Venture Capital – Disciplined Planning to Attract Investors
Having a partnership with the appropriate financial backers can be the launching pad that will go a long way toward meeting your dream.
Almost every franchise company has a dream of becoming a national and international success story such as Subway or McDonald’s. What most companies don’t realize is that detailed planning is required for every company, whether they want to grow by 10 or 10,000 locations.
What it will take is strong financial backing. To attract investors, your concept must prove its viability in the marketplace, as well as future growth in new units and same store sales. To be considered for opportunities with venture capital funding, you must align your brand with the following important attributes of a strong franchising organization.
• Do you have a replicable and profitable business model?
Can your franchisees build a business that replicates your existing businesses? Of course, this would be done with the support and assistance of your staff, a detailed franchisee manual and an operating manual. You will want to start your process by building a franchisee profit and loss statement to ensure you have a model that franchisee candidates will desire to replicate. Ask yourself, “Will a candidate who builds a P&L of my brand find the returns attractive enough and one that would interest them in investing?”
Equally as important is building a business model or strategy that is defensible against competition, pricing and margin pressures and also shows uniqueness against competition that will help attract the quality of franchisee you desire.
• Do you demonstrate franchisor best practices with systems and processes in place for the management of the business?
Defining what is commonly known as best practices will ensure the right growth processes, procedures and systems are soundly in place to support existing franchisee expansion and a growing new population of franchisees.
Systems and processes should be in place from the recruitment of new franchisees, which is basically identifying who you will invite into your brand and what standards you require of your franchisee community to uphold. Do you handle the management of your company and own locations so that you are supporting your franchisees through development, training, product testing and operations?
It is important to have a firm grip on all business processes, including risk management, controls, reporting and a clear understanding of events and factors that could pose a disruptive threat to your operations. And, to track all of this important information, you should maintain an organized paper trail for all contracts, letters and real estate documents so they reside in one easily accessible place.
• Can you demonstrate a healthy franchisee community, as well as good ongoing relationships with your franchisees?
Franchisees should be a priority focus when investors come calling. Investors want to see you demonstrating your knowledge of improving existing franchise health and performance or a planning process to replace these franchisees when all other avenues have been exhausted. This certainly goes a long way when venture capital companies consider your brand. They will know you are focused on the right issues and will find a confidence in your management team for the future. Additionally, effective communication with your franchisees is a building block for the long term. When issues arise, you can count on finding a resolution most of the time if your relationship with your franchisees is strong.
• Have you developed a strong strategic growth plan that is sensible and executable to reach the targeted goals?
A business plan that is fully understood and supported by your senior leadership will demonstrate your ability to execute on the vision of the brand. As a group, you will need to take into account the scaling of your business and the various costs in supporting your growth plan. Sometimes, this is where brands will get sidetracked and try to grow without adding the proper staffing to support the plan. Knowing your customer base as you expand your target markets can be the difference between a stagnant system and creating a brand awareness that everyone strives to emulate. Discipline is the ultimate key to growing your business.
• Do you know your “best in class” franchisee profile?
Understanding the “new era” of sophisticated franchisee candidates is critical. Competition from other brands will be brutal for recruiting new franchisees and they will have their choice of several high-performing brands in various industries. You will see franchisees become more and more diversified across industries as they look to strengthen their own corporate P&L and spread the risk across other industries. This opens the door for additional competition for new franchisees since they don’t always stay within one industry.
Capture Their Attention
Once you have managed the proper attributes listed above, you will need to prepare a story that will capture the attention of the venture capital world. It’s not all about the appropriate PowerPoint slides, although these are important; it’s about being truthful and accurate in communicating your brand’s value and future value. Be prepared to answer a list of tough questions and anticipate the types of questions you will be asked. Be as prepared as possible to answer in detail.
Tell venture capitalists why they should invest with your brand and what makes it stand out from other opportunities they may consider. Introduce the leadership team and explain what values the team brings to growing the brand. Show how the brand with this team will meet your financial targets and how your disciplined growth strategies will continue to attract your targeted best-in-class candidate profile.
Rehearse your presentation with industry experts who can give you honest feedback regarding areas of improvement, and practice, practice, practice until it doesn’t sound rehearsed.
When your presentation comes from the heart and you are well prepared with a business model that leads to success, it will attract capital for your growth. It is not a quick process, but well worth the time to prepare. Having a partnership with the appropriate financial backers can be the launching pad that will certainly go a long way toward meeting your dream.
Lynette McKee, CFE, is the founder and CEO of McKeeCo Services, LLC, a franchise consulting firm that provides system performance improvement advice to foodservice, hospitality, retail and service brands. Find her at fransocial.franchise.org via the directory.