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May, 01 2006

Defining the future franchising model

Entrepreneurs are eager to be in business, but very few can actually start and sustain it. Understanding this aspect of budding entrepreneurs, franchisors are now adopting a new model called Built-Operate-Transfer, wherein an outlet is built, operated and

PAST experiences of business failures have demanded a revised business format that would negate superfluous flaws in the business development process, thus building a strong structure. In the more commonly used franchising format, a franchisor would appoint a franchisee to promote his business by offering him know-how and support, thereby making the business almost risk-free.

Prospective franchisees who were still not ready to take the necessary risk while making investments, sought a guarantee on profits from their franchisors. In some instances these were provided by the franchisor. However, franchisees with the assurance of a minimum profit from the business, at times, did not work extensively on their business to generate more profits. As a result this model too was not so perfect for the business of some franchisors.

In order to evolve a better format for business development the franchisor drew up a new model. The franchisor, in this model, sets the ball rolling by operating the outlet himself and ensuring profits, before transferring the outlet to someone who is ready to invest and operate it.

This model has come to be known as Build, Operate and Transfer or BOT. To begin with, let us understand the BOT model.

It roughly means that a franchisor, in order to get the best price and location for his franchisee, books the space in advance for a limited period and then transfers it to the franchisee. The franchisee gets everything in place, and pays for the project cost and the goodwill instead of going through the exercise himself. At the transfer stage, the franchisee can either starts with operating the outlet on his own or can look for a new partner for operating the outlet.

This process of the franchisor opening, operating and then reselling it is known as BOT, and has become the new catchword in today's franchise industry, and the future of retail business.

It was in the mid 90s that the first BOT projects was realised. Starting in the automobile industry, a few car manufactures used this model to open new outlets and promote their company.

BOT in franchising

In a franchising business model the franchisor appoints a franchisee, chooses a location for him, assists in the interiors as per the common, approved design, allows the franchisee to select his staff, and continues with various support from the outside. All the investment into the outlet, in this model, is made by the franchisee right from the very start.

Under the BOT model, a franchisor takes up space in a high street or a shopping mall, builds his outlet according to the standards laid down, and operates it till the outlet starts making profits. At this stage he looks for a franchisee who will buy the outlet.

An offshoot of this model, if the franchisee is located in a different city and requires different handling, is that the franchisor first understands the franchisee's business, second, formulates the strategy, and, finally, executes the process, the same way in which experts would have done it. The franchisor provides solutions tailored to the franchisee's process so that high performance can be delivered.

Assuming that entrepreneurs do not have much knowledge about franchising, franchisors have come up with this model so that the entrepreneurs are able to understand the ins and outs of the franchising industry in simpler terms. This model ensures that when the entrepreneur steps in to take over the business, everything is presented to him in working order and he has only to continue with the smooth functioning of the business and ensure profits.

Projects built under the BOT model can fulfill the expectations of franchisees and generate sustainable competitive advantages. BOT projects are meant to generate a win-win situation between the franchisor and the franchisee to forward the business of the franchisor.

Global model in India

This innovative international model evolved from the concept of franchising, is being observed as an ideal format for businesses in India.

It essentially requires a lot of working knowledge about real estate and businesses while negotiating with mall owners to lease or buy outlets or kiosks. The BOT model does away with franchisees tackling such cumbersome issues. All that a prospective franchisee needs to do is tell a franchisor where he wants the franchise, and the franchisor will work on the rest. Since it is a win-win situation for both the franchisee and the franchisor, a more accurate return on investment can be predicted because the unit will be run by the franchisor himself for a while.

This innovative approach is defining the future of franchising.

Way ahead

Business trends are changing. With the help of this model, a franchisee gets the advantage of starting a business in a country without getting into the hassles of kick starting it. The franchisee is free of any risk as he is acquiring a high performance, successfully operated business at a lower cost.

In the real estate industry almost every brand is present everywhere. The BOT model is playing a key role in expanding brands nationally and internationally fast, as the franchisor need not wait for the right franchisee to get his outlet in operation. The franchisee, on the other hand, gets a proven business without much effort.

Depending on the kind of profit he is earning, a franchisor can also sell the outlet at more fees as the franchisee in turn is getting the expertise and brand name of the franchisor to run the business.

The future of this model is bright in India because once the investor is educated about this model he will opt for this model. The business structure is safer, and, considering the amount of work relieved from the franchisee and the accurate prediction of return on investment, it also becomes easier for the common man to understand the positive and the negative aspects of the business.

Assisted by Neha Sablok

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