Win Robinson, managing director of Franchize Consultants NZ talks about the risks and rewards of franchising.
To be viable for franchising:
• you must have a profitable business, with a history of success over a period spanning at least two years.
• your business should ideally already be - or at least be capable of becoming - well-systemised and standardised.
• your business should be readily communicated and taught to a new franchisee. This is made possible by having a comprehensive franchise management and operations manual, and a comprehensive communication programme.
• Good financial controls are essential
Almost all types of business can be franchised. The home services industry in New Zealand have a large showing (lawn mowing, house cleaning) as do food outlets and a variety of retail outlets. Business to business is well represented in franchising, as are the service businesses. Even the professions are franchised.
The pet industry is seeing franchisees being established at an increasing rate, both in the US, Australia, the UK as well as in New Zealand. Foodstuffs run a franchise system for their supermarkets and grocery stores, Lotto runs a large franchise, New Zealand Post operates a franchise with its Post shops and KiwiBank branches, so do a network of physicians called "The Doctors". Fletchers with Placemakers, Fletcher Aluminium and Winstone Wallboards, G.J. Gardner Homes and many other residential builders are franchised. In fact, franchising has transformed residential building in the last twenty years with fixed price contracts, efficiencies and firm finishing dates.
What makes a successful franchise?
The three pillars of franchising are :
• Get the correct franchise structure for the business and its objectives
• Select the right franchisees
• Institute the right type of support programme for the franchisees
Can you expand internationally from a NZ franchise?
New Zealand franchises also have great potential for global expansion. Areas where we have great expertise, such as agriculture and horticultural services, can be exported using the appropriate franchise structure. Even if a business is franchised and succeeding well in New Zealand, it will need to develop an entry plan specifically for a new country in which they wish to franchise.
Because of the characteristics of that country, such as regulations and market forces, they may require an entirely different franchise structure from the one used successfully in New Zealand. Professional assistance for this is a must.
What is the appeal of being a franchisee?
If a person with little to no business experience wishes to get into business for themselves, an excellent way to learn about operating a business is to buy a suitable franchise. The training and support from the franchisor will take them through all the elements needed to operate a successful business and in a much shorter time. Instead of making mistakes and learning from them in a costly way, the franchisee will learn the proven, successful way to operate from the onset.
What do you do if a franchisee goes wrong?
When dealing with a franchisee who turns out to be the wrong fit or incapable, offer them extra support and try to bring them up to speed. Manage them up, or manage them out. This all needs to be done properly and fairly, but it needs to be done. It is the old bad apple in the barrel scenario, a bad franchisee can disrupt other franchisees and influence the overall image, brand and thus profitability of the network.
Sometimes the franchisor may buy the franchise back at market rates.
What is the responsibility of the franchisor?
The basic role of the franchisor is to provide a good operating system and clear, positive leadership. The franchisor assists the franchisees in achieving their goals in operating a profitable and successful business. Other responsibilities also include maintaining franchisee compliance with the system and operating standards; ensuring that the brand is protected; maintaining good supply lines and marketing effectively.
How do franchisees develop?
Some franchisees set up their own businesses, but many also trade up to bigger franchises, or, if the system allows, purchase additional territories within the original franchise network.
From the Franchise Association of NZ:
NZ has 423 franchises, 75 per cent are domestic brands.
Franchising offers many advantages over other business systems:
• Growth using other people's capital and time.
• Freedom to focus on central business processes while the franchisees focus on day-to-day operations
• Reduced staff to manage the central business process
• Reduced exposure to risk during the expansion phase by having franchisees carry a large proportion of risk associated with opening new outlets.
• Ability to penetrate the market rapidly before competitors gain footholds.
• Owner-operators consistently out-perform managers.
• Secured outlets for the franchisor's range of products or services
• High earning ratio on capital outlay.