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Jul, 07 2014

Toolkit to grow your franchise business

Once you have a successful business and you want to franchise it, you still need to deem if your business is franchiseable and then if so, you will need to look at how to set it up properly at a franchise. Let's look, how to identify if your business can

Franchising has outgrown the narrow concept of merely marketing a product or service through its distributors. Today, it provides a complete business opportunity that involves management, accounting, finance, economics, quantitative analysis and its initial forte of marketing. For those of you who have continued to exist as a start up and built successful franchises, you may be thinking how to take the next step and grow your business beyond its current status. There are numerous possibilities; following are the questions answered by the franchise experts at Grow Your Franchise Business Workshop, organised by Franchise India in Mumbai recently to cater to the challenges faced by young franchisors in growing their business. Read on to know the solutions offered by the esteemed panelists at the workshop which include Kashiff Khan, Founder & Chairman, Aura Thai Spa, Amit Singh, Strategic Business Unit Head, Euro Kids, Yatin Chadha, Sr. VP – Retail Business, Mahindra First Choice, Dheeraj Gupta, Founder-MD, Jumboking and Sachin Marya, President, Franchise India.

 

How many stores one should plan in one go, would just a couple of stores do to test the waters or learn the ropes?

You are making yourself established as a brand. You would have already tested the waters and learnt the ropes. You should plan, at least, five-to-ten (5-10) stores in an ideal situation. Never think of doing a pure franchise just after opening a couple of stores. Get into a joint venture and open about 5-10 stores. Herein, you'll have to move away from the stigma of the retail business and start thinking from the brand owner point of view. It is only then that the franchisee would think of you as the brand owner and your company, now in an ideal situation of being franchise-worthy, a brand.

 

And taking on 5-10 businesses at once may be suicidal as far as the growth of the business is concerned.

It is a very valid question. Try to understand that we'd need volume to create “economy of scale”, a phenomena we talked about to ascertain why would a franchisee be interested to choose your businesses as the best bet. You need to subsidise your businesses (stores) and book your loss on your corporate expense until economy of scale is achieved. It is then that all the stores will be self-sufficient, and profitable too. Let's explain it with the help of numbers. In a hypothetical situation, take “X” to be a product that costs Rs.100. Now, if you take 10 pieces of product “X”, the price of each would come down from Rs. 100 to Rs. 85 owing to volume, bulk order. Similarly, your business, too, needs to have volume to create economy of scale. The Rs.15 loss you are incurring should be taken on your corporate expense until capital efficiency (economy of scale) is achieved.

Why does the 1-2 stores concept fail?

Sometimes we are too human for franchising. First franchisee is the most difficult one to handle. And since it is the first one, you are unable to challenge him or mould him according to your style of working. It is important also to understand that the subtleties of franchising take time to be understood and not all businesses can be successfully franchised.

Wouldn't it be difficult to get 5 franchisees?

That's where you have to make an investment, to make your business franchise-able. Market your franchise as the number one franchise, and not the tactical way. Create a franchise relationship programme with the help of a franchise manager, who would help you with the operational aspects of the business. Properly administer the franchise programme and support your business through administrative and marketing functions in a profitable way. More often than not, the franchisor tends to think that it's a default phenomena and are usually short-sighted in treading the lesser travelled path of legal documentation, franchise programme investment, financing and accounting, legal planning, HR (personnel) to manage multiple units.

As a franchisor, why you need to say “no” more often

There are always measures that you can take to find yourself the right franchisee. Many franchisors go wrong when they presume selling their business and managing it will be easy. Most of the high-quality, creative, unique, phenomenal concepts are ruined owing to the selection of franchisees not being well thought out. The franchisors should concentrate on building a strong pipeline, a strong name of the brand so that saying “No” doesn't become difficult. If the franchisors are considering franchising a job that needs to be sold out to the franchisee, not only will they attract the wrong person but a dominant, impatient businessman. The franchisee would not listen to you as he will have huge expectations and dominion over you. Capitalise in a manner that you have more people writing to you than you pitching out to them. Devise an effective marketing plan for your franchise rather than aggressively selling it to franchisees. 

 

Some measures you can take to find yourself the right franchisee (selling versus selecting):

= Don't sell your franchise, market it instead.

= Don't sell your franchise, select your franchisee instead.

= Don't sell your franchise, award it instead. Give your franchisee targets to your franchisees and then decide whether you want (/don't) to give the franchise to the prospective franchisees.

= Identify qualifications and attributes that you would want in your franchisees. While short listing possible candidates, strictly adhere to these identified standards. Compromise only in those cases where there is very low risk of failure.

= Do thorough background checks on all prospective franchisees before the process of selecting the franchisee is completed.

= Request a business or marketing plan from the franchisee candidates. This will help you gauge their level of business knowledge. The plan can be reviewed to give you an insight into the ability and expectations of the candidate.

= Use diverse members of your own staff to interview and offer feedback on the franchisee candidates. This will allow for more objective feedback from various individuals who represent the franchisor.

= Don't compromise on your business standards and qualifications in haste to sell a franchise. Draw up your own “franchisee profile” based upon the traits of existing successful franchisees.

= You could also use certain franchisees for screening or providing feedback on the franchise candidates you have shortlisted. All your existing franchisees also have a stake in the success of the new franchisees. Be wary of utilising franchisees who might feel threatened in their territory by the new franchisee.

To conclude, what's in it for the franchisor.

The franchisor would be:

= Limiting the risk involved in the growth of his business;

= Allowing the expansion to occur without himself having to give in vast amounts of operating capital;

= Assured of having highly competent and motivated owners and managers and the HR (at no cost);

= Earning more for what he has already done by allowing others to simply do the same;

= Opening the opportunities to build the brand and to procure a perpetual income through royalty;

= Arranging favourable terms (bulk purchasing) for all the franchisees from distributors and manufacturers.

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