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.

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, mistakes are always just around the corner.

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.

Lessons for 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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Negotiating a Master Franchise Agreement can be complex, challenging and demands careful thought and patience.

International expansions of franchise systems have been increasing at a rapid pace for years.  For some franchisors, such expansions have proved to be very successful, but for others, the experience has been costly and frustrating. Often, one of the greatest areas of frustration is getting the master franchise agreement settled and signed, even when the candidate and the fundamentals of the deal are right.

Dividing up the Spoils and Job Allocations

Without a doubt, the most poorly handled issue in master franchising is the division of the front-end franchisee fees and continuing royalty fees for the unit franchises in the territory between the franchisor and the master franchisee. It is not unusual for the franchisor to base the decision on the allocation of these fees on the anticipated or desired return from the development of the system in the territory without serious or careful regard for how the master franchisee will finance the necessary development and support services for the unit franchisees. Mistakes with this issue will either ensure the demise of the master franchisee or reduce the quality and performance of the system in the territory.  Additionally, presenting unrealistic numbers to a sophisticated prospective master franchisee can wreck the deal.

The responsibilities for the development and administration of the system should be decided first as between the franchisor and master franchisee. Then the division of the various fees should be based upon the costs of discharging those responsibilities and only after that should the parties divide up the remaining “profits.”  Being able to provide proof of a careful analysis of these matters will go a long way to getting the deal done with the best candidate.

Selection of Unit Franchisees and Locations

Often, master franchisees want the right to select unit franchisees and locations within their territory, but franchisors do not want to abdicate the responsibility for final approval of franchisees and locations before the master franchisee has proven to be capable in these crucial areas.

By proposing an initial fixed number of franchisor approvals, subject to specific achievements of the master franchisee, with a resumption of the requirement of franchisor approvals in the future if other criteria are not met, the franchisor can overcome a common challenge to concluding negotiations.

Governing Law

Both parties are understandably more familiar and, therefore, more comfortable with the legal regime in their respective home jurisdictions.  To avoid another obstacle to getting the deal done, the franchisor should consider having the governing law of the agreement be the most appropriate law depending upon the issue, with some issues being determined by the law of a third jurisdiction acceptable to all.

While the governing law provision of the agreement will be more complex than usual, the extra comfort level of the parties will make it easier to finalize the agreement.

Franchising is one of the best and most efficient ways of expanding a business.  Once a solid foundation is built for the success of the system in the home jurisdiction, international expansion is a sensible and potentially profitable strategic choice.  A poorly executed international expansion can drain the resources of the franchisor to the point of destroying the entire system.  The moral being that it is less important what you do than how you do it.

Getting to yes, with the best candidates, for the right master franchise agreements can go a long way in ensuring that international expansions are profitable and satisfying for the franchisor.  The foregoing has only touched the surface of a complex and challenging area of negotiations.  It is not “rocket science,” but it does demand careful thought and patience.

By Edward (Ned) Levitt, CFE

Source: franchisingworld.com

L'articolo Negotiating a Master Franchise Agreement (Part 2) sembra essere il primo su KnowHow Franchising Academy.

Negotiating a Master Franchise Agreement can be complex, challenging and demands careful thought and patience.

International expansions of franchise systems have been increasing at a rapid pace for years.  For some franchisors, such expansions have proved to be very successful, but for others, the experience has been costly and frustrating. Often, one of the greatest areas of frustration is getting the master franchise agreement settled and signed, even when the candidate and the fundamentals of the deal are right.

This article examines some of the most common issues that arise in the negotiation of an international master franchise agreement and suggests some solutions which might help to get the deal done.

The Territory, Franchise Fee and Performance Criteria

Most international master franchise arrangements provide that the rights are granted, usually on an exclusive basis, for an entire country or group of countries, such as the Middle East.

The prospective master franchisee often wants to lock up the broadest territory possible in the event the franchise expansion proves successful.  However, serious problems can arise when the exclusive rights granted are to territories which are far too large for the capabilities of the master franchisee.

Frequently, two sticking points in the negotiations are the amount of the initial franchise fee for the territory and the performance criteria, (usually the number of units required to be open each year) which, if not met by the master franchisee, are grounds for termination.

If the franchisor can forego the larger initial franchise fee for a series of smaller payments based on a per unit opened measurement, then a deal can be more easily achieved by allowing the master franchisee to “earn” the right to ever-increasing exclusive territories within the target country or group of countries.  This approach overcomes the fear for master franchisees who are paying a lot of money for a concept that is yet unproven in their country or region and still provides the franchisor with control over the development of the system within the broader territory. Prospective master franchisees want the term of the master franchise agreement to be virtually and sometimes actually, perpetual.

The term

Prospective master franchisees want the term of the master franchise agreement to be virtually and sometimes actually, perpetual.  Franchisors want to limit the term (including renewal rights) to a period of time that allows the master franchisee enough time to earn a good return on its investment and perhaps generate some capital gain on a resale.

Assuming the franchisor would be happy with a successful and thriving system in the territory regardless of the length of the term, the number of renewal terms could expand based upon specific performance criteria that achieve that result for the franchisor, beyond the usual number of renewal terms. The message to the master franchisee is, “You can have a very long term, if you earn it.”

By Edward (Ned) Levitt, CFE

Source: franchisingworld.com

L'articolo Negotiating a Master Franchise Agreement (Part 1) sembra essere il primo su KnowHow Franchising Academy.