I was recently approached by a potential start-up client, They had a good business concept with certain unique aspects, they had test-marketed for a few months, and they had got some great results - so much so, they had effectively found themselves in business faster than they had expected.
Now surrounded by customers and well-wishers, they'd been told by several people who probably should have known better that their concept was so good they should start franchising right away.
Problem number one... It is difficult and dangerous to start franchising a business if you don't have a deep and comprehensively detailed understanding of it. You need a solid track record - that's the dependability franchisees are seeking.
But that wasn't all. When I started to ask them a few basic questions about structure, strategy and cash flow, I realised these lovely people really had not thought through their business model properly and had not fully accounted for all their likely costs.
You've got to walk before you can run.
Before you start a new business, or even a new initiative within an existing business, you need a proper business case with detailed financial projections to ensure you know what you're getting into. Failing to plan, as they say, is tantamount to planning to fail.
Friday, September 28, 2007
Walk before you run
Posted by Chris Blackman at 12:00 PM
Labels: "business model", cash-flow, projections, Strategic business planning
2 comments:
Excellent advice. I know, from working at McDonald's when I was young -- ahhh, the joys of a greasy burger and the sound of a metal spatula scraping the grill -- oh, sorry, memories pulled me away there for a bit. ... I remember thinking how thorough their processes were, how completely everything was detailed and written out -- and basically anyone could work there if they could follow the VERY easy, very specific step-by-step instructions (many times they were picture instructions).
Unfortunately, this leads to some franchise locations going out of business because managers who have no business being managers can follow instructions well, but when they have to start thinking and reaction to things that aren't in the manual, they fall flat on their faces. (I worked for a manager of that calibur, and saw the decline and eventual closing of a neighborhood mcdonald's because of the poor management promoting other poor managers till the leadership was so damaged, the place didn't have a chance.)
ANYWAY -- my point is -- like you said, the processes starting with the business plan and financials are such a strong foundation to lay. Can you imagine setting up a franchise that is so stable that it could get people to the manager level that would normally not make it past cashier? And yet -- then I wonder if it is so complete as to allow someone to move up in ranks and be totally incompetent at the same time - then maybe it is not as complete as I originally thought.
I really got a lot out of The E-Myth Revisited by Michael Gerber. What do you think of that book?
Nice post Chris.
Jennifer - thanks for the interesting example of that rather well-known franchise. It is interesting that planning, foresight and comprehensive documentation systems still don't actually guarantee success.
It's just that their absence virtually guarantees their failure.
The other key piece of the puzzle is WHO is executing the plan. If you recall my 7 Aug 07 posting Great Teams Start With Great Recruitment you'll remember I promised a way to improve your team-member hiring and coaching out of sight - it's as powerful as being able to read the minds of prospective (applicants) and existing team members.
That's what is needed - more about that initiative coming soon.
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