Follow the right formula and your franchise can flourish in a competitive marketplace

Nation's Restaurant News,  Nov 12, 2007  by Frank Steed

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There is a recipe for success in franchising. The secret is in knowing the four most crucial ingredients:

1. A unique selling proposition

2. A proven economic model

3. An ability to replicate

4. An ability to train

If the business you are considering, either as a franchisor or franchisee, is not a clear winner in all four of those areas, then it is best to walk away.

Yet many people don't take those qualities seriously enough or they get sidetracked and follow some rabbit-hole diversions that appear on their path. Here are two of the most common ones:

Rabbit Hole No. 1: Mom's Recipe is Fantastic.

Unfortunately, having a great recipe is not enough, as you'll see in this article. It is a small piece of the pie, with the rest of the pie being pure business.

Rabbit Hole No. 2: I'm getting all of this encouragement.

The encouragement of others can be misleading. You will find a consultant who tells you you're headed for a fortune. You will find an attorney that will gladly write up your franchise documents. And you may even be able to find people to invest money in your business.

However, these excited bystanders are not doing the due diligence required for your business. You, however, are doing the research, and that knowledge is powerful.

Quality No. 1: A unique selling proposition, or USP.

The first questions to really dig into are: What is your concept's reason for being? What makes your concept different? What makes you unique?

You may have an amazing sandwich recipe, but there needs to be more to make you unique. Every concept must have a unique positioning that goes beyond the recipe and into the style, decor, types of people they hire, types of customers they attract and even the look of the sign above their door.

"Uno Chicago Grill has a true signature product in our deep-dish pizza, which anchors our menu," says chief executive Frank Guidara. "It sets the standard of quality in all we do with our brand. Our restaurant has a real history and heritage of great food, from our legendary pizza to Rattlesnake Pasta. We put the same attention to detail into everything that we do."

Imagine opening your sandwich restaurant a block or two from a Pot Belly Sandwich Works, McAlister's or Subway. How will you compete? What is your total package from A to Z that makes your business unique and profitable in a sustainable way?

One secret to answering this question is to not take your own word for it. You can be too close to your business to make a coolheaded decision, and friends and colleagues also will have a bias. The best way to evaluate the USP is to get an outside, professional perspective. Even if there is a cost involved, it is well worth the investment.

Quality No. 2: Proven economic model

A standalone restaurant can be profitable in the exact situation where a franchisee cannot make it. Same place, same pricing, same recipes. Why? The standalone restaurant does not have the expenses associated with franchising.

As an example, imagine that Daddy's Hamburger Stand has been in business for 50 years. It has had people knocking on its door asking to franchise the concept most of that time. The owners happily make a 15-percent profit.

Before franchising they must put themselves in the shoes of a franchisee and notice what would be different for this prospective franchisee.

1) Profits will not be the same: The franchise location will make 6-percent to 10-percent less than Daddy's Hamburger Stand because of royalties and a required investment in marketing. In order to make a living, a franchise location needs to earn between 12 percent and 18 percent, with the 6 percent to 10 percent in franchise expenses already included.

2) Finance and growth will not be the same: Less profits means less opportunity for funding. Franchisees will need a good funding source, most often from a bank. To find out the financially viable franchise concepts it is a good idea to talk to your loan officer as part of your research. The banks know which franchise concepts are solid and will generate a good return for the money.

3) The concept has not been proven in multiple markets: Sometimes the success of a restaurant is a unique phenomenon to a particular area of the country. And people outside this area just don't take to the idea as well as the natives. For example, let's look at Chicago Hot Dogs. Although you may find a rogue hot dog stand outside of Chicago, in general, this idea's success from steamed bun to no ketchup has a Windy City fan base.

"And like anything, practice makes perfect," explains John C. Miller, president and chief executive of Taco Bueno Restaurants. "Every year the new restaurant economic model needs to be challenged with fresh eyes. Can the same effort be outsourced, take less space, use more efficient and up-to-date equipment, use less energy, require fewer steps, and so forth? Does the guest value or appreciate it? If not, take it out. Does it make the operator's job easier, better, faster and at lower cost? If not, don't change it. Test, prove and validate all revisions. Only then roll them out to your franchisees."