Hedging the risk of a franchisee

And to answer those questions, a franchisor will have to pitch in and step into the shoes of a franchisee, this will help in bridging the gap. Read on to know more…

PRIMARILY, there are four categories of brands or investors

1. A concept: A brand where a great concept is available, but the investor would be associated with High risk & requireshuge support, in a way a franchisee would be an angel investor

2. One Store Brand: A brand that is just one store young will be at higher risk but with the right support system it can mitigate the risk

3. Regional Brand: These are the brand who are very strong in some regions with an existence of 10-15 outlets/stores, but have negligible presence or consumer awareness in other regions.

4. National Brands: These brands are well established and have a national or global presence where in a franchisee can sustain withminimal franchisor support as well.

Although, having said all these, on a larger landscape every brand should keep focus on methods or ways to hedge the risk associated with the franchisee. Some of the key areas where a franchisor can help the franchisee are:-

Finance: Probably a franchisor can share certain cost at the initial stage
Participation: A franchisor can participate in the franchisee business on a very personal level, like handholding for some time to build the confidence. Or assisting in providing HR for critical positions, and offering an ongoing support
Marketing & Advertisement: This is a very important aspect of any business which brings together a lot of mileage in every franchisee's business
Processes: Last but not the least is process improvement & implementation to effectively maximise the operational throughput which is best known to the franchisor.
Among other options there can be minimum guarantee offer, stock deposit sharing, target based reimbursement or other secure policies to lower their risk.

To summarise, effectively every brand/franchisor should be ready with the solution and proper support measure to understand how to ease the risk of a franchisee. There is an indisputable question that always looms around in a franchisee's mind “what if the model does not work out?”. A Brand/franchisor should be ready with an ANSWER!!

Pranjal Sharan is a Strategy Consultant - Francorp

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