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Sep, 01 2005

Building A Relationship

How do you gauge what the franchisor-franchisee relationship is like within the system you are interested in?

THE relationship between a franchisor and a franchisee is that of commitment, with each party expected to uphold its responsibilities through active communication, common goals and mutual respect. Franchisees have trusted franchisors with their life's savings while the franchisors have trusted them with their brand name and reputation. Therefore, a strong franchise network, like a strong marriage, is a bond of trust.

Most franchisor-franchisee relationships that do not work out result from a franchisee misunderstanding the franchising model and the franchisor failing to set expectations and the franchisee not understanding them at the outset. A common mistake occurs when franchisees view their role as that of a traditional entrepreneurial endeavour and franchisors view franchisees as customers, rather than as partners who share the common goal of growing brand loyalty.

These pitfalls can be avoided right from the start with the franchisor and the franchisee asking right questions of each other. Franchisors should inquire about a prospective franchisee's desire and ability to conform to the franchisor's business model and operating systems and the franchisee should thoroughly review the company's finances and business plan, as well as talk to existing franchisees about their level of satisfaction with the franchisor.

Ms Rivka, a Subway franchisee in Hyderabad since November 2004, justifies, "Though I have been a regular visitor to Subway and always loved their products, yet before venturing into the business I thoroughly researched about the franchisor."

Says Mr Chaitnaya Boobna, Ferns 'N' Petals franchisee in Ludhiana, who took up the franchise last July, "Though I trusted the power of the brand yet did feasibility study in terms of market potential before investing."

Ms Preetinder Kaur, who opened Ferns 'N' Petals franchisee in Mohali this April informs, "I was very much interested in the innovative ways of Ferns 'N' Petals design. So I studied their entire structure, and when convinced took the franchise."

The dynamic relation between the franchisee and franchisor must exist to promote the growth of the chain and to allow communications, customer experience and direct marketplace knowledge to flow both ways.

Says Mr Pankaj Bajaj, a profitable and year old Apollo franchisee at Ghaziabad, "To be a successful franchisee you need to work together for a common goal. I invested money in the Apollo franchise as it is a good brand name."

Mr Mannemala Vijaya Bhasker Reddy, managing partner, Mannemala foods and the Pizza Corner franchisee in Hyderabad since 1999 says, "We get good support right from operating module, quality products, and good professional systems. Hence, I made profits after first year of the launch."

Important aspects to look into

The most confrontational issues encountered in negotiating a franchise relationship can be tacked with better awareness that help prepare the parties for the realities of franchising. Some of these are listed below.

Effective communication is the key: Dialogue between the franchisor and the franchisee is at the core of any franchisor-franchisee relationship. There are times when the franchisees think of franchisors as disconnected from their real problems. Regrets Ms Rivka, the Subway franchisee, "Being a US-based company, the franchisor, at times, does not aptly understands the needs of the local market, which is quite challenging for us. The franchisor should understand that the problems we face are different from the franchisees of other countries or that of the US."

A franchisee whose feedback is valued is more likely to succeed as is evident in the case of Mr Bandeep, a Provogue franchisee at three locations (Chandigarh, Fun Republic and Ludhiana) and also a Lee Cooper, franchisee in Chandigarh. In business since four years he describes his experience with Provogue as a professional one. "The franchisor is sensitive to our demands and we have a say in the policies of the functioning of our franchise. They value my feedback which reflects in the performance of the store," he asserts.

Strong Support: The willingness of the franchisor to listen to and give advice whenever a franchisee needs help, and the encouragement to share ups and downs, can strengthen the relationship, and even lead to a more successful franchising and ultimately a franchise company.

"I get good support from the franchisor in the form of technical training and supply of course material and software knowledge. It plays a crucial role in the success of my franchise," says Mr Rajiv Goel, the CADD centre franchisee from Gurgaon.

Standardised operating processes: It is one of the delicate issues that need a balanced approach. To that extent, any franchisor should have extremely detailed manuals on operating systems and procedures. The same should be given to the franchisee. It is not the brand that builds the franchise. It is the systems and processes that make the brand deliver the promise.

Hidden Costs: This aspect of hidden cost was the most prevalent factor we came across while speaking to various franchisees. Most of the franchisees were not making profits, whereas franchising assures a low risk investment with profits rolling in much before any standalone business can. The major grouse was that what was put on paper was quite different to what was experienced.

Says a franchisee based in Hyderabad, "I was told that the total investment would not exceed Rs three lakh, but, what I ultimately invested far exceeded the franchisor's claim."

Franchisees should be aware of other hidden costs including, accounting fees, lease location expense, construction supervision fees. As the franchisor enjoys more revenue sources outside of traditional royalties, the franchisee should be cautioned to question where the franchisor's true interest lies.

Says Mr Mandeep, the CADD franchisee in Chandigarh, "When I took up the franchisee I was not told that I need to buy softwares and shell out some extra money for the same."

Investment and success rate: The amount of investment is the major criteria investors keep in mind while opting for the franchise and it largely determines the success of the franchise.

Says Pawan Satnani, a franchisee of Bharat matrimony since three years, "I specifically looked for a low investment franchise. The total investment was just Rs 5,000, which included Rs 2,000 as security, Rs 500 for registration and Rs 2,500 as profile credit."

Though Mr Satnani used the Bharat matrimony website to find a match for himself and was confident of its services, yet the fact remains that even after three years he has not been able to break even. "People are not aware about the services yet. The process may take some time to finally get accepted," he laments.

With high investment franchises you may overcome the risk of slow returns or failure though cent per cent assurance still remains evasive. As per Mr Bandeep, "I invested around Rs eight lakh, besides paying the rent, and made profits from the day one."

"Profit was one of the major criteria I had in mind before opting for the franchise. I took into account the investment, which was around 10-12 lakh that also fitted in my bill, " elaborates Mr Rajiv Goel, CADD franchisee in Gurgaon.

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