By Max Berry

For an entrepreneur looking to take their business as far as it will go, becoming a franchisor may be the ultimate goal. And, since franchisees provide the capital for expansion, a business can grow more rapidly as a franchise than it would through internal funds, equity financing, or bank loans. But franchising a business takes much more than entrepreneurial drive; it requires planning, patience, and, above all, a killer concept.

Are You Ready?
Before a small business owner takes the first steps toward becoming a franchisor, he or she must determine whether or not their business can sustain that kind of expansion. "A lot of businesspeople are so eager to cash in that they do it before they have a successful concept," says Dr. Robert Barbato, a business professor at the Rochester Institute of Technology.

To attract franchisees, you need to provide them with a product or service that has already been proven successful in your own market. The clearer and more refined your business mode--the more you have tested and honed it through experiences with your own clients--the better your chances of both attracting franchisees and setting them up to attract clients of their own.

Barbato cites the highly successful short-term car rental company Zip Car as a prime example. Founded and developed in Boston, the service caught on quickly as a franchise because it satisfied a need--the use of a car for a day, or even just a couple hours--that was prevalent in nearly every city. "It's a case of seizing an opportunity that may come and go quickly," says Barbato. "And it has to be opportunity that like the Zip Car can be replicated."

But replicating isn't in the nature of every small business owner. To become a franchisor is, to some extent, to ease up on the reins and let other people take hold of your idea. Understanding the distinction between entrepreneur and brand manager is imperative for any small business owner considering becoming a franchisor. For those entrepreneurs uncertain whether or not franchising is the next logical step for their business, Barbato recommends letting the trajectory of the business itself be a guide.

"A franchisor knows he or she is ready when the opportunity is so large it can't be funded by internal financing," he says. In other words, if the demand for your offering has outgrown your ability to meet that demand on your own, you're ready to franchise.

 

Beginning the Process
This first step to turning any sole proprietorship into a successful franchise is brand credibility. A litmus test for knowing whether or not your business has legs as a franchise may be the reaction you get from your customers when you ask them for testimonials about their experience with your product.

 

But along with a strong reputation comes a recognizable trademark. Develop and register one of your own. A key draw for potential franchisees is an association with, and stake in, an established brand.

Once your brand is in place, devise a formal franchise plan. Laws regarding franchising vary between states, so check yours to determine all the steps you'll need to take. "Laws are very protective of franchisees," says Barbato. "They want to make sure franchisors are being transparent, so managers need to be prepared for that." (To get a sense of the franchisee's perspective on buying a franchise, check out the Federal Trade Commission's Consumer's Guide to Buying a Franchise, here: http://www.ftc.gov/bcp/edu/pubs/consumer/invest/inv05.shtm.)

Being transparent in this instance means drafting a formal operations manual and training programs for your franchisees, as well as clear, up front explanations of all franchise fees. Some states also have specific laws that require franchisors to provide pre-sale disclosures, known as "offering circulars" to potential franchisees (For a list of these states, go here: http://www.ftc.gov/bcp/franchise/netdiscl.shtm.) A franchise attorney can help with all of this, but you should check your own state's franchise laws before determining whether or not you need one.

More than anything, the information you distribute to potential franchisees should stress the most important component of your operation: its product. "A lot of good franchises have as their goal selling products, but then there are those that the have the goal of selling franchises," Barbato says. "An emphasis on products and services is what distinguishes a good franchise from a bad one. That's what savvy franchisees will go for."

A New Role
Still, not every entrepreneur will find happiness as a franchisor, and even those that do will need to make some serious adjustments to the way they approach their business. Becoming a franchisor means taking a broader view of your company. Where the daily minutia of a small business was once your stock and trade, you now must focus your energies on the big picture: marketing on a grander scale, drumming up interest in your brand, and selecting the right franchisees to take your company national.

"We have a tendency to hire people like ourselves, but, as a franchisor, you have to guard against that tendency," says Barbato. "You're actually selecting qualified managers, not entrepreneurs; people who can follow the manual and execute strategy. You're not looking for the creative risk-taking type, you're looking for the administrative, managerial type."

That leaves you with the task of devising and implementing the processes by which these managers operate, creating the plays for your team to execute. "It is now a case of finding systems and processes that work," says Barbato. "You want to start becoming a process person."

This transition isn't always an easy one for a small business owner who nurtured their company from idea to enterprise, but the path from sole proprietorship to national franchise marks an evolution, not an ending. "Franchising requires the ability to migrate into the role of a successful businessman," says Barbato, "not just an entrepreneur."

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