Published on September 21, 2008
Posted in: Blog
Start-up franchising ought not be a shot in the dark. After all, one of the biggest selling propositions of franchising over starting up an independent business is that with franchising, the franchisor has invested the time, money and sweat equity to work out all of the major impediments to operating a unit of the business so that the franchise concept may then be used by a prospective business operator or franchisee. As a result, the franchisee gets a head start in exchange for the initial and on-going fees that it undertakes to pay. Unfortunately, not every start-up franchisor follows good franchising practices often resulting in poor outcomes for everyone involved. What follows is a discussion of some of the common – and easily preventable – difficulties faced by the start-up franchisor.
1. Idea vs. SuccessfulBusiness Concept.
A good idea for a business does not mean that it is ready for presentation on a franchise show trade floor. Although virtually anything and everything is franchisable, converting a good idea into a great concept is neither simple nor straight forward. Even a wildly successful business unit does not equate with success when multiplied. While many franchises originate from a single successful operation, the successful startup franchisors go through a process of replication, refinement and evidence of profitability in different locations and under different management. A franchise concept needs to exist and improve under a variety of conditions before franchising is undertaken. This trial period is necessary to validate that success is not location dependent (the proverbial seafood restaurant on the Vancouver waterfront) and that there is a viable market beyond the direct management of a charismatic founder.
The failure to understand and invest in the systematic process of franchising often consigns fledgling franchise concepts to the dustbin of history. Those that manage to survive generally do so after the founders have been forced to sell the concept to more experienced and better capitalized investors who understand franchising as a process. The start-up franchisor who invests in doing it right after going through the crucible of franchisee dissent and litigation can also experience great long-term success. As we always counsel our clients, you either make the investment upfront or you will make a much larger investment later. There is no escaping the cost of proofing the concept.
2. Unprotected trade name.
The first discussion between the prospective franchisor and his or her lawyer should end with instructions to secure trade mark protection for the distinctive trade name and identity of the prospective franchisor. Without a secure trademark and related intellectual property, it becomes extremely difficult to franchise. Yet, without fail, year after year, start-up franchise companies receive a nasty letter from a law firm advising them that the trade name they are doing business under and have licensed others to do the same is the protected property of their client and that the franchisor must cease and desist from further use and pay unspecified damages. While any problem can be resolved with enough time and money, the expense of reidentification or buying-out the interest of the rightful trademark owner is going to be far more expensive than the modest cost of investigating and securing or selecting an alternative trade name from the outset.