The Frequently-Asked-Questions Concerning Franchising

15 April, 2020

Do you think more people will be keen to start a business under an established franchise name, given the challenging business environment many cities are facing these days.

Everything being equal, the chances of success for someone joining a franchise are higher than for him or her to start an independent business.

When you are in franchising, you are in business for yourself but not by yourself.

However, I must state categorially that it still depends on several things. The best advice I have is go back to basics. Consider, for example, the 4Ps of marketing.

Is the product or service in a sector that is already over-saturated? How strongly is it differentiated from the other competitors?

Is the pricing strategy right vis-à-vis the value given to the customer?

How convenient is it for the end consumer to patronize you—are you in a good location (place)?

Your marketing (promotion / advertising / PR) —is it effective? Will it engender loyalty?

Other Ps to consider – packaging –is it environmentally friendly? People—are your people good ambassadors of your brand or are they causing harm to your brand?

Make no mistake, franchising is not an elixir. Even an established name has to face the tough challenges.

We all know franchising comes with many perks- support from a big franchise firm, starting out under a well-recognized brand name…Any potential cons for a franchisee firm

Yes, a recognized name will definitely be an advantage as an unknown name will need time to gain the confidence of the end-consumer thereby affecting sales. The initial training provided and the franchisor’s handholding in the early stages will be invaluable. Unlike start-ups, there will not be time and money wasted on trials and errors.

Also, the continuous innovations, R&D conducted by the franchisor will help ensure your brand is ahead or at least not seen as inferior to the competition.

However, you will never actually know what kind of long-term franchisor-franchisee relationship you will have until some time has passed. No matter how huge or famous the franchisor is, let’s face it, at the end of the day, many human beings are involved in this relationship, be in in operations, supply, training, marketing, finance, and so on.

At the end of the day, both parties – the franchisor and the franchisee have to make the relationship work. In the unlikely event that the franchisor backslides ( and competitors have caught up, but you’re still stuck with the brand) , the franchisee will begin to question why they (the franchisee) are paying regular royalties to the former (franchisor). Doubts and unhappiness will fester, and the relationship might even be terminated….

Another point: If the franchisee is too entrepreneurial and want to change things, the franchisor may not agree to it because they (the franchisor) want to ensure standardization, and they’d have to assess the overall implication to their entire worldwide operations (in many aspects).

Yet another point : even if you are the best franchisee in the system, you will be affected somewhat if the franchisor has recruited other franchisees that are of poor quality because consumers around the world recognize each location/shop as one same brand.

How important is it for franchisees to manage their expectations when it comes to franchising

Franchisees should be ‘prepared mentally’ to work very hard (even harder than their previous jobs), and not be carried away by the aura or romanticized notion of working under a well-known or established brand. At the end of the day, how you the franchisee runs the day-to-day operations is more important than just relying on the strength of the brand.

And naturally and quite objectively speaking, the more ‘famous’ a brand is, the more expensive it is, as the brand’s standards might demand more superior ingredients, kitchen utensils, etc.

We advise franchisees to do a thorough market study, build a thorough business plans, crunch all relevant numbers, and be mentally prepared not to make money till Year 3. Harsh. But this will flush out over-bullish forecasts and compel the franchisee to think hard on how to make the concept work in his/her allocated territory.

We have talked about franchisees. Let’s move to the more matured firms who want to be the franchisor and see franchising as a way to expand their business. What advice would you give to a businessperson intending to take this route?

Take note that every time you choose the wrong franchisee, you are creating a competitor.

How do you avert this?

1) Keep strengthening intellectual property. You do not want people running away with your formulas/concepts/design, replicating them all over the place. This has to be done in pace with your rate of growth.

2) Make it ‘painful’ for your franchisees to leave you. An example: with your size, you have economies of scale. You can offer resources at a much lower price than if they were on their own. This will make your franchisees reluctant to do their own thing/leave you.

3) Keep innovating! As a franchisor, you are now working on the business, not in it. That means you can dedicate more time to developing new products, new concepts. Innovation will help you develop, prepare and sustain the business for a longer run.

4) Don’t forget the basics.

5) Manage expectations: the perfect franchisor is a sociologist, psychologist, lawyer, diplomat, fortune-teller and business person.

6) Engage a reputable and experienced consultant. Firms that read a book on franchising and do cut-and-paste work to build their own franchise package will ultimately realize that they have overlooked many areas and worst still, precious time has been wasted.

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