It’s widely accepted that for franchising to work properly it must
be based on a proven business format. Pilot operations are where
the proof comes from, and they are used throughout the life of the
business to test the original business concept; to test whether the
concept can be transferred to other sites and other people ; to
test the effect that franchising will have on the operation of that
concept ; to test the effect that franchising will have on the
original business ; and to test new ideas for subsequent
development of the network and system.
Testing the business concept
If a business has been operating successfully for some years then
there is no need to test the concept because it has already been
proven. The existing company-managed outlet is the pilot, provided
it is being operated in exactly the same format as that in which it
is intended to be franchised.If however the subject of the eventual
franchise is currently no more than an idea, then a business must
be created to operate and refine that idea to get it to the stage
where it can judged to be proven. This could take many months,
indeed years.The costs and the other risks associated with the
creation of that business must be borne by the (prospective)
franchisor.
Testing transferability
If the existing business already has three or more outlets then
there is no need to test transferability because that has already
been established. Other outlets have been opened and other people
have learned how to operate them.If the original business has only
ever been operated from one outlet then further outlets must be
opened to make sure it can be done elsewhere by someone else.
Sometimes a business has been successful solely because of its
original location or simply because its creator had special talents
and those criteria don’t make for good franchising.The costs and
other risks associated with opening a few more branches should be
borne by the (prospective) franchisor. He could get a partner, or
external funding, but the first additional units should essentially
be company-owned and managed.
Testing franchising
The effect of operating under franchise can only be tested when
there are already multiple company-owned units against which the
new method of operation can be tested. That figure could be three
for a growth franchise, it could be three thousand for a conversion
franchise, but however well proven the concept, franchising should
be tested slowly, and in no more than two or three units
initially.The costs of testing franchising will often be borne
between the (potential) franchisor and pilot franchisees. The
testing needs to be done by someone with “skin in the game”
otherwise it is not a test of how an independent operator will
perform. It is therefore common for a pilot franchise agreement to
be used whereby the franchisee, with full knowledge that this is a
test, is allowed to operate an outlet for a specific period of
time, maybe up to two years.If all goes well, at the end of that
period the pilot franchisee will be granted a full franchise
agreement. If things do not go well, or the franchising project is
abandoned, all bets are off.The franchisor may pay the set-up costs
of the pilot units, the pilot franchisee will pay the running
costs. Both parties should keep detailed day-book records of what
happens, both good and bad, as these notes will be used to refine
the operations manual, when preparing for eventual full-scale
launch.No matter how many branches previously existed, things will
change when the operation runs as a franchise. These changes will
not necessarily be those that were envisaged when the plan was put
together, some will be better, some will be worse, some will be
totally unforeseen, which is, of course, the point of testing
them.Pilot franchisees are inevitably more inclined to take risks,
and be more independent and more entrepreneurial, than most
franchisees. If they do stay in the network they may well be more
difficult to manage than later franchisees, but without them there
wouldn’t be a network to manage.
Testing the effect on the business
We have previously established that franchising requires a unique
culture. Becoming a franchisor will almost certainly require
changes in the culture of an existing business. The bigger the
business the bigger the changes and it is as well to test them
before embarking on full-scale franchising.Some businesses, no
matter how much franchise-awareness training is carried out with
their directors and staff, simply cannot get to grips with how to
deal with franchisees. If the business cannot adapt then
franchising will not work, and should not be continued.Large-scale
conversion franchising is particularly difficult to achieve because
large companies have developed their ways of doing things over a
number of years and they are slow to adapt. It is particularly
difficult when the franchisee used to be one of the employees but
is now managing director of one of the company’s most important
customers.Serious conversion projects may require that as one form
of doing business is gradually replaced by another, so too should
be the board of directors. The old blood needs to be removed,
suitably incentivised to engineer a trouble-free transition, by
individuals with a more franchise-aware attitude. After all, the
company is in the franchising business now, not whatever sector
into which its products or services fall.
Testing new ideas
Once the network is up and running it’s much easier to persuade
franchisees to invest in new equipment or methods if the new way
can be demonstrated to work. For this reason, many franchisors
continue to operate company-owned units, which can be used for
training new franchisees and testing new ideas. Those franchisors
which do not operate owned units often have “tame” franchisees who
are happy to be involved in training or system development.However
it is done, the principle remains the same. Show a franchisee how a
new way of doing things has been tested and what benefits it will
bring to their business, and they are more likely to make the
required investment in time and money. Simply telling them to spend
thousands on a new system may present challenges which are
difficult to overcome!
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