By Shelly Sun
In a soft economy that has become the “new normal,” many entrepreneurs have put aside expansion plans.
They have created great businesses through hard work, innovation and exceeding customer needs in a local area. But without access to significant capital, it challenging to contemplate growing from a few locations to hundreds or thousands of outlets.
Yet if you keep an open mind, now might be the best time to expand your business without a huge capital outlay through franchising.
Expand your thinking
You have a product or service that customers want. Eventually you begin to wonder how to reach more customers. The traditional approach involves raising capital to open more locations. True, this approach can grow your brand and allow you to reach more customers, but it also means expanding your business is all up to you. You will be securing and signing for the debt or outside equity and ultimately taking on the increased risk of expansion.
Another avenue for achieving growth in revenues and customers, with limited capital and less risk, is through franchising, though many business owners do not consider it. Franchising is a great vehicle to help you reach more customers, promote your brand and increase your brand’s visibility and credibility. Opening additional locations on your own could take hundreds of thousands ”if not millions ”of dollars that are not easy to access through traditional financing today.
Know the leverage effect
In thinking of ways to leverage your investment, franchising can scale your brand by building on the years of fine-tuning that made your business a success locally. Franchising links your expertise and investments as the franchisor with the capital and personal oversight of a franchisee to replicate your model in a new geographical market. By leveraging the passion, commitment and capital of franchisees, you’re able to deliver your goods and services to more customers across a larger geographic region. Whether you want expand regionally, nationally or globally, franchising is perhaps the least capital-intensive (and most proven) way to do so. As a result, it provides less risk and more upside than other methods of brand expansion.
Launching a franchise brand will require the franchisor to make an additional financial commitment of several hundred thousand dollars and build the franchise system foundation. But opening more company-owned locations generally requires significantly more capital than opening locations through franchising. Given the tight lending environment, businesses need creativity and innovative ideas to figure out the best way to expand with limited access to capital. Franchising uses the capital of franchisees to expand into new markets, in essence allowing the brand to expand using other people money.
National strategy, local job creation
It not just about the money. In addition to requiring less capital investment, franchising mitigates the challenge of trying to take your local business and manage it in the next state “ or six states away. Franchising enables local ownership where business owners invest not just in your concept, but in the community they serve.
Franchising spreads the risk between the franchisor and the franchisee. The franchisor has invested in the pilot locations and secured their initial success. By experiencing mistakes and fixing them to develop a solid business model that franchisees can replicate, the franchisor has developed and protected the brand and the systems that the franchisee can license and use in its business.
Good alone, better together
Both the franchisor and the franchisee benefit from this approach. Franchisees invest capital to grow their local business, but they don t have to spend significant time and resources to figure out the business. As a franchisor, you re licensing your knowledge to them. In doing so, you will leverage the investments you already have made in your brand and in your systems. In return, you earn a stable revenue stream, normally based upon the revenue results of your franchisees.
Franchising is a powerful mechanism for accelerating growth. Franchisees provide new sources of passion, ideas and capital. Franchisees work hard to build their local businesses, spread the word for the brand and bring great ideas back to make the business model stronger for everyone. Franchising is about shared success and growing smart with less risk than going it alone.
In business for yourself, not by yourself
The franchisee is acquiring the right to use the brand and the systems, which will allow them to get started faster and with a stronger foundation than they would have on their own. And that right has considerable value. Essentially, to be a franchisee is to be in business for — but not by — yourself. The franchisor benefits in offering this opportunity to a franchisee because it helps offset past, current and future investments in the brand and in the operating systems. When done right, franchising benefits the company that wants to expand geographically, and it benefits the franchisee who gets to learn the business and execute the model at the local level.
Launching a franchise system is a big step that requires evolving your leadership. By learning new aspects of franchising, you can expand your business, reach more customers, empower others to own their own businesses and create countless jobs.
Shelly Sun, a certified franchise executive, is chief executive and co-founder of Chicago-based BrightStar Care, with over 200 locations nationwide. She is author of the forthcoming book, “Grow Smart, Risk Less: A Low-Capital Path to Multiplying Your Business Through Franchising,” scheduled for release October 4. For more information, visit http://growsmartrisklessbook.com/pre-order.