Four tips to starting a successful franchise
By Cambridge Who’s Who Lifetime Member and Contributing Author Harold Kestenbaum
My name is Harold Kestenbaum, and I am a franchise attorney. Many of you may want some information about what a franchise attorney does. I realize that franchising is not a well-known sector of the legal profession unless you work in the industry as either a franchisor or a franchisee. Here is how I became involved in franchise law.
In 1977, at my third job out of law school, I worked for a solo practitioner in Manhattan who represented many corporate clients, some of whom were publicly traded. One company happened to find the opportunity to franchise their business. One day my boss said to me, “Kestenbaum, I need you to learn about franchising opportunities, so that you can handle our franchise client.” Not knowing what in the world he was talking about (I had done everything but franchise law up until then) I found every book I could on business franchising information (there was no Internet in 1977) and for the next four years I immersed myself in franchise law. When New York State passed a new franchise registration law in 1981, I decided that it was time for me to become a solo franchise attorney and resigned my position. I have been practicing franchise law ever since.
Based on my years of franchise experience, I wrote a book, So, You Want to Franchise Your Business, that delves into the opportunity a company embarks on the franchise path. It includes the dos and the don’ts of how to franchise your business. In my book, my co-author, Adina Genn, and I discuss what makes a company have the right opportunity for franchising and how to go about turning a successful business into a franchise company. Here are a few key tips from my book:
- Have a successful model. It is impossible to create a franchise program without having at least one successful operation, a pilot, if you will. It is not feasible to think that if your core business loses money and is unsuccessful, that a franchisee will be any different. It is imperative that your franchisees be successful, otherwise franchising opportunities will not work.
- Make sure your business model is replicable. You must be able to build clones of your operation, otherwise, the system will not work. Have you ever seen a McDonald’s without the infamous golden arches? That is just one example, but it goes beyond the look. It is the method of operation that must be duplicated in order to have the opportunity to franchise.
- Attain capital for your franchise. You must have capital in order to roll out the franchise program. You cannot believe that franchising will cure your cash flow issues, you need to have money in order to roll out the program. Do not view the program as a way to fund an undercapitalized business model.
- Prove your model works! The concept that you are trying to franchise must be lucrative. You must demonstrate that your concept works before you try to offer it to the public as a franchise. If the business model is a failure, your franchisees will inevitably fail as well. Franchising can be a wonderful business opportunity, but your initial model must work first, otherwise franchising will not be possible.
Why franchise your business? That is a very good question. But to those of us in the business, the answer is quite obvious. If you want the oppertunity to grow your business beyond one or two stores, and you cannot afford to build more units at, for example, $500,000 each, then what better way to grow than to let a franchisee buy a franchise and build the unit himself or herself for that amount, and you simply receive the weekly royalty of 5% or 6% of gross revenues? Franchising is a vehicle for growth using the capital and human resources of someone else (the franchisee). How great is that? It is simple, yet complex. The franchising relationship goes much deeper than building the unit and collecting royalties. It is a starting place for companies that want to grow but do not have the internal capital or human resources, like Starbucks, to do it by themselves.