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Critical Lessons for International Franchising

The goal is not just to expand globally, but to expand in a disciplined way that places your business in those markets where it is most likely to be successful.

By Yoshino Nakajima

 

 

So, you are ready to take your business global. Congratulations!

No doubt that it took much hard work and a considerable investment time, money and energy to reach this point and, likely, some advice from other International Franchise Association members who have gone before you to build successful businesses.  Lessons learned from them not only expedited growth, but protected you from some risky decisions.

As I promised during the 2015 IFA Annual Convention when I accepted the Bonnie LeVine Award, my commitment going forward is to take what I have learned about international franchising from my mentors and share it with others. So, perhaps the right place to begin would be with a recounting of some of the lessons learned during 20 years in international franchising.

While there are many fundamentals such as a having a successful domestic experience, sufficient capital, broad support within your own organization and a persistent commitment to achieve long-term growth, the five most common mistakes and the resulting lessons are these:

Lesson No. 1 – Choose your markets and franchisees very, very carefully.

Lesson No. 2 – The best franchisee will struggle to overcome the challenges of a poor market.

Lesson No. 3 – A great market cannot compensate for a sub-performing franchisee.

Lesson No. 4 – There are no exceptions to Lessons 1, 2 and 3.

Lesson No. 5 – Don’t take shortcuts – you will almost certainly regret it.

In my experience, high-potential global franchise networks stumble right out of the gate because they ignored Lesson No. 1 – choosing markets and franchisees very carefully.  Why? Many reasons are likely, but there seems to be a universal impulse to take the first opportunity that comes along.  The importance of beginning with the end in mind cannot be overemphasized.  That means that the goal is not just to expand globally, but to expand in a disciplined way that places your business in those markets where it is most likely to be successful and into the hands of entrepreneurs who have the greatest potential to grow your brand into a model that others elsewhere will want to be a part of.

What are the critical ingredients that you absolutely must find in a market to increase your potential for success?  First, let me acknowledge that some may be concept-specific — the “selling coals in Newcastle” challenge, for example.  But others and the most important markets are consistent across concepts and cultures.  Consider the following at the top of the list:

  • A business-friendly environment with appropriate levels of incentives for business development, supportive regulations, protection from those who would pirate your brand and business cultures which are free from corruption and economic and political stability.  It is easier to determine which markets meet these criteria than you may think.  The U.S. Commercial Service and the U.S. State Department can be of enormous help.  Perhaps the best way to narrow your list of potential markets is to just look where other franchise systems have gone successfully.
  • Look for a franchise-friendly culture.  This is not the same as a business-friendly environment as many have learned to their chagrin. It means that for your business to flourish you must have a regulatory environment where franchising is understood and encouraged. IFA and each of the national franchise associations around the world are fantastic resources in this area.
  • Look for economically-fertile markets where the economy and per capita income are high enough to support your business.

Following a Process

The process begins with identifying your top target markets, but it very rapidly comes to the question of finding the right entrepreneur in those markets. And, this is where the task of global franchising becomes even trickier. Think of it as finding the needle in the haystack – a lot of work, but definitely worth it in the end.

Let’s not go into the question of how to develop leads since there are many articles and experts who offer advice and assistance in this area.  Instead, I will speak to what may be even more important — the characteristics of a potentially-successful franchise partner for the right countries. Here the work is as much a gut feeling as it is science, but by following the right process you can absolutely find the right partners.

Let’s begin with the science, not really science per se, but with the hard facts that can lead you to well-informed decisions. It’s akin to putting all the candidates through progressively finer filters until you are left with only the best.

First of all, look for a proven entrepreneur, someone with a track record who gives you confidence that he can make your concept successful, too.  Check out the candidate’s financial strength and character with bank and personal and business references. Integrity rises to the top here as a characteristic you want. As you get closer to choosing your partner, try to get a sense of his business acumen, maturity of thinking and the seriousness with which he has thought through developing your brand. Ask the candidate to develop both short- and long-term business plans.

As you work through these progressively finer screens filtering out candidates who are not a good fit, you will eventually get to the point where you’re left with a decision guided in part by a gut feeling. It’s a relatively simple question:  Do you like the candidate? You should because you are going to be affiliated with this person for a very long time.  Think of it this way: The initial investment in time, energy and resources to ensure that you have fully vetted future partners is a small price to pay to ensure that you have the right person or organization you will be working with for many, many years.

Now, back to the five lessons.

Choose your markets and partners very carefully.  An “A” level candidate in a “D” level market is most likely destined for a mediocre performance and, perhaps, failure.  A “D” level candidate in an “A” level market will be the extremely frustrating to you. Don’t go there!  Worse, the damage to your brand and cost of making a change can be very high both in terms of financial cost and personal frustration.

Whatever you do, do not forget Lesson No. 4:  There are virtually no exceptions to lessons 1, 2 and 3.

But then there is Lesson No. 5:  Don’t take shortcuts. You can do well for your brand and your business by following Lesson No. 5, but remember, building an international brand begins by following Lesson No. 1 – choosing both markets and franchisees carefully. Do this and you will be well on your way to building a successful global business.

Good luck!

Yoshino Nakajima, who was honored earlier this year as the recipient of IFA’s Bonny LeVine Award recognizing female leadership, retired recently from Home Instead Senior Care as the chief development officer for Global Markets and was active in the International Franchise Association’s International Leadership Committee. Find her at fransocial.franchise.org.

 

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