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Sep, 10 2010

SCREEN THE POTENTIAL INVESTOR

Franchise as a concept attracts a lot of investors due to the characteristic low-entry barriers, moderate risk and high social acceptance. Renowned brands are always hoarded with inquiries from prospective investors, who want to capitalise on the universa

Franchise as a concept attracts a lot of investors due to the characteristic low-entry barriers, moderate risk and high social acceptance. Renowned brands are always hoarded with inquiries from prospective investors, who want to capitalise on the universal appeal as well as the high success rate. However, most of the franchisors believe that franchise concepts require a different league of investors rather than a typical one who want to park their surplus funds. A prospective franchisee needs to have an entrepreneurial orientation and the right attitude to realise the synergies of a franchisee-franchisor relationship.

Franchise investor assessment matrix

Franchise investor assessment matrix enables preliminary assessment of the prospective franchisee out of the many choices. The matrix has two coordinates; business awareness and investment intention. Most of the brand owners and franchise managers believe that franchisees from familiar business backgrounds have a higher success rate as compared to the ones who are relatively new to the business domain.  Investor with a past experience in similar business has a higher tendency to replicate a successful franchise prototype. Investment intention is a key criterion in short-listing the prospects. Availability of requisite capital is the first positive sign of willingness to venture into the project.

Once a preliminary screening is undertaken , the prospective investor must be assessed on various criteria, which include investor background, local knowledge/influence, business acumen, financial strength, capacity for investment and sustaining power. Location, which is a key criteria, must also be assessed on various parameters, including location of the site (whether in prime market space), construction (frontage/visibility/ old/new/shape/height /parking/toilet /water supply), area in sq feet, footfall onroad (Considering banks/shops/market/other business centres/hotels to gauge presence of competition.)

Winner: High investment & high business awareness- Attributed by a go-getter attitude, these investors have previous experience either in similar business or a related industry. Such investors want to capitalise their existing business network by taking up the franchise of a brand. Access to capital required for the venture or rigour to generate the same makes these types of investors an attractive prospects. Such investors have high probability in long-term sustain ability of the business, attenuated with the right enterprising attitude.

Prudent: High investment intention and low business awareness- Such  investors are generally confused and indecisive about the choices due to lack of requisite knowledge about the business. However, they have the willingness to invest in a new business. Investors in this zone have many misconceptions about the franchise norms and practices and, hence, have ambiguous expectations from the business model. Due diligence as well as need-gap analysis could enable them in taking a mutually-informed decision. These are the typical investors, who would seek loss cover surety because of their assumed insecurities about the business model.

Pragmatic: Low investment intention and high business awareness- These types of investors are usually cynical about almost everything. They characteristically play safe when it comes to taking business risk. Along with low intention to invest in business, they also lack the intention to share the risk with the franchisor to realise the win-win synergy. They are the most difficult investors because in spite of having the requisite knowledge about the business, which could be capitalised for long-term business sustainability, they are skeptical about the business model.

Dud: Low investment intention and low business awareness - Investors falling in this zone are least suited for the franchise prospects. They are too casual in their approach and have no serious intention of buying a franchise and can be eliminated from the preliminary selection.

Franchise investor attitude matrix

During preliminary assessment of an investor, attitude of the prospect is a crucial criteria in filtering out the prospective investors.

Franchise investor attitude matrix: This  projects variable relation between two coordinates, entrepreneurial energy and investor attitude, towards the business preposition.

Entrepreneurial energy: This is the force that combines human ambition with the ability to take risk to make a venture/enterprise successful.

Investor attitude: Coordinate is a qualitative parameter to assess the attitude of prospective franchise investor in terms of trust on the business alliance as well as positive approach toward making the venture a success.

Franchise investor attitude matrix essentially calibrates the dynamics between investor attitude as well as the entrepreneurial energy to realise the most effective approach towards the business model. A franchise has a medium term timeframe, so mutual trust between the franchisor and franchisee become very crucial for sensible profit realisation. At the same time, believing in the business model and format is equally important to sensibly sustain franchise relations.

Optimum franchise investor attitude

Tastefully balanced entrepreneurial energy and right attitude optimises the bare essentials elements of a franchise e List Launch Pad ntrepreneur. Extremely high energy and baseless positive expectation of returns from a business may inflate the business model entropies, hence, making it vulnerable. Similarly, low level of entrepreneurial energy and high optimism are characteristics of a dreamer, who is expecting a miracle to happen once he takes up a successful franchise model. Another interesting variable combination is that of a balanced entrepreneurial energy and extremely high attitude coordinate, that makes for an idealistic franchise investor, who is not desirable in a franchise business. The same franchise format may respond differently to franchisor and franchisee. So a room for flexibility is essential to facilitate seamless profitable replication of the business format.

Aiming right

It has been globally discussed that amplitude of a franchise relation success is in direct relation with the mutual synergies between the business partners. An increasing number of brands are investing significantly and seeking specialised advice to realise optimised alliances. This implores the franchisors to empirically look at the process to filter ambiguous investors in order to perpetuate healthy franchise practices, which are the only success tool in the franchise world.

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