The pilot outlet: how to test your business before launching a franchise

A profitable business is not always easy to replicate: its results may depend on the owner’s personal contacts, preferential rent or an exceptional manager. Before building a franchise network, it is worth running a pilot to see whether another team can reproduce the results by following your instructions. The aim is not to produce impressive sales figures, but to identify the conditions without which the model stops working.

1. Define exactly what the pilot will test

Choose a specific format for the future franchise: for example, a small bakery without seating, rather than an entire existing business that combines production, delivery and a café. Set out the product range, premises requirements, equipment, staffing per shift and the manager’s responsibilities. If the format keeps changing, it will be difficult to understand what is driving the results.

The pilot could be a new company-owned outlet or an existing branch handed over to a manager who runs it independently. The second option helps test independence from the founder, but does not establish the cost of opening from scratch. A new outlet provides a better test of the launch process, but requires additional investment. In either case, state the limits of the test: success in one location does not prove that the format will work in every town or city.

Before the test begins, draw up a pilot brief covering:

• which assumptions are being tested;
• who is responsible for the launch and day-to-day operations;
• which metrics will be collected and from which records;
• what help from the founder is permitted;
• which results will trigger changes to the model or a decision to stop.

Set thresholds based on your own business economics. There is no universal revenue target, number of pilots or testing period that suits every business. The test should run long enough to capture normal demand and, where seasonality is pronounced, a quiet period as well.

2. Hand over the work to the team, not just the instructions

Put together a basic operating manual that people can genuinely work from. Describe opening and closing procedures for each shift, purchasing, accepting deliveries, customer service, stock control, returns, write-offs and what to do when things go wrong. For each operation, specify who carries it out, the sequence of actions and a verifiable outcome.

Do not settle for wording such as ‘maintain a high standard of service’. For example, a complaints procedure should explain who decides whether to issue a refund, where the complaint is recorded and when a manager becomes involved. Procedures must reflect mandatory legal requirements, not replace them with internal standards.

Train the manager and staff, then check how they perform the tasks in practice. A useful test is to ask a new employee to carry out a procedure using the instructions, without verbal prompts from the person who wrote them. Log every difficulty and revise the manual accordingly.

During the test, the founder should stop directing day-to-day operations. Record every intervention: the reason, the time spent and the solution. If only the owner can negotiate with suppliers or resolve complaints, that is a dependency the model needs to eliminate. However, customer safety and legal compliance take priority over keeping the experiment free from outside intervention: critical errors must be stopped immediately.

3. Calculate the prospective franchisee’s economics

Keep separate management accounts for the pilot. Do not mix the outlet’s expenses with head office costs or treat the owner’s work as free. If the owner acts as the manager, your calculations must include the cost of hiring someone for that role.

Separate initial investment, ongoing expenses and cash reserves. Account separately for fit-out work, equipment, the rental deposit, opening stock, training and pre-opening expenses. A profit on paper does not rule out a cash shortfall: money may be tied up in stock or spent before sales income arrives.

To assess the position of a future franchisee, add the proposed royalties and mandatory fees to the actual expenses. Include the initial franchise fee in the start-up investment. Do not record these assumed amounts as actual transactions of the company-owned outlet: prepare a separate financial model for the franchisee.

Test several changes in conditions: lower demand, higher rent, rising raw material costs and the need for an extra employee. Base your scenarios on observations and supplier quotations. If the model remains profitable only with the highest sales and lowest costs, it is too early to scale it up.

4. Distinguish an internal trial from a franchisee pilot

If the outlet is managed by an employee of the same legal entity, there is no need for a commercial concession agreement between employer and employee. An independent business owner operating under your brand, however, is a different situation. Calling the arrangement a ‘pilot’ does not exempt the parties from formally documenting their rights and obligations.

In Russia, commercial concession arrangements are specifically governed by Chapter 54 of the Civil Code of the Russian Federation. Under Article 1027, the rights holder grants, for a fee, the right to use a package of exclusive rights that includes rights to a trade mark or service mark. Commercial organisations and registered individual entrepreneurs may be parties to such an agreement.

Article 1028 requires the agreement to be in writing; failure to meet this requirement renders it void. The grant of the right to use the package of exclusive rights must be registered with Rospatent, Russia’s intellectual property office. Without registration, it is the grant of rights that is deemed not to have taken effect; this should not be confused with the signed agreement automatically being void.

Before running a pilot with a franchisee, check that the trade mark is protected in Russia and that its list of goods and services covers the planned activities. Agree the contractual structure, registration procedure, payments, support and arrangements for ending the trial with a lawyer. A trade mark application alone does not confer exclusive rights to a registered mark.

5. Decide on the evidence, not impressions

Bring the findings together in a single document: actual financial performance, budget variances, requests for help, staff errors and changes to the instructions. Separately list any advantages the pilot enjoys that a franchisee may not have: owned premises, special purchasing prices or customer traffic from the main business.

Decide whether the model is ready only after testing the changes. Writing a new procedure is not enough: another shift team must be able to use it. Reducing expenses in a spreadsheet is not enough either: you need to demonstrate that the savings are achievable without compromising quality.

Practical takeaway: start recruiting franchisees when the team can reproduce the processes without the founder’s constant involvement, the financial model can absorb future fees, and the conditions in which the model works are clear. If these conditions have not been met, extend the pilot and address the specific dependencies.