You’ve decided you’re going to take a crack at franchising? Great! The rewards are many, but what are the risks? Nick van der Leek pulls out his torch and guides you along the dark drive-thru towards the light.
Franchising reminds me of a honeycomb. Each hexagon is dependent on the adjacent hexagon. The better (and more thorough) the construction and execution of each, the bigger and tastier your honeycomb becomes. But while you’re licking your lips at the thought of all that honey, it pays to be prudent about getting stung in this business.
Why?
Even though you may have made up your mind – you’re certain – this is for you, it is always a good idea to refresh your memory, to update your reasons and motivations for going along this sometimes difficult, sometimes challenging path on the way to success. At some point you will be asking yourself (with some resentm,ent), why should I pay them x when I am doing all the work?
Why? Because the brand has spent years perfecting itself. The brand has stood the test of time and proved itself a winner. Not only do you save yourself time playing dice with the universe, you also get instant access to a host of other services, marketing being one of them.
The other reason is possibly more personal. You don’t consider yourself an entrepreneur, but you want a greater degree of autonomy than say – a salaried income for a boss with even more limited responsibilities. Franchising presents an opportunity to step out into the world. Not quite to go where no man (or woman) has gone before, but certainly to go further than you would go if you were to go it alone.
Why not?
While you may feel franchising suits your profile, the trick is finding the right franchise. While many franchisers offer safety and security in their brands, not all are the opportunities they pretend to be. The risks you face may not be worth taking, if the following warning signs are present:
1. Low royalties. Royalties are there for good reason. To sustain the parent. If these are too low, your brand can’t offer you the security it promises. Run!
2. Reckless recruitment. Once you notice advertisements for un-qualified staff (or ‘no experience necessary’), you know the brand is not investing in people. Hit the escape button!
3. Mediocre marketing. Ask to see a marketing plan. If it’s a slapdash three page effort, you’re in trouble. What you want is a strong marketing focus and some extremely aggressive, very visible promotional efforts. Remember Scooter’s pizza’s superb rollout and promotions? If there’s no marketing, scoot!
4. How’s their cashflow? This is to some extent a gut feel. Given that franchises can only operate profitably once there are 25-30 outlets, you need to assess whether the brand you’ve chosen is safely in the black. Look at the macroeconomic environment and other local factors (how far away is the nearest competitor, and how many) before jumping in. Once again, the strength of the marketing message is a key indicator as to whether cashflow is reasonable. If it’s not, it’s a dog – get yourself out of the kennels before it’s too late!
5. Milking the cow? Are they making money by selling franchises? Check with stakeholders in your area. Are they successes or stressed and struggling? If you snooze on this one you’ll almost certainly lose.
Once you’ve made your way through the initial labyrinth it’s time to choose between a new brand, and an old brand. A new brand offers better value, and the possibility of better locations. Old brands expect a premium, and all the best locations are taken.
Conclusion
Finally, there is always an opportunity in a monopoly. For a while anyways. iBurst is a contemporary example in it’s category. But for how long? If you are a true entrepreneur, you’ll find franchising a difficult road. But if you’ve been happy to be guided this far, you’re probably seeing the light already. Off you go.
No comments:
Post a Comment