franchising aspects Jan, 14 2014

Safeguard your franchise

Every year lakh of entrepreneurs invest in the franchising business. Most of them succeed with proper prior research and market knowledge but many go out of the business in little time. So, what is it that creates a flop show for franchisees?

By Ekta Sharma Verma, TFW Bureau
Sr. Sub-editor
Safeguard your franchise

What are the reasons accountable for the failing of any franchisee and how to be safe? Ekta Verma tells you more on this.

Winston Churchill once said that Success is not final, failure is not fatal: it is the courage to continue that counts. Franchising in India is estimated to be worth $22 billion (about Rs 1. 2 lakh crore) and is growing at 30 per cent annually. Seeing this incessant growth rate, even the International names are making ways to enter the Indian market. However, like any other Industry, franchising too has its risks and paybacks. With systematic knowledge, in depth study of the sector and proper financial cushioning any franchisee can succeed. However, different sectors have diverse reasons for the failure of its franchisees. Nizamuddin, Deputy GM, Bisleri International says: “Failing of a franchisee can be due to different reasons. Wrong Location, lack of training and development from franchisor/ not following guidelines of principles or Process and standards of business model, being over confident and reinventing business model by challenging actual concept can be a few reasons. Besides this, no research on feasibility of business in the proposed location and lack of adequate local marketing activities in target market segment can also be the valid reasons for a franchisees breakdown.” Most of the brands agree to the fact that money can purchase required infrastructure for business but cannot determine success of any franchise business.

The wrong franchisor

There are rare chances when a franchisor can be solely blamed for a franchisees’ failure. But when a franchisor is not equipped for the tough competition, and lacks infrastructure, has poor management skills and fails to influence his franchisees, he might be held accountable for its franchisees letdown. According to Supam Maheshwari, CEO, “Yes, the franchisor can be held responsible for a franchisees’ failure at times. There can be many mistakes on his part like not understanding the product category and expanding just for the sake of it, without even studying the market. Too often, companies fall into the trap of expanding their network by offering various forms of minimum guarantees (MG). It creates an inorganic growth but it’s not sustainable because the foundation of the business model, in reality, is weak.”

Yasir Ahmed Hamraz, Founder and Director, Bakesmiths and Company says: “All businesses - franchised or not - require varying degree of cultivation i.e. dedication, commitment, skill, etc. - depending on the model and strength of the brand. Inadequate planning, financial and overall, coupled with sub-standard research on the industry and business model will invariably deliver the "knock-out" punch, compelling a closure. It is very important for a to-be-franchisee to carefully select a business that fulfils their objective. There should never be a tug-of-war between the franchisor and franchisee as far as the business objective and vision are concerned.”

Advice to beginners

In franchising, any beginner firstly needs to put his best efforts in the initial 6-8 months without   expecting profits from very first day. Any entrepreneur ready to step into franchising world should possess more hands-on and customer centric attitude. Avinash Bharwani, VP, New business, JetKing suggests customer facing approach and patience as two pointer tips to succeed as a franchisee.

For the already existing franchisees there are a lot of step by step learning’s but for the starters it is imperative to accept the fact that retail is a long term business. The gestation period is higher and there are no shortcuts. It is not a business where you earn money from day one. If you have the patience to start earning after a couple of years, retail business can be quite rewarding. Also, personal involvement in the business for the initial period is extremely important.

A franchisee by and large takes appropriate steps to succeed in the business he opts for. Nizamuddin of Bisleri asserts: “Many a times a franchisor can be held responsible for a franchisee failure, provided if there is MOU written on legally valid paper. A franchisee must read all the clauses carefully, clarify and then sign the papers and make relevant franchisee fees and payments. If you have put all the efforts, provided required infrastructure, followed all guide lines and deadlines etc, you have all the right to go back and challenge the franchisor. Ultimately it is your hard earned money, making the business successful is of prime importance for you.”

A few universal reasons for failure

·         Bad location- Even an inappropriate area, location can fail any franchisee.

·         Failure in meeting customer expectations as promised.

·         No support or less support from the franchisor.

·         Lack of funds or financial support from franchisor’s end.

·         Not providing adequate resources in time like manpower, machine and equipment, fund flow, interior and branding etc.

·         Not keeping the staff motivated.

·         Not having the right business model.

·         Support system should be designed in a way that it covers complete business functions right from advertising, to getting footfall, converting/ sales and with proper after sales service as well.

Related: Refranchising: A Profitable Business Concept

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