Should I run a pilot before I start franchising my business?

Should I run a pilot before I start franchising my business?

The answer to this question is normally yes but there are some exceptions.

Pilot operations are the first step in assessing whether your business is suitable for franchising and just like a prototype of a new plane you have time to adjust and perfect the design before you take flight selling franchises.

The business must be able to make a profit greater than the franchisees wages as the franchisees will want to have a return (profit) on the money he/she has invested (ROI). I can not give you this figure as it varies from business to business but your franchise adviser will be able to help.

Keep your mind on the fact that you need to find franchisees to buy your franchise and then you will see that it is important that, not only is the business profitable, but by operating a pilot you can show that:

* There is market for the product and service

* What skills are needed to run a profitable business?

* What is your unique advantage over the competitors?

* Image and advertising

* Financial models

* Staff requirements

* Product range

* You have procedures and systems documented

* The product or service is not a fad, it has real growth

* Franchisor costs to support the franchisees

These reasons to operate a pilot also apply if you are bringing an overseas system into New Zealand, what happens overseas, even in Australia, will not automatically translate to the New Zealand culture and business practices.

The minimum time for a pilot is twelve months as this period covers any seasonal changes and peaks and lows of sales and ideally in different locations to test the concept in different geographical areas representing a variety of demographics. The pilot should be operated by the person or company that will eventually be the franchisor.

Below are a couple of reasons not to pilot a concept remembering that care needs to be taken if you choose not to pilot.

If your business has be operating profitably for a number of years and especially if it has been operating in more than one geographical location then you can commence your franchise system development. In this case the franchisor may be selling some of the company owned operations or/or adding new franchised businesses.

If your proposed business is in a sector that is already well franchised and you undertake detailed system development then you may choose not to pilot. A home service, such as lawn mowing, is a good example. The fact that the concept of people having their lawns mowed is proven all over the country is proof that there is demand for the service and the operational systems are easy to define.

There is also a mixture of the yes and no answer which is based on how easy the business is to copy. New concepts that are easy to copy, low cost to set up, simple in operation may need rapid market penetration before the copy cats come out. In this case the franchise development work can be completed and the entry strategy may be to launch with a number of franchisees at once.

Running a pilot is proving that the business can run at arms length with robust systems.