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Issue 5, July 2015 - Franchising

Growing your Business via Franchising – Are you Franchise Ready?

By Hsien Naidu

You started your own business and it was an exciting affair, especially since, nothing could beat the thrill of being your own boss. You have then set the systems in place, figured out what works and what doesn’t and now you want to grow your business. There are two ways of going about it. 1) You could open more outlets by yourself or 2) you could franchise your brand. There are many advantages and disadvantages for both the strategies of growth but if you choose to grow your business via franchising, do continue to read.

But first, what is franchising?

Franchising can be defined as giving the right to use your business' successful functional model and brand for a prescribed period of time to a second party while receiving a payment for the use of it. It is also a recognised cost effective business development approach that has proven to deliver fast growth with debatably reduced risk. Franchising also lets you keep the operational control of all your franchised outlets for consistency.

Why Franchising?

There are 3 main benefits to growing your business via franchising.

1.      Capital
As opposed to expanding via corporate owned outlets, franchising out will not involve you investing to build every outlet. Franchisees will invest their own capital. Not only will they fund the investment, they will also be paying a recurring royalty fee. According to the Natwest Franchise Survey, 3 out of 4 people see an advantage with investing in a franchise, in comparison to opening a new business from scratch.

2.      Time
Franchising is a great way to grow your business in a short amount of time because time saved is time gained. You don’t have to micro manage the business all over again. Though you are expected to give your full support to the franchisee to set up the business and to run it; you will be less involved in the day to operations of the franchise.

3.      People
As the franchisor, you will only need a small core organisation with a few highly skilled staff to run the show. The franchisees will be responsible for the day to day management of the staff that they hire. However, as a franchisor, you have to provide the initial training of the staff.

When is the Right Time to Franchise?

Here are a few parameters that you must evaluate your brand on before deciding to franchise.

1.      Brand Identity
At the centre of any good franchise operation is the brand’s identity. Franchisors must develop the brand well enough to gain market recognition, because people buy a product or a service depending on how much they can relate to it. There must also be a proven track record of the brand’s success in the market.

2.      Sales Proposal
You must ensure that your business has a clear and easily communicable sales proposition before you start to look for franchisees. Price, quality, service, logistics, operations and anything else that you want to include in the proposition needs to be reliably deliverable.

3.      Documented Operations Processes
You know that you are ready when you have clear, reliable and documented operations processes for creating or delivering your service of product.

4.      Replicable Business Model
Your company must already be making decisions and be implementing activities consistently based on agreed methods of business process management. This is important because in the end franchisees are not buying your product or service but they are buying a process by which your brand can be run.

 

Few Words of Caution:

Franchising involves reduced risk but low risk does not mean no risk.  Here are a few risks that one might want to consider before franchising.

1.      It is quite possible for the franchisor not to have enough of or the right level of business acumen to franchise the brand. Franchising your business without the right knowledge is risky, so one might have to take the assistance of franchise consultants, lawyers and other franchise experts.

2.      Whilst franchisees do shoulder the bulk of the growth of the brand foot print, it is also essential for the franchisor to invest in building a sound franchise foundation in its systems, its franchise structure, have a strong Intellectual property exploitation strategy, develop practical operational manuals and training programs. These are investments in time and resources that the franchisor cannot and should not avoid.

3.      Disputes with Franchisees: Sometimes disputes might arise between the franchisor and the franchisees which might adversely affect the overall business. Matching with the right people who share your brand’s vision is one of the crucial factors that you must consider before franchising.

4.      Misjudging new markets. Even if your brand is doing exceptionally well locally, you need to see whether the products or services that you are giving through your business will fill a demand in new markets.

For first time franchisors, it is recommended that you take the support and services of franchise experts who would help you exploit the intellectual property that resides in your business, and develop customized growth strategies for you to help you successfully franchise and sustain your brand growth.

 

About the writer:
Hsien Naidu has over 20 years of experience in Franchising, Marketing, Branding and Intellectual Property Management across various industries including Food & Beverage, Education, Retail and Lifestyle as well as services. She is a Senior Practicing Management Consultant, a Certified Franchise Executive and is presently the Director of Astreem Consulting Pte Ltd. To find out more, log on to www.astreem.com or call at +65 63421901.

Last updated on 12 Oct 2015 .

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