founders and CEOs have similarly ignored that good advice. According to the franchise research company, FranData, there are approximately 3,500 registered franchisors in the United States. The most shocking statistic is that 70% of these franchisors have less than 50 franchisees, and 1000 of these franchisors have less than 10 franchisees.

I owned my company for 24 years and seemingly experienced every possible scenario you can imagine in franchising. What has stood out more than anything is that I should have consulted and trained with a former founder/CEO who possessed decades of franchising passion, experience, and authenticity. That would have saved me millions of dollars in mistakes, and I could have avoided the expensive lessons of stages one and two of franchising, which are discussed below.

  • Stage 1: Entrepreneurial stage. The founder is emotional, passionate, excited and inexperienced. They can do no wrong since everybody loves the business concept, until the eighth year when he/she acknowledges that all of their inexperience and closemindedness has caused this current financial and operational chaos. The mentality of managerial, operational, and financial chaos of “I can fix all of this by myself” has run its course.
  • Stage 2: Early stage. In this early stage, you are learning from your previous mistakes. It takes several years to recover from the financial mistakes of the right people and the wrong processes or the right processes and the wrong people (and sometimes of the wrong people in the wrong processes). The founder is now prepared and learning to upgrade all leadership and management skills while implementing new marketing, sales, and training processes that are different from the first eight years which were proven to be unsuccessful. You’re cleaning up your mistakes, and simultaneously trying things differently. Your business concept may be fantastic, however the founder may have reached his or her management capacity and level of incompetence. Usually, this means a growth barrier has been reached and your franchising system will plateau until you acquire a new level of management capacity.
  • Stage 3: Growth Stage. You are still learning how to improve efficiency and profit in every department of your franchise company. This stage is beneficial because the past mistakes are being removed month by month as your business progresses. In your rear view mirror, you see your business style shifting from one of reacting to every new situation, to a “see and prevent” proactive management approach. You are in the realization stage that until you can learn to lead yourself, it is difficult to align your corporate and franchise team with your vision. “It is more common for successful business concepts never to reach their national brand potential because of the complexity of franchising and the skill sets required to become a leader. This is the inflection point, where you either have a personal leadership breakthrough or realize you have taken your company as far as you can. It is time to entertain exit strategies to give your dream the opportunity to grow.”

I invite you to browse our website. It has been designed to transparently offer the problems and solutions which are critical to the complete design of your franchise company. Our goal is to assist you in developing training and support programs, which strive to keep your franchisees “healthy and connected”, while you enjoy the highest level of profitability, whether you have 25, 50, or over 100 franchisees.