An astounding number of companies are vying to expand their business through franchising model, and perhaps, it is the right decision for them. Natural it is, they may be eyeing a boom in their business but with a sceptic eye on pitfalls entailing the bu
Franchising is not everyone’s cup of tea. Starting a franchise is a dicey decision for any investor. So before stepping on to the ladder of franchising make sure whether you want to take up franchising – the road less travelled. The idea may be exciting, but with some initial fears. Various kinds of answered and unanswered questions may emerge in one’s mind. One may find it too knotty to find a right answer, like, whether one should step into franchising or not, whether one shall be able to manage the franchised units, and whether the profits shall come.
Franchising is an exciting mode of marketing when it is properly structured and well run. It bestows profits and satisfaction. But to achieve this, the investor should have an astute vision, resilience and tenacity, else one may run into rough weather.
Draw a crystal-clear future perspective
The wannabe franchisor should draw a crystal-clear perspective of his financial standing five years hence. He should not limit his vision to his financial status today, but should be able to visualise to a distant future. He should also come out of the confines of the local market and visualise wider in the backdrop of competitors around. He should also acquaint himself well on the dynamics of market he is foraying into.
USP: What is your Unique Selling Proposition (USP)? Is your concept unique in any way? “The most significant part is that whatever unique property you have in your business, you should deliver the same to your franchisees. Ensure that whatever the quality or the property has made your brand, the franchisee delivers the same to the customer,” says Trivikram Kamath, Senior Vice-President and Head of Finance Operations and Technology, Kotak Securities.
Trial Unit: To give a check to the viability of your franchised outlet, you may open a trial unit at a new location and observe if you can support the unit on similar pattern as you plan for the franchised unit. If yes, then you may go ahead for franchising.
Right time to go in for franchising: If your business is running at a fairly successful rate, and has made a strong grip in the local market, then it would be the right time to franchise. “Once you have achieved the critical mass, and along with that, you have been able to bring in certain value to your brand, which has received recognition in the market, that is the right time for your franchise to expand,” says Kamath.
State of economy of the country where business to be set-up As a smart investor, you should also take into consideration the economic state of the country where you intend to set up your business. Like any other business, franchising too is affected by the economic condition of a country where the business is operated. Franchising is a two-way business, where equal efforts from both sides, franchisor as well as the franchisee are required. Laxity or slackness from either side may wreck the business. It is advisable for a franchisor to set-up business when it is either boom or stagnation in the market.
Available budget: Budget is another important factor in deciding the range of business. Things need to be planned out within the limitation of the budget, and one cannot afford to go beyond. Budget includes everything, right from funds required for infra-structure, man-power, stocks, transportation, advertisements and publicity and sundry expenses.
After preparing the budget, one may have to allocate funds under different heads. It is good to disburse funds on need-priority basis.
Creating market appeal: It is good to do a initial survey and build a pipeline for your prospective clients. Your franchisees would be your clients. Therefore, it is important for you to impress your franchisees and strike a chord with them. “It takes a lot of courage to show your dreams in someone else” (Erma Bombeck). It is easy to visualise yourself in the coming future, but it is very difficult to visualise others in their future and that too, in their own eyes. It depends upon the convincing capacity of the franchisor. In other words, you have to sell your unit to your franchisees, and you have to show your salesmanship over them.
Location and tally of outlets: As the initiation period could be called the experimental period, it would be better to start your franchising business with a small numbers of outlets. Location and number of outlets are inter-related. Flourishing franchisor always advocates to locate the initial franchisees as close to head or branch office as possible. According to R. Muralidharan, Franchise Manager, Brics Securities, “Number of outlets is directly proportionate to number of your own offices.” “If you have eight offices in eight different cities, then each branch will become the hub. And, if the franchisee would have any problem, then any senior official of the organization could reach there at just one call.” he added.
“You cannot go on opening franchisees before you have a team to control them from your central office. You need to do diligence of a franchisee before you give him your franchise to handle for a particular region/market,” states Karwa. On the other hand, Kamath believes, “Anywhere we feel, there is a business potential, we look at appointing the franchisee. And, if the potential is very large, then we open our own branch.”
Marketing: How to get into an aspiring franchisee is another matter of concern. You may either advertise through print or electronic media, or you may hire the services of a consultant. Some of the companies have started doing it internally. “We don’t really do very aggressive advertising. But, otherwise it is more in terms of our own people spread across various regions, who try and find out people who will suit as franchisee. It is more about personal contacts and personal reach,” says Kamath. Adding to it, Karwa says, “We do it internally by our experience and we have learnt a great deal in the past three years.”
Franchisee management: Managing franchisees is also a challenging job. “There are quite a few systems in our business to watch it closely. The surveillance system is the most crucial, and then we have people speaking to them everyday who get a sense of what the franchisees really want,” states Karwa. Adding to it, Kamath says, “In our case, the franchisee has his own staff who carry out some kind of supervision. All the activities that are carried out happen through our computerised system.”
An eligible franchisee: “The franchisee has to be registered as the sub-broker of SEBI (Security Exchange Board of India). SEBI regulations subscribe to the basic criteria of franchisee. Normally at least he should be a graduate,” says Trivikram Kamath. If he has over certain years of experience in the stock broking industry, then that would be beneficial, he added.
Franchisee fee: Franchisee’s fees could be decided on the basis of popularity of your brand name. It is so because, saleability of your products and services largely depends on your brand name. In stock broking business, a kind of standard is set for three types of franchisees. The first and the second category of franchisees are not wholly responsible to serve the clients. So, the fee structure of these categories is very less as compared to the third group who has his own office, and services the clients directly. “Fee is broadly determined by our broking business department,” says Kamath. Junjharji’s franchisee’s fee is determined on the basis of revenue sharing model. It depends on the locality of the franchise, primarily the city/town they are located in.
Advantages & disadvantages: Before stepping into the franchising business, the Investor should also know the advantages and disadvantages of the business. “We can spread faster and reach faster,” says Karwa. Adding to it, Kamath says, “You grow very rapidly because you can appoint franchisees across various regions simultaneously. Plus, the franchisee in any region, normally, a resident of that particular region, is responsible to bring in clients for us, which adds benefit to the business.” Another important benefit of franchising business is, “In a market, which is still developing, it is not worthwhile to open a business on our own cost. To open a franchise outlet is the better option for that,” he added.
On the other side, he explained, “If the franchisee is not able to provide the same level of services that your branch can, then you have the risk of the same franchisee leaving you and going to some other service provider. If the franchisee does something which he is not supposed to do, then by virtue of being your agent, you are dragged into an unwanted situation,” he says.
Legal aspects: The franchisor should also be aware of legal aspects of franchising his company. “In stock broking, every franchisee who has an outlet carrying the Kotak Security has to be registered with the SEBI. And after that they enter into an agreement which defines the scope of their activity, liability and dos and don’ts of the relationship,” says Kamath.
Further more, if there is any kind of criminal offence committed by the franchisee, the franchisor cannot be held responsible for the criminal act, unless it can be proved that the franchisor was aware of what the franchisee was doing and has knowingly or unknowingly allowed franchisee to do that, he explained.
Training: Last, but one of the most important aspects of expanding a business through franchising route is to prepare a plan to train its franchisees. Every aspect of training, either it is about type of training or time period for training, depends on the types of products and services. Broadly speaking, there are two types of training – technical and non-technical. Training should be such that the franchisee could ensure the same level of services to all clients, and should add value to your brand.
Today, in the slowdown period, when people are scared to even dream can give shapes to their expanding dreams armed with proper knowledge of these alphabets.