Fancy growing your company with other people’s cash and a troop of entrepreneurs? Then franchising could be the route for you – but it’s no get-rich-quick scheme. Growing Business investigates which businesses it suits and how to make it work
There are obvious benefits to the franchising model. Not only will people pay for the privilege of growing your business for you, but also, if you get it right, you’ll have an army of entrepreneurs representing your brand and driving your business forward.
The industry has even proved robust throughout the economic downturn. This year’s annual survey by NatWest and the British Franchise Association (BFA) suggests that 90% of franchisees traded profitably over the past 12 months.
But not every business can be franchised, and even if yours could, there’s no guarantee of success. Like any growth strategy, it requires planning, hard work and careful evaluation to make it work.
“Franchising isn’t a get-rich-quick scheme,” says 2008 Young Gun Vincent McKevitt, who founded salad bar chain Tossed in 2005. “Franchisees are buying into a brand, a set of systems and a successful business model that you know works, because it’s been proven in other places and replicated. But if they implement the model incorrectly, or don’t work hard enough, it can still fail.” We asked the experts for their tips on getting franchising right.
Should you?
If you’re thinking of franchising your business, perhaps the most pertinent question to ask yourself is why you can’t do it yourself. Roger Jennings, the non-executive chairman of Limelight PR and former group chief executive of Austin Reed, has worked in franchising and international licensing for 30 years. He says there are several probable answers to this question: insufficient knowledge of the markets you’re looking to expand into; owner-management at a local level is the key to success for your type of business; and, of course, a lack of finance.
While Simon Kossoff, managing director of Italian restaurant chain Carluccio’s, has no intention of franchising in the home market, he is using the strategy to take the brand overseas. Founded in 1999, the business now has 37 branches in the UK – all company-owned – and two international sites, in Ireland and the United Arab Emirates, which operate under franchise.
“From the beginning, we wanted to be masters of our own destiny,” explains Kossoff. “The critical thing with franchising is the maintenance of standards by the partner company. We didn’t feel we could afford to take that risk in a single marketplace. But when you go overseas, you can’t afford to run something on your own in a marketplace you don’t understand properly.”
For McKevitt, however, franchising held considerable appeal as a strategy to scale Tossed. He now has seven sites around London, two of which are run on a franchise basis, with three more franchisees in the pipeline. His growth plan puts the business at 36 sites by 2011, with the first sites outside the capital scheduled for next year.
“With a retail business, after a certain size you’ve got two options for growth,” says McKevitt. “You can either release equity and do it all yourself, or franchise. “I like the franchising model, because it allows you to work with other entrepreneurial, like-minded, ambitious people, who are passionate about the brand. You’re getting people who believe in the concept. In some cases, they’ve invested their whole life savings, and they’re going to sweat blood and tears to make it work.”
However, you also need to consider how much of a distraction from your core operation franchising will create. If your business depends upon you running it, you need to ask yourself if you can really spare the time needed to develop your franchising model successfully.
Could you?
It might conjure up images of milkshakes and fries, but the franchising model has been adopted by a number of sectors. However, having a brand is not enough. You also need a system that you can sell to someone to enable them to run your business in the most effective way.
So how can you tell if your business can be franchised? Jennings says it boils down to three key questions:
• Is your existing business model profitable and sustainable?
• Can you transfer the know-how?
• Would your model be profitable elsewhere?
Before franchising overseas, Kossoff built his UK business to a size and infrastructure that could support it. “Simplistically, that’s about documenting what you do, but it’s also about having the people and resources to give your franchisees help when they need it,” he says.
Transferring a business model is easier said than done. The market has to be big enough, and you need to be far enough ahead of your competition to enable others to replicate it. Will they be able to make the same margins and will they have the same cost base that you have?
For Tom Endean, marketing manager at the BFA, whether your business is ‘teachable’ or not is paramount. “If yours is a business where the value cannot be transferred or it’s not something that you could teach,” he says, “then it’s all about one particular person’s skill and ability. In this situation, it’s not going to work as a franchise.”
Crucially, there has to be something in it for both parties. “There would be nothing worse than taking fees off someone to be a franchisee and not actually being able to produce any sales for them, because you’re likely to find yourself in court,” says 2007 Young Gun Michael Welch, founder of Blackcircles. The tyre-fitting business comprises a franchise network of 1,057 independent garages, and will soon be expanding into services.