Do You Want to Grow Your Company Bigger? Then Use Franchising23 minute read
5. Who do I dare sell my franchise to?
One of the most common mistakes is a low barrier to entry. The second you start thinking about money and forget about the future franchisee’s personal qualities, it can come back to bite you and end in failure. Franchised businesses are often run by ex-military men – according to the International Franchise Association, one out of every seven franchises in the U.S. is owned by a military veteran. They know discipline and rules, and they are good team players. If the deal is that thinking by oneself should be limited, then that’s how it is. Excess creativity has no place in the franchise business. However, this does not mean that the franchisee should not be an entrepreneur at heart, active and hard-working. Of course they should!
Running a franchise could be most suited to those coming from systematic work environments, and who can do the job even if they disagree with the boss. The ability to take your superior’s criticism calmly will definitely come in handy. Experience in sales or marketing will be of use. As for personal qualities, less conflictious people are better suited for the franchising system, whereas the highly creative and willful personalities ought to remain independent entrepreneurs.
There are few franchises in Estonia. One of the best-known ones is Pizzakiosk, first opened in 2003 in a small town – Paide – as a pizza café. When the recession hit Pizzakiosk, married couple and cafe co-owners Kurre and Riina Ehrstein revamped their cafe and turned it into a kiosk with minimum expenses. The founders of Pizzakiosk were lucky, because the future franchisee came to them, wanting to open a similar kiosk and paying a fee for it. When a third person opened a kiosk under the same trademark, it became obvious to the owners that it is a franchise. So they started to systematically develop the franchised chain, and currently there are around 30 such kiosks in Estonia. Pizzakiosk franchisee Lea Põder analyzed in her master’s thesis why some of the franchisees failed. The reasons for this were as follows:
- Inability to calculate, so to speak
- Franchisee is not interested in their work – doesn’t bother or want to organize
- Flaws regarding raw material and product quality
- Unwillingness to obey the rules or not getting along with the franchisee
- Other reasons: lack of information, not enough advertising.
Grouping the franchisers’ and franchisees’ replies revealed that the main key to success is competency in financial management, i.e. a clear understanding of the pricing mechanism, overview of the costs, and the ability to plan expenses. It is basic math, but requires an honest self-assessment from the entrepreneur, as well as defining their (and the company’s) needs. Cost assessment begins with the business plan, and if the predicted turnover might not cover the costs, then a business should not be established on these conditions.
The main thing is not getting mesmerized by the franchisee’s beautiful eyes. The franchisee might be super interested in buying your franchise, but you decide whether or not to open another business somewhere. Perhaps there aren’t enough clients in this area? Perhaps the competition is too keen, and the marketing costs would exceed your initial assessment? Are there any niches your competitors haven’t covered that are strong in your company?