Growth can also be defined in terms of whether it is in the same line of business or in a related field. An example could be that of a fabric manufacturer either ramping up capacity to produce more textiles, or entering into the arena of readymade clothing.
Interestingly, a lot of businesses also step into an unrelated field – the motivation in many such cases is to better utilise existing resources. A lot of franchise businesses have germinated this way, when the owners find that they have spare space, people or infrastructure which can be leveraged in a new business.
If you’ve been planning to do the same, we’d advise you to consider the franchise decision with a lot of care. Don’t jump into a totally new business just so that you can keep the staff busy. Every franchise opportunity is different, and brings its own set of challenges. The makings of a good franchisor are discussed below.
* Keenness to do business: This will be apparent right at the negotiation stage itself. If you find that the franchisor is laid back or complacent, you’re better off without them. For a franchisee to make money, it is essential that the franchisor act as the driving force. A non-responsive franchisor company is better left untouched.
* Adequate support: Since you’re entering unknown territory, it is the franchisor’s responsibility to ensure that you are adequately equipped to run a successful unit. And that means providing adequate operational training to your staff, implementing a solid marketing and communication plan for the brand and advising you on how to run a profitable franchise business.
In fact, some franchisors help with the real estate decision and financing requirements too.
* Financial soundness: That’s a tell tale sign, if any. Make sure you go over the financial strength of the franchisor company in great detail. Every franchisor will sell you the success stories of other franchisees – while you may listen to that with interest, you must also ensure that the principal company is itself strong enough to stand . Don’t assume that there’s always a sound company behind a strong brand.
* Past history: A rapidly growing franchisor company might brag about how they’ve grown in recent years. That’s a red flag for you – numerous sign-ups are usually accompanied by a number of break-ups. Check how many franchisees have left the business, and what happened to them.
At the time of reviewing the terms of the franchise agreement, be sure to understand the implications of a separation. Some franchisors refund a part of the fee to the outgoing franchisee once they find a replacement.
* Attitude of other franchisees: That sums it all up. Be sure to speak with at least a couple of existing franchisees to get their perspective on what it is like to partner with the principal. If they seem satisfied on the support they receive, as well as the performance of their business, the opportunity is probably worth your consideration too.