We have walked through the blueprints of expanding your business through franchising. At some point in the journey, you may begin to consider two additional methods of growth: expanding internationally or launching new, complementary brands. Let’s look at some of the major considerations to determine when the time is right and how to prepare.
International Expansion
Many franchisors expand internationally too soon. Franchisors should first have a solid base of domestic franchisees, with a corresponding solid base of royalties, so that the franchisor is profitable and beyond the point of royalty self-sufficiency. When a franchisor expands internationally, it is critical that he can invest adequately to do it well. A franchisor needs to be committed to success in the international market, not just to collecting up front large master franchise fees. A franchisor must invest in dedicated international support, preferably in support personnel who have experience in the international markets that will be opened.
The U.S. Commercial Service has resources to help you determine whether international expansion is a viable option for your system—specifically by helping you to find out whether the goods and services you sell are desired in the countries you are targeting for expansion—on a country-by-country basis. You can research competitors to see if any of them have expanded internationally and how many locations they have opened in a given foreign country. This will help you determine if there is a market for international expansion and where you want to go. Once you make the decision to pursue expansion and have an idea of where you want to expand first, franchise industry resources can assist you with how to actually expand.
The International Franchise Association (IFA) has resources available to assist you with assessing different countries in terms of the franchise laws, the ease of doing business, and the business or industry laws in those countries. International franchise lawyers attend the IFA’s annual convention (and annual Legal Symposium), and they will assist you with preparing the appropriate documents to comply with the franchise laws of the countries that you are interested in. International consultants can also assist you with designing a sales process targeted at international candidates and with selling international franchises.
It is critical to decide whether you will sell direct and support the international franchisees, or select master franchisees at the province or country level who will support the sub-franchisees locally. The decision should be thought through carefully, because the options differ in the level of financial commitment that you need to make up front and over time, and in your ability to control the brand. If you choose to expand internationally through master franchising, the selection of your master franchisee will be critical to protecting your brand and realizing the market potential. Master franchising is more common for service and retail franchise brands. Direct franchising is more common for food brands. The support mechanisms discussed in the following sections assume that a master franchising method is chosen.
International Support
When you are contemplating international expansion, you need to invest in hiring someone whose primary responsibility will be international operations, commonly called a director of international operations. The director will serve as the day-to-day contact for your international master franchisees and will work closely with them to adapt the website, marketing materials, operations manuals, hiring processes, and technology to accommodate the unique differences between the foreign market and the original model used in the United States. Ideally, your master franchisee will be required to open and operate her own location for at least six months or more (depending on your type of business) before being allowed to sell franchises; she must learn the business model thoroughly before the time comes to support her franchisees. The director will provide the primary support in assisting the master franchisee in opening her pilot location. It is also recommended to try, where possible, to select companies—rather than individuals—as master franchisees to leverage their existing infrastructure and to have a “partner” that understands franchising and the responsibilities the master assumes in exchange for an opportunity to split the royalties with the franchisor.
Ideally, a franchisor can hire key personnel (e.g., the director position) who live in or near the country they will support: for example, someone based in Europe to support Europe and someone based in Asia to support Asia. It is common for an American franchisor to expand first into Canada, where the first director will reside to support the first master franchisee, so the resource for the master franchisee lives close by to provide incremental support through all of the biggest lessons that will be learned on the first international expansion. Your first director will normally support the first three to five masters and, therefore, may also support master franchisees in several countries.
We will have directors supporting between four and eight masters, and these individuals will have no responsibility for supporting domestic franchisees. Having a separate internationally oriented team is important for two reasons. First, you won’t upset domestic franchisees by shifting their support to handle international pursuits, and second, the international franchisees benefit from having dedicated personnel who understand their markets. Our first international director is based in Canada and has experience supporting franchisees in our industry in Canada, Australia, and the United Kingdom. As we expand into Europe and Asia, we will hire health-care experts there to support our master franchisees. If we had expanded internationally prior to late 2010, we would not have had the resources to invest in this high level of support, which we believe is indispensable in a successful international expansion strategy.
Secure Intellectual Property
As soon as you believe that you may expand internationally, it is important to secure the trademarks for the countries you will expand into. We secured our international trademarks back in 2005, even though we didn’t sell our first international master contract until 2010. As you are evaluating the competition and seeing to it that you have solid trademarks for your initial franchise system launch, you can research where your national competitors have expanded globally and which countries use the products or services you sell.
Many of the countries we knew we would want to expand into, because our domestic competitors had already done so, are signatories of the Madrid Protocol, which enabled us to secure trademark protection in several countries at once. The Madrid Protocol is the primary international system for facilitating the registration of trademarks in multiple jurisdictions around the world. When you get to this stage, compile for your trademark attorney the list of countries you eventually want to expand into and see how many are covered under the Madrid Protocol and what their filing costs will be. Then see which countries are not covered under the Madrid Protocol and the costs to file in each of the individual countries. Once you have the information, you can determine the amount you want to invest to ensure that your trademarks are preserved and protected when you are ready to launch globally.
Brand Expansion
It may seem strange to be talking about expanding into a second brand when you are just now evaluating how to start or expand your first franchise brand. And although it will likely be years before you seriously under-take an expansion to a second brand, it is nevertheless worth considering as part of developing your franchise disclosure document (FDD). It took me until late 2009 before I was clear on what additional brands I would launch in the future. Most franchisors will franchise only one brand. You, too, may franchise just one brand, but I encourage you to at least consider the possibility of brand expansion if you see an unmet need among your end customers that you could fill by launching another franchise system in the future.
You may be asking why you would consider launching more than one brand when you feel you will be plenty busy and challenged with launching one successfully. The biggest considerations are in how many franchise territories you can sell in your first brand and if expanding into new services will fill the unmet needs of your customers—or needs that your customers are buying through other companies. Let’s explore each of these separately.
Timing of New Brands
For me, the consideration of how many territories I would sell under the BrightStar Care brand was a major driver for having more brands. I had commitments to 350 locations, and I knew that the United States would hold approximately 700 locations. Thus, within two to three years of solid growth and area development commitments, I would be sold out. I have great personnel in certain departments who are 80 to 100 percent focused on selecting or supporting brand-new franchisees, and if I no longer had territories to sell, I wouldn’t have new franchisees to bring into the system. What would I do with my franchise sales team, my learning and development (training) team, my preopening concierge, and my BrightStart team? I had to find a way to keep my employees engaged, so launching new brands became of paramount importance to me.
The right time to launch my second brand was at the point at which certain departments began to have underutilized personnel because we were not adding as many new franchisees for them to support. I knew that expanding into new brands would be good for my personnel, and I also believed that offering new brands to my existing franchisees would be a good opportunity for them to diversify their asset portfolio and to create growth opportunities for their personnel. It had always bothered me as a franchisee of two different hotel franchisors that I was never given the opportunity to expand. I never knew a new site was planned until I saw a “Coming Soon” sign for a new hotel bearing one of my franchisor’s brands. In addition to creating growth opportunities for employees and franchisees, brand expansions can raise brand and market awareness of your existing services. Brands that can fulfill more of the needs of their customers help to ensure that those customers are not evaluating and using the services of other brands. Think about product brands such as SC Johnson or Johnson & Johnson. Would the parent company be a market leader if it had only one product? Or does it have such strong market brand awareness because its customers repeatedly encounter its various brands? It is difficult to find economies of scale in expensive advertising media such as radio and television when marketing for one brand alone, but it can be possible to reach more customers cost-effectively by advertising multiple complementary brands.
Market Need for New Brands
As you consider the creation of future brands, you must start with an understanding of what your customers are buying from others and/or what needs are not being met today. We worked with our customers to determine future brand opportunities by asking what other services they were buying for themselves in the healthcare area and what other services they purchased from others or needed in their homes. We then asked some of our franchisees the following three key questions: (1) Who is referring business to you today, and could you provide what they do? (2) Whom do you refer business to today, and could you provide what they do? (3) What types of competitors are you gaining customers from, and what types of competitors are you losing customers to? The insights from this kind of investigation will tell you what potential future brand opportunities there may be for you, for your employees, for your franchisees, and for your customers when you begin to have capacity in your organization to take on and adequately invest in these new brands.
As you determine what services your existing and potential customers need, you will want to evaluate whether these are services that can be easily provided under your existing franchise system. The consideration of whether additional products or services should be offered in the existing franchise system or offered in a new franchise brand is based upon two key factors: (1) whether you can offer the new services under the existing brand without confusion in the marketplace about your core competency, and (2) whether the new services fit within the operations and technology already in place without losing efficiency.
By way of example, when our customers needed transportation to medical appointments, we knew we had people to do it, and we knew it involved scheduling and matching employees with customers which are core to our existing business model. We therefore added transportation to our existing brand. However, when we realized that many of our customers were contracting with a handyman business, we determined that we did not want to dim our existing brand’s reputation of high quality of care by creating the perception that we could care for our client’s mom and plunge her toilet during the same site visit. If we decide that we want to be in the handyman business, it will need to be part of a different brand.
Additional Considerations
When you make the decision to expand internationally and/or to launch new brands, you have to communicate the news to your existing franchisees carefully. They have to clearly understand how they will be affected and why you are choosing this method of expansion. To gain your franchisees’ support, there has to be a clear “what’s in it for them” message, so that they grasp how they benefit from the launch of new brands.
When we began looking for our first international master, we proactively communicated to our system that once we sold our first two masters, we would use a significant portion of the cash flow benefit derived from the up-front master franchise fees to extend the billing cycle for their royalties (for those that joined BrightStar when the remittance cycle was 15 days to extend their remittance to that of the current standard of 28 days) by two weeks. We also made sure they knew about our investment in hiring an employee in Canada dedicated solely to supporting our international masters. Similarly, once we were ready to communicate our expansion into additional brands, I showed our entire strategy to all our franchisees at our annual convention. I described the benefits to the franchisees of their access to our corporate personnel that we would otherwise not be able to maintain if we didn’t launch new brands, as well as the cross-sell benefit of these additional brands in terms of their existing customers.
In addition to the delicate nature of communicating further expansion to the existing franchisees, there is an important consideration in your selection of technology if you will expand internationally and/or expand into new brands. Although actual expansions may be years away, you need to consider the possibility at this stage to guarantee that you select the right technologies to scale and handle international differences, such as currencies.
BRIGHT IDEA:
Expansions into additional brands will also influence early decisions to build or buy software technologies to support your franchise system and to structure how you pay for technology.
If you will launch only one brand and you plan on a relatively modest number of units, then paying for the use of third-party technologies per franchisee may be optimal. However, if you believe now that you have the vision, passion, and organization to support growth into multiple brands, then you want to choose third-party technologies that sell enterprise licenses so that you can put unlimited numbers of users on the software. Based upon your future growth plans, you will also need to evaluate software programs according to the scale they are capable of handling.
Closing Thoughts
This entire book has focused on launching or expanding your initial franchise brand domestically. In this last chapter, however, I wanted you to think a little bit about the opportunities beyond the United States and beyond your first franchise brand. Although fewer than half of all franchisors expand internationally, there are considerations to evaluate early in terms of securing the trademarks in the foreign markets into which you may want to expand. Once you have success domestically and seriously begin to consider international franchising, you can access the various resources I have outlined to assist you in the discovery process, the legal document preparation, and the selling of franchises internationally. As you contemplate the services that your customers need but you do not yet provide, you may also consider the possibility of launching additional franchise brands. Most franchisors have one single franchise brand, but I encourage you to at least consider the employee, franchisee, and customer benefits of expanding and how to identify opportunities for expanding services within your brand or as a separate brand. In either expansion, international or brand, you will want to carefully consider how you will communicate this to your franchisees, so that they know about it first and understand how it will affect them.
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