How to create a franchise
Opening 1-2, or even 3 pilot stores
See 3 / 2 Rule (created by Olivier Gast in 1982).
By this rule, Olivier Gast recommends franchisors not to conduct the recruitment of franchisees before having opened three pilot outlets of two years. An outlet in Paris or its region, a second in a large city of France, a third in an average city in the province. This is only a general rule and specific cases may justify a different and more nuanced solution. But it is an elementary prudence intended to protect both franchisees and franchisors themselves, although they are not always aware of it as they are at the stage of initiation .
It is also possible in this feasibility phase, at the start, to create pilot franchises.
Olivier Gast defines the following stages of the creation of a franchise
Do a study on the value of the project itself.
Ensure the protection of trademarks and domain names.
Develop the franchise system, i.e. validate the initial and permanent state of inputs (entrance fee and royalties) of the franchisor (franchise budgeting), a competitive analysis and validation of business model by the elaboration of an EBITDA (franchisee’s Earnings Before Interest, Taxes, Depreciation and Amortisation [“EBE = Excédent Brut d’Exploitation” in French].
To accelerate the process of feasibility, it is not impossible to create "pilot-franchisees." The realization of a "pilot store" allows the verification of the formula and the successful testing of the concept.
The first pilot store must belong to the beginning franchisor. But the spirit of the 3 / 2 rule must be respected, it is possible to recruit franchisees said "pilot" ie franchisees who agree to be "guinea pigs" but with a compensation of no entrance fees, or royalties. It is also possible to incorporate in this franchise relationship the concept of joint venture. If the pilot store is not functioning well, by a shareholders agreement the franchisor may repurchase the shares of its partner franchisee to avoid the consequences and brand image disturbances in case of failure.
- Establishing the franchisor’s management. Indeed, it is necessary to prepare the system to change direction by hiring a developer and an animator later topped by the well-known network director.
- The market studies (does the market allow the repetition of the formula?)
- Preparing the drafting of the contract (the franchise agreement and territory reservation agreement), the Disclosure Document (“Doubin” Act), the rationale and the operations manual (or bible). The operations manual is the teaching manual, which compiles all the details of the franchisor’s know-how and immediately usable in retail outlets. This manual is the basis for the initial and permanent training. It is the mastery of details, of the concept that is behind the success of the franchisee formula, which allows a franchisee to operate its outlet independently as soon as possible.
- The recruitment of franchisees: establishment of the franchise structure (hiring a good developer), creating the recruitment policy, choosing the media supports (ex “Observatoire de la Franchise”, “EasyFairs Franchise”, “Franchise-Magazine”, ...), analysis of the potential and the number of franchisees that the market will be able to bear.
- Control policy: report visits, appropriate contractual clauses, setting up procedures for warnings (registered letter)
It is the respect of these different steps that allows the franchisor to control the accelerated and successful development of its franchise.
