Should I Buy An Untested Franchise?

John Pratt writes:

Franchising is not about licensing an idea. What it is about is licensing a proven business system.

While many businesses operate profitably, that doesn’t mean they are able to franchise because there could be any number of reasons for the profitable operation. They could include the fact the management team is brilliant or that they operate in a particular locality where there is an unusually high demand for their products or services.

In pilot testing, the profitable business is able to prove that the success it has experienced can be replicated when others are involved in different areas, enabling a franchisor to say to a prospective franchisee: “I cannot tell you how successful you will be because that depends on you, but I can tell you that if you follow the system we have created you will be successful.

The only way a new franchisor can prove its system can be replicated successfully is through pilot operations, where one or more franchisees have taken the system and been successful.

Once a franchisor has a number of franchisees up and running who are operating successfully, prospective franchisees do not need to be concerned about pilot operations.

John Pratt is senior partner at specialist franchise firm Hamilton Pratt and has advised franchisors for over 25 years.