The pilot outlet: testing franchise readiness in Croatia

A successful outlet is not automatically ready for franchising. Its performance may depend on the owner’s personal connections, favourable rent or daily troubleshooting that nobody else knows how to take on. Before bringing your first partners into the franchise network, use a pilot outlet to test whether someone else can achieve sustainable results with the support you can realistically provide. The aim is not to showcase the best possible month, but to prove that the business can be replicated.

1. Define what the pilot needs to prove

A pilot is more than just a new location. It is a structured test of the business concept under conditions sufficiently similar to those a future franchisee will face. You can use an existing outlet under a new manager or open a second company-owned location. Using an existing outlet is more affordable, but its established presence and regular customers may mask the challenges of starting from scratch.

Before you begin, draw up a short testing plan. Set out:

• who will manage the outlet and which decisions they can make independently;
• what training, equipment and support they will receive;
• which performance indicators you will track;
• what results you consider acceptable;
• what would justify postponing franchising.

Adjust the duration to suit the business cycle. A tourism-focused concept on the Croatian coast should not be assessed only during peak season. A service business that relies on repeat visits needs to be monitored long enough to reveal customer retention and actual purchase frequency.

Set your success criteria before you see the results. Lowering the thresholds afterwards to make the pilot look successful defeats the purpose of the test.

2. Remove the founder from day-to-day management

The key question is: can a trained manager maintain quality without the owner’s constant presence? During the pilot, the founder should provide the agreed support, rather than quietly covering part of a shift, personally closing every sale or sorting out every problem over the phone.

Keep a record of every intervention. For each one, note the reason, the time spent and how the issue was resolved. Flag any cases where the outcome depended on the founder’s personal authority or private relationship with a supplier.

Also test how the outlet handles common disruptions: staff absence, delivery delays, customer complaints and increased demand. You do not need to deliberately put the business at risk; use real events and agreed simulations that do not harm customers.

Observe whether the manager can identify a problem, make a decision within their authority and ask for help in good time. A franchise network needs accessible support, but it is not sustainable if every outlet needs the founder to act as a stand-in manager every day.

3. Calculate the future franchisee’s results, not just your own

The accounting profit of an existing outlet can give a misleading picture. If the owner works without adequate pay or uses their own premises without allowing for rent, a future partner may be unable to replicate those results.

Prepare an adjusted statement of revenue, expenses and cash flow for the pilot. Include the market-rate cost of employing a manager, realistic rent, equipment maintenance, insurance, local advertising and other recurring expenses. Separate one-off investment from day-to-day operating costs.

Then create a separate scenario incorporating the proposed franchise fees, contribution to joint marketing and other mandatory costs the future partner will face. These are modelling assumptions, not costs actually incurred by the company-owned outlet, so label them accordingly.

At a minimum, track:

• revenue and margin after direct costs;
• labour costs relative to the level of business activity;
• stock write-offs, customer complaints and repeat purchases;
• stock and working capital requirements;
• cash flow after regular payments.

Also model a downside scenario: lower sales, higher labour costs or a slower start. A positive result before franchise fees is not enough if the business is no longer financially sustainable for the partner once those fees are paid.

4. Check the legal requirements for operating the pilot

Croatia has no specific franchise law or legally prescribed franchise pre-contractual disclosure document. Contractual relationships are governed primarily by the Civil Obligations Act. Other general legislation also applies, including the Competition Act and the Trade Mark Act, as well as the Trade Act and the Companies Act, depending on the business activity and structure.

A pilot is not exempt from the usual requirements for running a business. Check registered business activities, premises requirements, health and safety at work, consumer protection and any sector-specific requirements. If you process customers’ or employees’ personal data, data protection rules also apply.

If an independent business operator runs the pilot, calling it a ‘pilot’ does not replace the need for a contract. Clearly set out trade mark use, costs, responsibilities, access to data and how the relationship can be ended. Before granting use of the brand, check who owns the trade mark and whether its protection covers the relevant products or services. Registering a company name is not the same as securing trade mark protection.

5. Make an evidence-based decision

At the end, compare the results with your original criteria. Distinguish between weaknesses in the location, the training and the concept itself. Poor sales at an unsuitable location are a different problem from a model that cannot cover realistic costs even when sales are strong.

Prepare a final report: what has been validated, what needs to change and what requires further testing. Repeat the test after significant changes to pricing, the offering or required staffing levels. Do not present results from an earlier version as proof that the revised model works.

Practical takeaway: before seeking your first franchisee, prove that the outlet can operate without the founder’s constant involvement, cover all planned fees and maintain quality. If this has not yet been demonstrated, continuing the pilot is more responsible than rushing to expand the franchise network.