Hopefully by now you are convinced that for franchising to work properly it must be based on a proven business format. Pilot operations are where the proof comes from, and they are used to test the original business concept; to test whether the concept can be transferred to other sites and other people; to test the effect that franchising will have on the operation of that concept; to test the effect that franchising will have on the original business; and to test new ideas for subsequent development of the network and system.

TESTING THE BUSINESS CONCEPT

If a business has been operating successfully for some years then there is no need to test the concept because it has already been proven. The existing company-managed outlet is the pilot.

If, however, the subject of the eventual franchise is currently no more than an idea, then a business must be created to operate and refine that idea to get it to the stage where it can be judged to be proven. This could take many months, indeed years.

The costs and the other risks associated with the creation of that business must be borne by the (prospective) franchisor.

TESTING TRANSFERABILITY

If the existing business already has three or more outlets then there is no need to test transferability because that has already been established. Other outlets have been opened and other people have learned how to operate them.

If the original business has only ever been operated from one outlet, and managed by its creator, then further outlets must be opened to make sure it can be done elsewhere by someone else. Sometimes a business has been successful solely because of its original location, or simply because its creator had special talents or unbounded enthusiasm, and those criteria do not make for good franchising.

The costs and other risks associated with opening a few more branches should be borne by the (prospective) franchisor. He could get a partner, or external funding, but the first additional units should essentially be company-owned and managed.

TESTING FRANCHISING

The effect of operating under franchise can only be tested when there are already multiple company-owned units against which the new method of operation can be tested. That figure could be three for a growth franchise, it could be three thousand for a conversion franchise, but however well proven the concept, franchising should be tested slowly, and in no more than two or three units initially.

The costs of testing franchising will often be borne between the (potential) franchisor and pilot franchisees. The testing needs to be done by someone with ‘skin in the game’ otherwise it is not a test of how an independent operator will perform. However it is not fair to ask a third party to take all the risk of proving what someone else thinks will work. It is therefore common for a pilot franchise agreement to be used whereby the franchisee, with full knowledge that this is a test, is allowed to operate an outlet for a specific period of time, maybe up to two years.

If all goes well, at the end of that period the pilot franchisee will be granted a full franchise agreement. If things do not go well, or the franchising project is abandoned, all bets are off, but the pilot franchisee will have had the opportunity to earn an income along the way, possibly even at a minimum level guaranteed by the franchisor.

The franchisor may pay the set-up costs of the pilot units, the pilot franchisee will pay the running costs. Both parties should keep detailed day-book accounts of what happens, both good and bad, as these notes will be used to refine the franchise system, and further develop the operations manual, when preparing it for eventual full-scale launch.

No matter how many branches previously existed, things will change when the operation runs as a franchise. These changes will not necessarily be those that were envisaged when the plan was put together; some will be better, some will be worse, some will be totally unforeseen. Which is, of course, the point of testing them.

Pilot franchisees are inevitably more inclined to take risks, and be more independent and more entrepreneurial, than most franchisees. If they do stay in the network they may well be more difficult to manage than later franchisees, but without them there wouldn’t be a network to manage.

TESTING THE EFFECT ON THE BUSINESS

We have previously established that franchising requires a unique culture. Becoming a franchisor will almost certainly require changes in the culture of an existing business. The bigger the business, the bigger the changes, and it is as well to test them, through the pilots, before embarking on a full-scale franchise launch.

Some businesses, no matter how much franchise-awareness training is carried out with their directors and staff, simply cannot get to grips with how to deal with franchisees. If the business cannot adapt then franchising will not work, and should not be continued.

Large-scale conversion franchising is particularly difficult to achieve because large companies have developed their ways of doing things over a number of years and they are slow to adapt. It is particularly difficult when the franchisee used to be one of the employees but is now managing director of one of the company’s most important customers.

Serious conversion projects may require that, as one form of doing business is gradually replaced by another, so too should be the board of directors. The old blood needs to be removed, suitably incentivised to engineer a trouble-free transition, by individuals with a more franchise-friendly attitude. After all, the company is in the franchising business now, not whatever business sector its products or services fall into.

TESTING NEW IDEAS

It is much easier to persuade franchisees to invest in new equipment, or change the way they do things, if the new way can be demonstrated to have worked somewhere else. For this reason, many franchisors continue to operate company-owned units, which can be used for training new franchisees, retraining existing ones, and testing new ideas. Those franchisors who choose not to operate owned units often have ‘tame’ franchisees who are happy to be involved in training or system development in their businesses.

However it is done, the principle remains the same: show a franchisee how a new way of doing things has been tested, and what benefits it will bring to their business, and they are more likely to make the required investment in time and money. Simply telling them to spend thousands on a new IT system may present challenges which are difficult to overcome!