Franchising 28 July 2016

Franchising as a growth model

Starbucks
Starbucks has created one of the most recognised franchising models.

Research conducted by the British Franchise Association (BFA) and NatWest suggests that the franchise sector is in rude health.

You run a successful business and you want to expand. One way to do this is getting franchisees to pay you for the benefit of your business model and support. But it is only a no-brainer if you set it up correctly.

The number of franchisee-owned businesses has climbed 14 per cent in two years to 44,200 and 97 per cent of franchisee-owned units say they are profitable.

BFA chief executive Pip Wilkins believes franchising is a “robust” model that can give national coverage for those with a proven business model.

Individuals that become franchisees are those who want to run their own business. “So you’ve got a different drive, commitment and passion from those people to make that business a success,” she said.

Franchises come in all types: office cleaning firms, business consultancies, legal services, restaurants and care services, to name but a few sectors. They include household names like Starbucks, McDonald’s, Toni&Guy, Papa John’s and Clarks.

 

Get the practicalities right

“Prospective franchisors should seek expert advice and attend seminars,” said Wilkins.

“It’s really about working with somebody to set up your pilot operation, your operations manual, your training course and what the fee structure needs to look like to make sure the franchise is profitable for both the franchisor and the franchisee,” she said.

“If you are looking at a business that is underperforming and isn’t making a lot of money at the moment, all you will do is replicate that.” Wilkins added that franchisors should keep the following points in mind.

  • Franchising is a specialist area and you must have a brand that you own and protect
  • Ensure you have a system in place that is both proven and transferable
  • Look at what ongoing support you are going to give your franchisees – not just to get people up and running
  • Be ready to transfer know-how to a potential franchisee within two to six weeks
  • You need to have piloted the model and started to develop support packages, initial training and an operations manual, which should be the bible of how to do everything in that business

“A franchisor will know these things inside out but actually writing it all down so someone else can pick it up and run with it is difficult. It’s everything from sales, marketing, finance, human resources – the day-to-day operation,” said Wilkins.

“If you fry fish and chips and that’s what you’ve done all your life, suddenly your job isn’t to fry fish and chips any more. It is to manage a network of franchisees,” explained Wilkins.

 

Benefits and risks

Franchisors can focus on research and development to keep businesses thriving.

“No business ever stands still, and as a small business you don’t necessarily have the time to research and develop. Franchising gives you that opportunity. The big win is national coverage, promotion and marketing.”

With franchisees all over the country, franchisors can get national contracts on behalf of an entire network. “It really is about growing a business with the backup and support of lots of different franchisees,” Wilkins added.

The biggest risk is not paying for the right advice at the start to get everything set up. The expense of doing so is probably the biggest barrier to people not franchising. Franchisors have to be tough from the start because entrepreneurial franchisees sometimes try to run the business their own way.

“We say to people: you are buying into a franchise because you a buying into a proven business model. You’re not there to reinvent the wheel.”

 

Case study: Business Doctors

Rod Davies and Matt Levington launched Business Doctors in 2004 to make management consultancy accessible to small businesses. They spent their first three years perfecting their craft on Merseyside.

The pair were confident they had hit upon a winning formula that filled a gap in the marketplace between the Big Four consultancy firms and a host of one-man bands.

Levington said: “It seemed small businesses were crying out for our style of no-nonsense help, including sales planning, performance management, recruitment fundraising and team building.”

They raised £200,000 in 2007 from the Royal Bank of Scotland, NatWest and Merseyside Special Investment Fund to start growing Business Doctors as a franchise.

Missed our fascinating one-on-one interview with Canadian coffee brand Second Cup’s European franchise director Jon Cullen? Catch up here.

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