Expanding a foreign brand into the United States is rightfully intimidating.
I have been asked to give my perspective, as a Canadian franchisor, as to what it takes to successfully grow a franchise business in the United States. While I could write a book on all the mistakes I have made, it is probably more helpful to distill my top eight for successfully expanding a foreign franchise concept into the United States.
The United States is a heck of market and highly attractive in many ways, yet expanding a foreign brand into the United States is rightfully intimidating. With more than 330 million people, it is a large and wealthy country full of opportunity. Franchising is well established, accepted and highly regarded in the United States. And while America recently received ‘bad press’ due to politics, don’t be fooled. These are honest, hardworking and entrepreneurial people. The country is packed with potential franchisees and potential customers. But beware – you better have your act together because you can get ‘spanked’ in America; taking a brand to the United States can be extremely humbling, frustrating and expensive even for experienced franchisors. It takes substantial time, resources and knowledge to bring a foreign brand successfully into the United States, but the reward can be substantive.
So, in no particular order, here are my top eight must-dos to grow a foreign brand in the United States:
1. Be ready
Above all else, before expanding to the United States, you must have a proven and successful concept and a sound understanding of the market. There is a lot of competition in the States – thousands of franchise brands and hundreds of thousands of franchise establishments. While you need to stay true to your core values, mission, vision and concept, you may very well need to adjust your offering in order to address U.S. tastes and norms and to successfully address and occupy a defendable niche. You can’t be everything to everybody in the United States. Is your market niche and concept clear and well thought through? You need to complete the necessary research, testing and competitive intelligence. Consider opening a U.S. pilot location to test, refine and prove the concept actually does work in the United States.
Bear in mind the United States is a big place and there are enormous differences in disposable income, social mores, consumer tastes, work ethic as well as cost structures, legislation and taxation. You may determine to focus on a select geographic area – at least initially.
2. The Franchise Disclosure Document is our friend – honest!
To grant franchises in the United States, you need a Franchise Disclosure Document (FDD), which discloses information about the franchisor, the business opportunity, fees, your financial statements and so on to prospective franchisees. While it is a lot of work to create and maintain (the document must be updated annually), it is fairly logical and formulaic. And guess what? No secrets! You can access most other brand’s FDDs online to help with competitive research. Your law firm can – and should – take the lead on drafting it.
3. Get the right legal representation
You need to establish an early and collaborative relationship with an American-based franchise lawyer. Franchise law is a specialized field in the United States – do not use a generalist! And, sorry to say, while America is the land of free enterprise, it is also packed with laws, taxes, regulations, red tape, reporting requirements and guidelines – and not just federally; differences between states can be significant.
In addition to legal knowledge of franchising, these better, niche lawyers have relationships with local state examiners. This can be key, as in the registration states (see below) the examiner holds the power to grant you the right to offer and grant franchises within that state.
4. Registration states may cause some difficulty
Not all states are equal when it comes to franchising. Most of them (the 37 “non-registration states”) do nothing but stick your FDD in a file. But some of the other states (the 13 “registration states”) can be troublesome and will review your FDD very carefully. In addition to taking time, they sometimes (especially for new brands) demand changes to your FDD and potentially even your Franchise Agreement. This could include items and conditions which could impact your cash flow or that you may find completely unacceptable. So, be wary, especially of Maryland, California and Washington. You might determine to ‘pass’ on these states, at least until you are established.
5. Franchise consultants and vendors will be eager to help
In the United States, there are more vendors, experts, consultants and friendly folks in the franchise and franchise support industry than you can shake a stick at. From marketing, public relations, accountants, recruitment, software, consumables, real estate consultants and on and on. They are all happy to assist you, and, being Americans, they seldom lack for confidence and are often very strong salespeople. Some of them are great, some are optional or unnecessary and some are a waste of time and money. Check them out carefully and speak with references and all that sort of thing before signing up.
6. The International Franchise Association is wonderful
I am not being paid for this plug! The granddaddy of all franchising associations is the International Franchise Association (IFA). Join the IFA in advance of starting operations, attend the annual conference, use their resources and generally support suppliers that are members. Your lawyers, especially, must be active members. The IFA provides a bevy of useful information, events and resources and they are truly pros when it comes to the franchising industry. And they are friendly!
7. You need American team members
Can you send a member of your home office team to run U.S. franchise development? No. Many Americans are, at least somewhat, xenophobic. Plus, local knowledge is critical. If you want to grant franchise units in the U.S., you need Americans to do it for you. I highly recommend the same for your senior and other operations staff but I won’t be quite as unequivocal.
8. Franchise brokers can help you find and close franchisees… maybe
America is the land of franchise brokers, development consultants, and coaches. Some are independent, while most are members of larger networks. They represent potential franchisees for “free” – but that is because you agree to pay them a significant portion of the initial franchise fee should their candidate be granted a franchise with you. Many broker networks also want ongoing fees in addition to success fees. So, you can guess what motivates these brokers: your ability to close the deal, the saleability/ attractiveness of your concept, and the relationship with your internal sales team. Some brokers and broker networks have performed well for us over the years, while others, well, not so much. You don’t need to use brokers at all – but they can be very effective in helping you grow your franchise network. Do your homework! While executing a U.S. launch sounds like an enormous undertaking – and certainly is – the payoff to successfully entering the U.S. market is immense. The United States is still ‘the big show’!
THE AUTHOR
Stephen Schober is the president and CEO of Metal Supermarkets and FlannelJax’s. He has more than 30 years of franchise experience in Europe, Asia, North America and Africa.
