7th April, Bangalore, India. 15.00 Hrs.
What Most Business Owners/ Franchisors Must Know before they start expanding their businesses through franchising.
Yesterday, another franchisor met us, keen to expand his business and trying to explore the various options, he had on hand. Like most business owners who are seeking to expand their business in India, the dilemmas were the same, as is the case generally from such entrepreneurs. So I thought, for the use of such franchisors, I write out this blog, to inform them, firstly, these are common hurdles that most businesses that want to expand using the franchise route in India, face. Secondly, it is very important that you learn quickly from the knowledge base available around you and look at franchising very deeply, instead of experimenting with franchising. I am going to run you through the interaction I had with this franchisor, which is in the ice cream business and has a popular brand in one of our bustling metros. For me, he is the classic example, of all business owners who have a successful business and are thinking of franchising or have already begun franchising and have a few franchisees.
He has been operating for a couple of years now and has been receiving several requests from customers to take up his franchise. After discussing the situation on hand and with guidance from a few friends and well wishers, he went ahead and signed up a couple of them. Instantly, he realized, this was much more than just teaching a franchisee how to do his business. From, thereon started, the everyday nitty gritties of how should he deal with the franchisee on ‘this issue,' and the issues were many. Infact one of them discontinued the franchise and is still continuing the business, but in a different name. There would have been the definite daily issues that most franchisors and franchisees go through whilst the reality of what they get from the marriage, comes on screen. The franchisor did tell me, that he knew it would be difficult, but then he was ready to learn from the mistakes, he would commit, amend them and move forward. I liked his willingness to adopt and the honesty to do his best. These alone would not be sufficient for me.
I was smiling from within, thinking why does one need to take the difficult path, when experts like us, can guide the franchisors with the most common mistakes that they commit. (Not that they are not going to make mistakes, alongside us, but then, they would definitely not be elementary or the basic ones, that hurt franchising the business most). There is a clear learning curve that we have gone through while working for so many clients in the same domain specifically and franchising more microscopically, that the franchisor, could quickly learn, adapt and run...instead of getting up, falling, crawling, falling and then get walking. In fact, that's the very reason, that we bring in the best practices from different business and segments, into every business that we are franchising, and that, not necessarily is what your competition is doing or other companies in your industry following.
The other thing off course being the present market dynamics. Does he have the liberties of the 80's / 90's when he would have had the time to expand and could take his own time, while the competition is limited. This is the case with most business owners in our country today. There is so much of learning available, all that they need to do is look around for specific experts and move forward professionally, instead of thinking of doing it from scratch, all by themselves. You always hire an architect and a contractor engineer, before you build your house, you don't do it all yourself. Why re-invent the wheel, when it's already done for you. India has been franchising from the late 80's and there is a lot of localized learning's that is already available across different segments.
The franchisor on the other end was continuously thinking of getting a few more franchisees, which were when, he decided to participate in a franchise exhibition and was ready to sign up a couple more. The general perception being, that you have thousands of entrepreneurs lining up for these franchise shows and you could easily get a couple of them to sign your franchise up. A franchise exhibition organizer once pitched to us that we will have in excess of 10,000 new business seekers visiting the show and all you need is 0.05% conversion out of that to have 5 franchisees. Another client of ours, then was excited and said lets take that to 0.01% and we have our franchise ready. In reality, that does not happen. All you do is end up spending a couple of lakhs on initial franchise marketing, which otherwise could have been spent more judicially on franchise development or initial franchise foundation laying, after which the franchise marketing and recruitment have to be carefully planned. Even if you are good at marketing and have been able to get a couple of franchisees to sign up, I am not sure that the business is ready to take on the franchisee from an operation, marketing, legal, training and other perspective. Hence you need to first lay a strong franchise foundation and a concrete franchise development programme and that would be the best way of getting the desired results at least costs.
The ice cream franchisor spent nearly a month chasing all the leads that said that they would get back, but to no result. We have also met a lot of clients who have just gone ahead and advertised in franchise magazines, franchise websites/portals, newspapers and other media's. The first thing when one thinks of expanding the business, is how will I get a franchisee, and what would I get from them. Let me prepare a projected P&L, a profitability sheet from my chartered accountant and an agreement from a lawyer (who in most cases is not a franchise lawyer), create a so-called franchise model, and get started. In a way, I am glad that clients come to us after such exercises, because its generally easier to explain to such franchisors, the task on hand, while they begin to understand the nuances of franchising vis-à-vis the ones who come fresh out of their business wombs.
What is the ideal Return on Investment (R.O.I), that I must explain, quizzed the franchisor. Will a particular % justify my claim? How should I guarantee a return...should I actually guarantee returns?
Entrepreneurs threw questions like, Will you get me the right property or will I get rent and % on sales, if I take up your franchise. What happens if we do not get the expected business, What are the terms of the franchise agreement and a million other things that each person wanted to be clear of, at the onset itself.
This is the typical cycle any new franchisor goes through. What we do here is, orient the client before hand on these questions and what repercussions, each answer has. The long term implication of the same is clearly measured and studied before deciding upon the path to be taken. That's what a cohesive franchise strategy does to a business, before it embarks on its expansion journey.
Another approach, a few franchisors take, is to hire franchise managers from the industry and then they assign the task of franchising their business, to these professionals. In most cases, the business then takes shape of the experience that these managers have had from their previous experience, and more often, limited to the areas in which they are strong. However, in most cases, we have been able to get the best out of these managers. We work closely with the organization, understand their strengths and help the owners/top management, align their personnel correctly on each of the defined tasks.
The franchisor then realised he needs an experienced franchise consultant, which is how he reached us. This has been the case with a lot of business owners who have been seeking franchise expansion services and do not have the direction to move forward or have been contemplating to hire the services of a expert franchise consulting company, but have also been parallely thinking, of whether they really need to take the complete plunge. The initial concerns are about the costs of franchising. What could be the amount that one needs to apportion to start franchising? What are the ongoing resources that would be required? A lot of successful business owners really do not have the time, from their existing business schedules, to really concentrate on franchise expansion. The ice cream franchisor seemed to have the resource allocations queries in his talk, and was trying to analyse what more will he have to put in, to get going, from where he was now.
At Sparkleminds, we take this question very analytically. While franchise expansion can be a self funding exercise in the medium term, it definitely requires initial investments, and that varies from business to business. In the long term, it not only pays back the costs of franchising, but also adds tremendously to the growth and profitability of the business. Hence, business owners who have a long term view in their mind, seek various time tested franchise solutions and want to give it the best try, engage us, while the rest of them, go about their own ways of expanding their business.
We do a lot of free franchise discovery sessions with franchise business owners who are seeking franchise development and get them prepared initially for franchising even before they engage us. Our initial discussions are aimed at franchise feasibility and basic assessment on readiness of the business for franchising. Only if the business owners pass these tests do we move forward to an engagement, or else, we ask them, to complete their homework, before getting started with franchising. We do this because we believe that this is very important for the franchise industry on the one end to have the right franchisors and that there are possibly, as many successful franchisors, that can be and on the other, it augers well for our reputation, of being associated with successful franchise companies and being a leading franchise consulting company in India.
Conclusion
Franchising is bustling in India. We have been getting requests from all kinds of businesses from party shops to mobile car service franchises, from laundry services franchises to fashion jewellery. The list is exciting and we are even more excited to serve the needs of different kinds of businesses that want to franchise. This blog highlights the typical path that these businesses take and the solutions they seek. The typical shortcuts that are taken, to save initial costs, and the long-term repercussions. The knowledge base that exists and how one can harness the franchising experience that the country already has, and what it has been learning from the finest franchise practices followed world over. When we put all of this together, we have the recipe to franchise success and that's what we want to prescribe to franchisors in India.
You only get one chance in franchising. Give it your best.
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