How does a franchisor test its business concept?

It’s important a franchisor has adequately pilot tested its franchise system, so the franchisee can be satisfied they’re investing in a concept that works and a business that has been thoroughly tested. 

A franchisor should be selling a franchised business as a sophisticated package of proven know-how. If the franchisor has not proved its ability to operate its package with success, it cannot offer the franchisee a tried and tested concept.

It’s essential a franchisor has operated at least one pilot operation and, in many cases, a number of pilot operations should be established. Piloting should take place in locations similar to or representative of the locations in which it’s anticipated franchisees will operate. 

It may also be necessary to keep the pilot operation running for extended periods, generally in excess of 12 months, particularly where seasonal factors have to be taken into account.

A pilot operation will:

• Provide evidence of the marketability of the goods and/or services being provided to the consumer.

• Identify the location, nature and extent of premises for the operation of the franchise, or if the operation is mobile, the optimum method of fitting out and equipping the vehicle.

• The optimum use of equipment for the franchise business.

• Develop an operational manual with full details of the system to be used in training franchisees and to provide a record, which will be updated from time to time, of operational procedures.

• Establish business, operational and marketing systems.

Shelley Nadler is a legal director in Bird & Bird’s international franchising team and has many years’ experience of advising on all aspects of franchising.