When you look at the current business landscape, you can easily recognize how huge the startup segment is. There are TV shows dedicated to delving into the excitement, stress and energy involved in building a startup company. And the fact is, there are more people embracing entrepreneurship to establish their own businesses. A Kauffman Foundation report found that the rate of new entrepreneurs in the U.S. rose 10 percent between 2014 and 2015. So, out of every 100,000 adults, there were 280 people who founded emerging franchise brands last year. That number jumped to 310 people in 2015.
In the franchise sector, there is ample opportunity to innovate and establish a new business model. Emerging brands are critical to the success of the U.S. economy. By increase competition, fostering the growth of the job market and disrupting ineffective or worn out business models, emerging brands play an influential in creating change and improving how businesses operate.
What Is an Emerging Brand?
In the franchise sector, it’s important to understand what signifies an emerging brand. In an interview with We Sell Restaurants, the nation’s largest restaurant brokerage, Fishman PR CEO Brad Fishman helped answer the question with respect to the restaurant industry—though, the answer is a little complicated.
Some people will use the number of units as the barometer for whether a franchise is an emerging brand. Do they have less than 10 or 20 units? Others take a look at the financial numbers to gauge maturity. Is the brand self-sufficient on royalties?
“To me, a brand that doesn’t have any franchise units but has got 75 corporate units or even 20 corporate units isn’t really emerging,” said Fishman. “Obviously they have the financial wherewithal to go out and franchise their brand. They might understand franchising yet, but they understand the restaurant business. And that, to me, is very important.”
One of the most important things to consider is that the brand isn’t using their franchise fees to pay the bills. For Fishman, the best definition of an emerging brand are the franchises that are dependent on their franchise fees and royalties to stay afloat.
How Important Are the Early Stages?
With an emerging brand, it’s critically important to be certain that your initial franchisees will positively and effectively represent your brand.
“Your first five to 10 franchisees are really going to define your organization,” explained Fishman.
If you think about the franchisee/franchisor relationship as a marriage, it’s pretty clear how important the relationships are.
“If you have five different marriages going on at the same time and one doesn’t work, it really affects the entire organization.”
Because anyone who’s interested in becoming a franchisee will talk to the existing franchisee base to see what the brand is really about. For an emerging brand, even a single franchisee that’s either underperforming or is disillusioned with the investment can spell disaster for your franchise development strategy.
Building out is another important factor to consider. How far from your corporate office are you comfortable setting up franchises? Can you effectively support and build impactful relationships with franchisees if they’re more than a 5-hour drive away? If you’re relatively close to your franchisees in terms of geography, you’re in a much better position to troubleshoot situations when problems arise—which they invariably do. Whether franchisees face supplier or employee issues, it’s easier to provide all the support they need from a nearby base of operations.
The franchise segment is competitive and financial preparation is critical for emerging brands. Brands run into trouble when they don’t consider the costs involved in franchising. It requires patience, as well as significant forethought and information-gathering to successfully pull it off.
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