How Franchise Companies Can Target Markets
By Michael C. Shattuck
International development is viewed by many as a green field that spins profits with limited risk. In reality, however, this statement could not be further from the truth. The international market place is a complex and often uncertain environment that presents challenges many franchisors have not contemplated. Regardless of the challenges, international expansion does present a tremendous opportunity to all franchisors who properly prepare their organization.
A proper foundation is critical for a franchisor to succeed in the international marketplace. In order to ramp up and aggressively expand internationally, that foundation must be built into a solid bridge that enables the smooth transfer of your domestic concept to the international marketplace. The first step in building a foundation is to determine your organizational readiness.
Before the target growth market search begins, the franchisor needs to ensure that the necessary systems and processes are fully developed. The needed international systems cover all the key domestic functional disciplines. Although not an exhaustive list, these are often viewed as minimal requirements for targeted aggressive growth.
Growth: Has a strategic plan been developed?
Legal: Have disclosure documents been prepared and trademarks duly registered in those markets being considered for growth?
Franchise Administration: Are the needed tools fully developed and the processes defined?
Finance: Have tax implications and repatriation issues been considered, means of verifying financial information determined, and analytics defined?
Logistics and Supply Chain: Have export distribution process been put in place, local supply approval process defined, and local logistic guidelines established?
Training: Do you have the ability to leverage training materials across multiple languages and cultures?
Marketing: Have you done and understand consumer research and are the proper support levels defined and attainable?
Operations: Do you have the support ratios defined for each franchise format and are they capable of projecting brand expertise?
Culture:Are your corporate culture, priorities and structure supportive of aggressive international expansion?
The business development team is typically either a dedicated international resource or it can be leveraged from within the domestic side. In practice, the dedicated approach has been more successful, and is strongly recommended. The international business development team must have a strong relationship with the international support team, but can be housed within a global sales department. A strong relationship between these teams is critical because many prospective franchise partners view the support team as nearly or entirely equal to the value of the brand they are seeking to franchise.
In order to successfully target markets with high growth potential, the business development team will need to be properly resourced, meaning the proper allocation of financial, human, and marketing talent, in addition to senior leadership support.
To move from an opportunistic to a targeted approach for international expansion, it is critical that validating markets exist in each targeted region. If validating markets do not exist, the franchisor should select specific markets that are best suited for their brand or product and develop them as future validating markets. But remember that none of us is perfect, so mistakes will be made as the validating markets are established. Both failures and successes should be analyzed, and the criteria driving success and failure defined and internalized by the development team.
Ideal and minimum franchise partner profiles should be established. In addition to the financial requirements based on the development model used, the profiles should include desired experience, business and strategic fit, core competencies required, and any attributes that are deemed essential for your particular brand.
The development models utilized need to have been defined and the associated fee structure determined. The fee structure should be flexible to allow for adapting to local market conditions. Approval of deals should be done by the business development group, finance, operations, legal and the senior executive of the company. More important than who is involved in the approval is the process that will be followed. Candidates will want to know what process they are about to enter and an expectation of the timing. Finally a sales tracking and follow-up system must be in place. Nothing is more frustrating to a prospect than not receiving good follow-up attention.
To enjoy success in the new mode of targeting markets, certain tools are needed. The first group of tools needed is the actual sales tools. The business development team will need a full array of printed collateral materials. These materials should include applications, form letters, brochures, developer leasing information and “prospect packages.”
The prospect package is the first big push to the sales process. At a minimum, this package needs to have the following information:
- Brand history and key attributes,
- Multiple testimonials from partners in the validating markets,
- Detailed financial requirements,
- A description of business structures that would be considered,
- A description of the development models available, which should cover the space requirements, pictures of each type of outlet, and expected investment ranges,
- Product descriptions and pictures,
- Approval process explanation, including time frames, and
- Contact information.
It is essential to have a user-friendly and highly-informative Web site. Companies will want their site linked to other industry sites such as franchise.org, franchise.com, entrepreneur.com, and so forth.
The second group of tools is the business planning tools that will provide firms top prospects. This tool box should include general business planning guidelines, financial planning templates, allowable modeling information that a franchise is comfortable releasing, and a list of any internal resources to make available to candidates.
It is a balancing act to determine which information should be provided and which should be held back. The development of a business plan should be a trial or test of the candidate’s knowledge, level of interest and commitment to acquiring rights to develop your brand. Whatever is decided, the company will want to make sure it has the proper non-disclosure and confidentiality agreements in place.
A refined, international strategic plan is essential in your up-front preparation. The matrix analysis used to identify target markets and define market potential should be developed to break out the high-growth targets. This matrix should consider raw population, demographics, the business and political climate, socio-economic factors, and legal environment, to name a few areas.
A careful review of the targeted high-growth markets should be completed to allow for prioritization of the targets. A decision should be made on market-by-market basis regarding the targeting of specific franchise developers.
These decisions are critical if a franchise hopes to avoid wasted resources and effort. Whether the decision was to target specific franchise developers or mine the market in general, there are several resources or lead generators to be considered.
Word of mouth or existing partner referrals are the most powerful and valuable leads one will have. Often these candidates are familiar with your brand and have developed an affinity for your business because of their relationship with a successful existing partner. They tend to be better prepared and have more realistic expectation of what it takes to succeed.
The overseas offices of the U.S. Department of Commerce are a good resource, and can be quite helpful if one chooses to target specific companies or industry groups in a given growth market. The “Gold Key” service provided is a valuable resource when exploring virgin territory. In addition to the “Gold Key” service, the franchise trade missions organized by the department often produce a good list of candidates to consider.
Events organized by the International Franchise Association are strong tools for use in lead generation. The focus of these events on the franchising community attracts a more elite group of interested companies including local and regional franchise groups. These local and regional franchise groups can be candidates for master franchising if they are considering a portfolio approach to leverage their infrastructure.
Good old-fashioned networking cannot be left out. Companies may be surprised by the leads their auditors, ad agencies, outside counsel and suppliers can generate. Like existing partner referrals, this group at times has the same advantage of having a basic understanding of your business.
In addition to these, the following resources need to be considered:
- Locally sponsored trade shows,
- U.S. Chamber of Commerce in host markets,
- Advertisement in select publications, and
- Internet and Web sites
Once the markets are targeted and the candidates are identified, the sales management process kicks in. One can find a visit to the global support center extremely effective after initial negotiations and business planning have been completed. Most refer to this “Discovery Day” as their franchise candidate orientation. This serves as the opportunity for the candidate to meet the senior management and critique the team that will support them. Allowance for your senior management to assess candidates is built into this event. Often this is the activity that closes the deal.
Obviously, the work does not stop here and the final negotiation of development terms needs completion. Now the detailed and critical due diligence is completed by the international business development and support team. It is critical that final due diligence includes a visit to candidates’ businesses for an operating assessment.
In closing, the most important decision a franchise will make as it expands internationally is partner selection. No matter how well-planned your strategy or target markets are analyzed, who a company does business with will determine your success.
Michael C. Shattuck is vice president, international operations of Focus Brands, Inc.