Most experts seem to agree that when it comes to selecting a franchise, well-established brands with a track record of success should be given preference. This may be the safest route, no doubt about that, but is it realistic? After all, every concept was a start-up once – someone somewhere had to take the plunge or the franchise would have never gotten off the ground.
In view of franchising’s growing popularity, new concepts appear on the market all the time. Some of them seem to be real gems in the making; those who get in on the ground floor can expect to grow with the brand and should have it made.
But what about the risk? It is greater, no doubt about that, but not necessarily unacceptable. We are not advocating that you should rush out and join an unproven franchise concept without careful evaluation of its bona fides. What we are saying is that some new brands may develop into exciting opportunities and deserve your attention.
Having said that, there is no doubt in our minds that being the first franchisee of an emerging network increases the level of risk. It follows that careful evaluation of the pros and cons of joining such a network becomes even more important than would otherwise be the case. You also need to be a special person, comfortable with being a pioneer.
New franchise versus unproven concept
It is important to understand and acknowledge the difference between a newly launched franchise and a concept that is unproven. The old saying “You cannot franchise an idea” still stands. For a business idea to be packaged as a franchise, its originator must have operated at least one unit of the business to be franchised for a reasonable period.
The systems and processes applied in the business must have been optimised and recorded to facilitate exact duplication. The business should have a registered trademark and operate in a stable market with proven growth potential.
A detailed franchise expansion plan needs to be developed, and the legal contracts and other documentation required to franchise professionally need to be drawn up. Most importantly, the new franchisor needs to understand that franchising a business requires a different set of skills to operating a business. To drive the project forward, a franchise champion who focuses solely on the development of the franchise needs to be appointed.
Joining a new franchise
Being the first franchisee in planned network can be exciting and highly rewarding but is also challenging. No matter how carefully the franchise package has been developed on paper, implementation is likely to expose flaws. Instead of the “blueprint to business success” franchisees of established networks are given, the pioneer franchisee can expect to receive guidelines that haven’t been tested in a real life franchise scenario.
Instead of being able to rely on the franchisor’s guidelines entirely, the first franchisee will have to work with the franchisor to iron out potential flaws in the system.
- Some prospective franchisees will see this as increasing the risk, and they are right. Such individuals will be well advised to stay away from opportunities that haven’t been fully tested.
- More adventurous types will spot a unique chance to take a hand in shaping a new concept. They should go for it because potential rewards can be great, both in financial terms and the level of satisfaction they can achieve!
Prospective franchisees need to be aware that in addition to assuming a greater level of risk, they may face some other hurdles. For example, bankers generally love franchising because they know that a newcomer to the business world who enjoys initial and ongoing support from a franchisor stands a much better chance of success than an independent entrepreneur. In the case of a newly launched franchise, this reassurance is largely lacking.
The new franchisor’s track record in the core business, the soundness of the franchise plan and the prospective franchisee’s own financial standing are likely to play a greater role in any lending decision than would otherwise be the case. Another potential drawback you need to consider is that you cannot turn to other franchisees for support. This means that before joining the network, you cannot interview established franchisees to find out how the system works for them. And once you have signed the franchise agreement, you cannot turn to fellow-franchisees for moral support or practical assistance. It’s all between the franchisor and yourself.
Are you up to the challenge?
One thing is clear: to be the first franchisee and effectively act as the guinea pig of the operation means that you have to be a very special person. You need to be more accepting of risk than your run-of-the-mill franchisee, and you have to be able to think on your feet and adapt to situations as they arise.
On the plus side, you should be able to strike a better deal with a new franchisor who is somewhat dependent on your input. At the outset, this could manifest itself in the form of lower initial fees, or you may be able to secure rights to a larger territory than would otherwise be the case.