Just like any business, during its lifetime a franchise business will progress through a series of different stages. The speed and manner in which the franchise moves through these different chapters in the business journey will vary and will be dependent on a number of different factors. But most franchise businesses will follow this pattern of four distinct phases – known as the franchisee lifecycle.
Each stage of the franchisee lifecycle will present its own challenges for both parties to the franchise relationship, which is why it is important for both franchisor and franchisee to understand the lifecycle and to be able to have strategies in place to overcome those.
The start up phase
The franchisee has signed on the dotted line, the financial investment has been made, and the new business owner is brimming with energy and enthusiasm to get their new business launched. There is a lot for the franchisee to get to grips with in this first phases of business ownership – training and onboarding, marketing, finances and starting the day to day operation of the business. This can be emotionally, mentally and physically exhausting and it is important for the franchisee to have some strategies in place to avoid burn out.
In the start up phase, franchisor and franchisee are getting to know each other and set the foundations for what is hopefully going to be a positive and long term relationship. And just like with any new relationship, honesty and open communication is key to establishing trust. The new franchisee is bound to encounter challenges and hiccups in the early days and the franchisor and their operational team should be on hand to offer practical support and encouragement and to help set realistic expectations to alleviate frustration and potential disappointment.
The growth stage
As the franchisee becomes confident with the day to day operations of their business, establishes a customer base in their territory area and begins to turn a profit, so thoughts will turn to business growth. This may typically be around two years into the franchise business journey, at a point when the franchisee feels comfortable in their business and ready for development and fresh challenges.
During the growth phase, the franchisee may look to grow their business by adding on new locations, expanding their territory or taking on additional staff. At this stage they will require additional support and mentoring from the franchisor to help them to set and achieve their growth goals. It is important that the franchisor recognises this and provides what is needed to help the franchisee to grow. Failure to do this can result in the franchisee feeling not just unsupported, but could result in unwise business decisions or the franchisee simply becoming demotivated and disengaged from their business and the brand.
The maturity stage
At the maturity stage, the franchise business will be operating smoothly and comfortably. The finances are healthy, the right team are in place, everything is streamlined and the franchise is well established. Many businesses can spend several or many years in the maturity phase.
During this stage of the franchise lifecyle, there can be a danger that a franchisee may become complacent and take their foot off the gas. New competitors will inevitably enter the marketplace and this can pose a threat to the established franchise business. Settled in their way of doing things, a franchisee in the maturity stage may be resistant to change and reluctant to embrace new developments and innovation that the franchisor is seeking to introduce within the network. The franchisor will need to have strategies in place to help the mature franchisee stay engaged and motivated and keep their business moving forward – I recently wrote about how having franchisee peer performance groups as part of the franchise support package may be able to assist with this.
The decline or renewal stage
Unlike an independent business, a franchise business does have a natural end to its lifecycle – the end of the specified franchise term. It is at the approach to the expiry date that both franchisee and franchisor will need to carefully review the relationship and decide if the agreement is to be renewed or to simply run its course.
It is possible however that the franchise business may enter the decline stage before end of the franchise term. This could be for a wide variety of reasons, whether they be personal on the part of the franchisee, or if the franchise business or the brand is performing badly. In that scenario, some difficult conversations will have to be had to determine when and how the franchisee is going to exit the business. This of course may have financial and other implications for both parties.
If the franchise is to be renewed for an additional term, then both franchisor and franchisee will need to carry out an honest appraisal of the current state of the business and look at what strategies and support can be put in place to help the franchise grow further and make re-investing worthwhile.
As the franchisee progresses on their business journey, there will inevitably be obstacles to overcome. But having an awareness and understanding of the franchisee lifecycle means that both parties will be able to recognise what the franchisee and the franchise business will need at each stage, and that in turn should help to ensure long term business success.
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