Becoming a franchisor
Becoming Franchisor is to become leader in its market in 5 years.
"ENTHUSIASM" (motto engraved on Henry Ford’s chimney)
You can do anything if you have enthusiasm. Enthusiasm is the yeast that makes your hopes rise to the stars. Enthusiasm is the sparkle in your eyes, the swing in your gait, the grip of your
hand, the irresistible surge of will and energy to execute your ideas. Enthusiasts are fighters. They have fortitude. They have staying qualities. Enthusiasm is at the bottom of all progress.
With it, there is accomplishment. Without it, there are only alibis.
To build its network, the franchisor must :
- (On the marketing side) have a repeatable concept on a given market (eg France) and a minimum of 7 years.
- (On the psychological side) The personal desire to succeed (important ego). This determination to succeed also characterizes the profile of champions. Becoming Franchisor is to become a leader.
- (On the financial side) Franchising is a partnership in profit.
Franchising is an engineering, a very effective technique, but to achieve its objectives, the Franchisor must master the interdisciplinarity of the techniques incorporated in the franchise system. Understanding the main principles of the franchise is simple enough, but transferring a know-how into Knowledge of Success is more complicated.
To succeed in its franchise, the applicant franchisor must first be supported by counsels in franchising (competent, qualified, experienced and serious) who can master the contractual, legal (one cannot act as a lawyer), financial techniques (business development plan, EBITDA and projected operating account) (one cannot act a financier either! ).
Franchising is not a simple sale either. You should always keep in mind the moral aspect of franchising. The candidate franchisee can invest all his savings in your concept. Have a minimum of consideration and respect for his savings! ...
We know the cardinal “Rule of 3 / 2” which requires the candidate franchisee to never sign a contract before he verifies that the franchisor has opened at least three units and / or at least two years on the concerned market.
The franchisor can make money only if the franchisee earns money (this is the true moral of the system). This entails that the concept should be able to be standardized. If not, the franchisor is wasting his time. If it is, the franchisor may develop what is called the "Package": he drafts his the operations manual, develops his arguments and establishes all the contracts (franchise contract, reservation contract, trademark license, etc.. ). These three elements will allow the formalization and transmission of his know-how to the franchisee. The franchisor must contractually and pre contractually protect itself against possible "submarines" and be wary of creating an self competition school! It will train people who will succeed ... but without him!
For example, in the sector of services to individuals, the famous case: “After Class” Franchisees, who became the franchisor of “Family Sphere”!
The operations manual is the compilation of all the educational elements of the know-how of the franchisor, which will enable the franchisee to be quickly operational. Crucial stage where the entrepreneur (franchisor) able to "create money" by reflex, which is his talent, will have to teach others to succeed. The franchisor shall in no case allow a third party to draft his operations manual. It is by drafting it himself, or by his internal services, that he will challenge himself, discover the practical problems he had solved by intuition and which must now be solved on the standardisation capability and/or industrial level. The operations manual is the basis of initial and continuing training.
Caution, it must be practical, concrete, effective, clear and dense at the same time!
To the Manual are added the arguments by which the franchisor will sell the franchise. He must tell about his concept, his operating accounts ... At this stage, the franchisor must begin to provide legal protection for his know-how: signature of secrecy agreements (penalty clause), draft agreement and / or reservation contract which regulate the pre-contractual life.
Finally must be drafted the franchise agreement, cornerstone of the edifice, which condenses and synthesizes all aspects of the franchise.
A rich franchise (with a large EBITDA [Earnings Before Interests, Taxes, Depreciation and Amortization]) will allow the franchisor to impose a heavy franchise agreement (about 80 pages, as for example Macdonalds).
A poor franchise (narrow EBITDA) will require the franchisor to reduce its contractual wing (20 to 30 pages). Indeed, in this case not being able to impose substantial royalties, it can provide ongoing, permanent and effective services.
On his side, the franchisor will make sure everything is provided for in the contract. This approach is hardly in keeping with the will of the lawyers who advise a light contract because all the provisions refer to the law, the Civil Code or the Code of Commerce. The lawyer specialised in franchising must rather use an aggregation of different legal concepts to avoid litigation.
A franchise can be made of 20 pages like 80 pages. It is the EBITDA margin of the franchisee and its ability to pay a percentage of royalties to the franchisor , which allow the franchisor, by the calculation of his costs structure, to see how far he will go into the permanent animation of his franchisees.
If the franchisee’s EBITDA is poor, the royalties collected by the franchisor will necessarily be low. He won’t be able to provide a permanent assistance at a sustained pace. He will, therefore, only be able to draft a 20 pages contract!
Why are MacDonald’s contracts made of 80 pages ?
Because the EBITDA of the franchisee is rich, so it can pay significant royalties which consequently allows the franchisor to provide a very strong permanent assistance.
How can a good franchise contract be defined ?
The number of pages in the chapter "obligations of the franchisor" must be balanced with the chapter "obligations of the franchisee."
You will observe that in most cases, franchisors who miscalculated their royalties provide in their obligations as franchisors very few clauses, while the obligations of franchisees are cumbersome.
The lack of professionalism in the calculation of royalties and obligations on the franchisor’s side usually leads to many lawsuits.
In the development of a franchise, there are several steps: the 10th franchisee’s step, the 30th franchisee’s step and the 100th franchisee’s step.
Bad franchisors rarely exceed the second step (30 franchises). However, over 10 franchises, if 8 are “running” correctly, the concept can be considered as franchisable.
Often mentioned is the crisis of 4 / 5 years for the franchise. At that time the franchisee usually begins to wonder about whether or not his interest is to remain in the franchise network (dissenting desire).
To stem this crisis, the franchisor must constantly improve its know-how. If it remains static, the entire chain can be questioned. And yet the basic concept of "know-how" lies in the evolving character, which alone allows this “know-how” to be protected effectively.
In his 25-year career, Olivier Gast has created a lot of franchises that have met his methods and its know-how (Alain Manoukian, Jean-Claude Biguine…see references)
