Create a franchise concept

Importance of simplicity

A business developed through franchising should be based on simple and transparent principles. The franchisor needs to effectively convey the operational guidelines of their concept to franchisees, enabling them to replicate the franchisor's success. Complex principles can complicate recruitment, training, and ongoing cooperation with franchisees. Additionally, starting the business should not be hindered by high equipment costs or installation difficulties. This is why most franchise systems focus on a high standard for a limited range of products or services.

For example, in fast food operations, a simple kitchen layout and standardized decor and design make it easier to adapt the facility to project requirements. This simplicity allows franchisees to manage operational tasks quickly. A simple menu reduces storage needs and facilitates quick, efficient meal preparation and serving. Limiting the menu also reduces the need for extensive equipment, lowering space, investment, and maintenance costs.

Franchisee support and market definition

Franchisors should offer advisory services and provide information to franchisees, a level of support that individual entrepreneurs often lack. Developing a business idea requires detailed planning and foresight. Precisely defining the target market is also crucial. A good idea and vision are worthless if, for instance, franchisees rely on references from other businesses that do not see the need for collaboration. These businesses might already be engaged in similar activities and find no benefit in cooperating with the franchisee.

Potential threats must be considered when trying to reach end consumers. If a business aims to provide specialized services already offered by established firms, consumers are likely to turn to these familiar companies first. In such cases, the franchisor may need to invest heavily in promotion to reach the market. The costs and effectiveness of these efforts will influence the franchisor's decision-making process. The franchisor should strive to create a unique image for their company. Successful franchise systems have innovative concepts that distinguish them from other businesses of the same type. Simply copying others will not yield long-term benefits, as competitors might take legal action or be constantly improving their own operations, staying ahead. Copying lacks the depth of knowledge and experience, resulting in many weaknesses in the follower's operations.

The franchise must ensure that franchisees achieve satisfactory profits and returns on investment and can cover ongoing fees for the support and services provided by the franchisor. If the franchisee's operations cannot generate sufficient profits for these purposes, the business model may not be suitable for franchising. Most successful franchise systems involve franchisee engagement in direct customer service (e.g., retail or fast food) and require their personal involvement in the business. Common traits of such businesses include long operating hours and quick, professional customer service in a pleasant atmosphere. Franchisees often need to manage administrative, accounting, marketing, and promotional tasks, in addition to operational duties.

Proven business concept 

After developing the business concept, establishing at least one, and often several, pilot units is necessary. The number of these units depends on how representative their locations are for the planned franchise expansion. The franchisor should gain extensive experience in operating the business concept in various locations before transferring know-how to franchisees.

In addition to validating the business concept, pilot units help establish the brand, identify issues, test various interior design and equipment combinations, and determine the best operational hours. They also serve as the basis for creating an operational manual. Even after the concept is proven, the need for pilot units persists. The franchisor must continuously lead by example, demonstrating the efficacy of the franchise system and convincing franchisees to adopt innovations. When assessing the viability of franchising a business, it is essential to ensure the concept is successfully tested in practice, the franchisor's company is recognizable in the market, and operational methods are transferable to franchisees through economically viable training. Franchisee revenues must be sufficient to provide a reasonable return on invested capital, adequate compensation for their work, and cover ongoing fees for franchisor services. The franchisor must also generate sufficient revenue from these fees to sustain operations.