Franchising

“When it comes
to resources, the
mantra of the suc-
cessful entrepre-
neur is to minimize
and control rather
than maximize and
own.”

Analysis
of potential profit margins can indicate key financial variables, such as return on
investment, net profit, cash flow and timeframe. At the store level, franchisees look for a
20% return on investment.

Once the potential franchiser’s financial analysis is complete, the entrepreneur should
focus on the service delivery system (SDS), a core feature of any franchise. The SDS
gives franchisees the resources to focus on exploiting the opportunity. They are not
distracted by acquiring the machinery, suppliers, land or building — those come from
the franchiser.

“Eighty-five per-
cent of all suc-
cessful entrepre-
neurs spend at
least three to five
years in their
industry learning
the language and
niches before set-
ting out in that
industry to start a
business.”

With the SDS as its core, the Franchise Relationship Model (FRM) further defines the
franchise relationship. The FRM deconstructs the entire franchise model so each part is
isolated, examined and optimized with the goal of providing the ideal, most profitable
product or service. To see what makes a franchise unique, focus on its FRM. This model
incorporates all the key elements — marketplace, demographics, contracts, financials —
around the customer and the SDS. Once it is in place, the FRM provides a common basis
for discussion among all the parties involved.

“Customers will
not beat a path to
your door, instead,
you must build a
roadway to them!”

Since real estate is often a franchise’s largest capital expenditures, site selection must
incorporate a number of essentials. Among the factors considered are:

•
•
•

Primary target audience density — Are enough customers nearby?
How many people pass the location — This can vary from day to night.
Car traffic patterns — Inbound and outbound traffic from a neighborhood have cer-
tain characteristics. A corner lot, traffic congestion and the location of traffic signals
can make certain sites more or less attractive.
Location visibility — This depends on such variables as signage, elevation and how
much time it takes for the building or the sign to become visible to approaching cars.
Visibility also can change from season to season due to foliage or snow and ice.
Local building ordinances — Governmental building restrictions can affect site
selection and may involve experts, such as land use attorneys, civil engineers and
architects. These costs invariably are passed on to the franchisee.
Traffic entrance and exits — Drivers need easy access to the property. Traffic flow
also determines whether customers can make a spontaneous purchase without risk-
ing an accident. Drive-through windows pose a special consideration that can affect
traffic patterns.
The neighborhood — Businesses, like individuals, have neighbors. What constitutes
a good business neighbor? Do you want the synergy of being near a competitor or
should the franchise be set among unrelated businesses? Clustering similar business
generates more like-minded traffic, and that increases competition.


“Retailers should
change their em-
phasis from the
quantity of stores
they open to the
quality.”


Stephen Spinelli Jr. co-founded Jiffy Lube International and became its largest
franchisee with 47 stores that posted 39 consecutive profitable quarters. He now teaches
entrepreneurial studies at Babson College. Robert Rosenberg, CEO of Dunkin’ Donuts
for 35 years, led the firm’s growth from 300 units to more than 3,000. He is now
on the Board of Directors of Sonic, America’s Drive-In. He is also a member of the
International Franchise Hall of Fame. Sue Birley is the former director at National
Westminster Bank, the world’s largest franchise lender.