Each week PEX Card reaches out to industry experts to provide advice, solutions, and answers to your questions. This week we have Andrew Sherman a Partner in the Washington, D.C. office of Jones Day answering questions.
Question: I’m interested in making my plumbing business a franchise. I have six locations right now in two states. What steps do I need to take in order to become a franchise?
Answer: There are a number of legal and business prerequisites that must be satisfied before any company can seriously consider franchising as an alternative for rapid expansion. Many companies prematurely select franchising as a growth alternative and then haphazardly assemble and launch the program with an approach towards franchise development that parallels the sale of used cars. Other companies are urged to franchise by unqualified consultants or advisors who may be more interested in professional fees that in the long‑term success of the franchising program. And still others move too quickly in the development of their franchising program without devoting the time and resources to the development of and effective and viable business and economic model. This has caused financial distress and failure at both the franchisor and franchisee level and usually results in litigation. Current and future members of the franchising community have a duty to take a responsible view toward the creation and development of their franchising programs and embrace the notion that this is a get what you give relationship-driven business model and expansion industry. Responsible franchising starts with an understanding of the strategic essence of the business structure.
There are three critical components of the franchise system — the brand, the operating system and the ongoing support provided by the franchisor to the franchisee.
- The brand creates the demand, allowing the franchisee to obtain customers. The brand includes the franchisor’s trademarks and service marks, its trade dress and decor, and all the intangible factors that create customer loyalty and build brand equity.
- The operating system essentially “delivers the promise,” thereby allowing the franchisee to maintain customer relationships and build loyalty.
- The ongoing support and training provide the impetus for growth, providing the franchisee with the tools and tips to expand its customer base and build its market share. The responsibly-built franchise system is one which provides value to its franchisees by teaching them how to get and keep as many customers as possible, who consume as many products and services as possible, as often as possible. Early stage and emerging franchisors must embrace the notion that there is no greater calling than helping others get into business for themselves and supporting the transformation of their lives and the wealth of their families.
ABOUT THE AUTHOR Andrew J. Sherman is a Partner in the Washington, D.C. office of Jones Day, with over 2,700 attorneys worldwide. Mr. Sherman is a recognized international authority on the legal and strategic issues affecting small and growing companies. Mr. Sherman is an Adjunct Professor in the Masters of Business Administration (MBA) program at the University of Maryland and Georgetown University where he has taught courses on business growth, capital formation and entrepreneurship for over twenty-three (26) years and won numerous teaching awards at both schools.. Mr. Sherman is the author of twenty-six (26) books on the legal and strategic aspects of business growth, franchising and capital formation. Other recent titles include the best-selling Mergers and Acquisitions from A to Z, 3rd edition which was published by AMACOM in 2010. His twenty-third (23rd) book, Harvesting Intangible Assets, Uncover Hidden Revenue in Your Company’s Intellectual Property, (AMACOM) was published in October of 2011. His twenty-fourth (24th) book, Raising Capital, 3rd edition was published in the Spring of 2012, his twenty-fifth (25th) book, Essays on Governance published in late Spring of 2012. His twenty-sixth (26th) book, co-authored with Elizabeth Vazquez, Buying For Impact: How Buying From Women Will Change the World, was published in February of 2013. Mr. Sherman can be reached at 202-879-3686 or e-mail [email protected]. The Firm’s website is www.jonesday.com.