Pilot your business before building a franchise network

A profitable business is not automatically a concept that others can run. Before building a franchise network, you need to test whether its working methods, finances and support can function without the founder’s daily intervention. A well-designed pilot provides evidence for deciding whether to proceed, adapt the concept or wait. Here is a practical approach for businesses operating in Sweden.

1. Decide what the pilot needs to prove

The pilot is not there to show how well your best outlet can perform. It should establish whether someone else can deliver the same customer promise with reasonable resources and documented procedures.

Choose someone to lead it who does not already know the entire concept inside out. An employed outlet manager can run an initial internal pilot. This tests whether the concept can be transferred, but does not fully demonstrate how a relationship with an independent franchisee will work.

Write a simple test plan before you start:

• Customer promise: What standard of quality and service should customers always receive?
• Operations: Which tasks must be possible without the founder’s help?
• Finances: Which costs will a future outlet need to cover?
• Support: What training and ongoing assistance will the franchisor provide?
• Decision: Which results will mean proceeding, retesting or stopping?

Set your own measurable thresholds based on the circumstances of the business. There is no universally appropriate pilot duration. The test period needs to capture relevant variations, such as busy periods, weaker demand and staff absences. A successful opening event is not enough evidence.

2. Let someone else run the business using your manual

Start with an initial version of the operations manual rather than trying to document everything perfectly. Describe the tasks that have the greatest impact on the customer experience, safety and profitability: opening up, delivering the product or service, placing orders, staffing, handling complaints and closing down at the end of the day.

Each procedure should specify who is responsible, what needs to be done, how the outcome is checked and when help should be requested. Distinguish between mandatory procedures and those the outlet can adapt locally.

Then let the pilot manager work with the manual and planned training as their main sources of support. Whenever you have to intervene, record the reason. Were the instructions unclear? Were the necessary system permissions missing? Did the solution depend on a supplier contact that only you had?

Keep an issues log with four entries for each issue: the situation, its impact, the temporary solution and the permanent improvement. Update the manual with version numbers and dates so you know which procedures were actually tested.

The aim is not to ban questions. In a well-run franchise network, support is part of the offer. The pilot should show what support is needed and whether you can provide it to more outlets.

3. Assess the finances as if the pilot were an independent outlet

An existing business may look profitable because the founder works unpaid, the premises have unusually low rent or another company handles the administration. These advantages need to be made visible before you assess whether the concept can be transferred.

Prepare a separate financial model for the pilot. Include the market-rate cost of the work required, relevant premises costs, insurance, systems, maintenance and local marketing. Also include the franchise fees you are considering, even if the pilot is company-owned and the figures are used only for analysis.

Distinguish between profit and cash flow. Stock purchases, deposits and the timing of payments can create a need for funding even when the business is profitable. Show start-up costs separately from ongoing operating costs.

At the same time, measure the franchisor’s time commitment. If each outlet repeatedly needs urgent help, that cost must be covered or the way of working must change. Stress-test the figures with lower sales and higher staffing costs. Fees need to work for both parties, not simply improve the franchisor’s financial position.

4. Distinguish between an internal pilot and a franchise agreement

A company-owned test outlet is not the same as allowing an independent business owner to test the concept. If an external pilot partner pays to use your business concept and brand identifiers, with regular checks on compliance with the agreement, the arrangement may fall within the scope of franchise legislation. Calling it a ‘pilot agreement’ does not determine its legal status.

In Sweden, Act (2006:484) on franchisors’ disclosure obligations applies. It requires the franchisor to provide clear, comprehensible written information about the agreement’s implications and relevant circumstances in good time before a franchise agreement is entered into. The Act does not set a general deadline expressed as a fixed number of days.

Seek legal advice before entering into an agreement for an external pilot. Alongside disclosure obligations, the Swedish Contracts Act, Competition Act and Trade Marks Act may also be relevant. Make sure you have the right to license the brand identifiers being used. Also set out responsibilities, costs, support, use of the manual and what happens when the test ends. Calling something a pilot is no substitute for clear terms.

5. Make your decision based on documented results

Bring together the pilot’s financial results, customer outcomes, issues and support requirements. Compare them with the criteria in the test plan, not with your desire to start recruiting franchisees. Identify which results are specific to the pilot’s location, staff and customer base; one outlet does not prove that every location will work.

Proceed when the concept can be run using documented procedures, with viable finances and support you can consistently provide. Retest after major changes. Wait if profitability still depends on the founder’s constant presence.

Practical takeaway: Let someone else run the business, record all the help you provide and factor in future fees. Build the franchise network only once the pilot shows what you can genuinely promise.