Franchising works. That’s not to say every business should franchise or everyone should own one, but they do work. There is plenty of proof that franchising models can be beneficial to both the franchisor and franchisee. However, as with any other business, there are a number of factors that could mean success or failure.
Franchising is not necessarily easier than starting your own venture, but there are benefits you won’t get by going alone. Owning a franchise still requires the owner to work. You can’t simply open the doors and expect to make money simply because of a name. This is something understood by Mathnasium, one of the fastest growing franchises in the United States.
Have a Niche that Fills a Need
Successful businesses fill the needs of consumers. Look at Subway. You wouldn’t think yet another fast food restaurant would be so successful, but it filled a need of consumers. It introduced “healthy” to the fast food industry, and the rest is history.
While Subway fits a niche related to food and health, Mathnasium fills a need for education.
“Nothing is more satisfying than making a life-changing contribution to a customer’s life,” says Mathnasium founder Larry Martinek. “This is especially true when that customer is a vulnerable child. Math is important because the ability to calculate and process numbers is crucial to daily life.”
While Mathnasium fills the needs of its customers, it also fills the needs of its franchisees, according to Martinek: “Math teaches thinking and problem solving, skills that stretch way beyond numbers. But, speak to Mathnasium franchisees, and you’ll learn the real reason why they wake up mornings thrilled by the nature of the work they do. Kids don’t hate math, they say. Kids hate being humiliated and embarrassed by math.”
Make Sure There is a Solid Foundation
As stated previously, not all businesses should franchise. There are many that try and almost as many that fail. The main reason? Rushing into franchising without having a business model that has proven successful.
“I would only advise businesses to franchise if they have a proven business model,” says Mathnasium CEO Peter Markovitz. “They should provide a sound return on capital—and time—invested.”
A great example is Choice Hotels, a hotel franchise that operates properties such as Quality Inn and Clarion. The company was originally founded in 1939 but did not start franchising until 1972 after it had a proven model for hospitality management.
Franchisors Need to Lead the Charge
Franchisees need to operate their own business, but the franchisor needs to take a lead. After all, a franchisee relies on the franchise for direction on how to best operate the business. If a franchisor does not stay on the ball, the franchisee is likely to stumble.
“Initially, we underestimated the value of our service to customers,” states Markovitz, when talking about some of the setbacks Mathnasium faced when it began franchising 15 years ago. “In other words, we underpriced. Franchisees rely on their franchisor to recommend how much they should charge. Once given the guidance, it is hard for franchisees to raise prices even to new customers. Parents loved how much we were able to transform their children’s skills and attitude. They were willing to pay us much more than we asked in our earlier days.”
Pricing is a common issue in the startup of a franchise. Finding the price point between cost and profit is a must to be successful. Some additional issues that franchisors need to work out for franchisees include legal matters, overall branding and any resource sharing (e.g., marketing pools).
Make Things Attractive for Owners
As with any business, it needs to be appealing to keep owners motivated. So how has Mathnasium remained attractive? Markovitz cites several reasons.
“We believe Mathnasium generally has higher profit potential than other tutoring franchises that require a similar investment,” he says. “By teaching only math, we have economies that result in a higher margin of profitability. These economies also mean cost savings for parents. And by teaching only math we are able to focus on being really good at it. We can provide very high- quality instruction. The combination of student progress and high value means that we can exceed customer expectations. This means parents tell other parents.”
Summing Up Franchising
Again, franchising is not for everyone. However, it has proven to be successful in many cases.
Prior to deciding to franchise your business or to purchasing an existing franchise, make sure to read up on both the advantages and disadvantages.
Not all business models will be successful, and not all existing franchise models will mean you will be successful.
Brian Horvath is a freelance writer from Michigan and founder of MyBusinessTalk. He is a journalism graduate and a regular contributor to numerous online magazines and journals.