Eric Parker and Anita du Toit from Franchising Plus spoke at The 2013 FNB Franchise & Leadership Summit on how franchising works and how to choose a franchise. If you missed it or want to recap here it is….
Being an employee is for sissies
Eric started off by making the point that while our educational system continues to prepare us for employment by government or a large company, this does not take into account that the world has changed. Being an employee is not only limiting in terms of self-expression and earnings power, it also lacks true security. With companies forever rationalising or merging, job security no longer exists. However, entrepreneurship is a hard taskmaster and not everyone is cut out for it. However, sound franchise opportunities offer the best of both worlds.
- The franchisor provides a trademark, a proven system, initial and ongoing training and assistance.
- The franchisee is in business for himself but not by himself. As long as she represents the brand with pride and follows the system, the business should be successful.
- Franchisees of solid concepts will typically earn 2.5 times more than an employee and at the end of their working lives, they can sell their businesses and collect a substantial capital profit.
An in-depth self-examination followed by careful selection of the franchised brand are essential success factors for becoming a happy franchisee.
How franchising works
To set the scene, Anita introduced the two parties to the franchise relationship, namely the franchisor and the franchisee.
An individual or company has developed a business model that is profitable and ready for expansion. Instead of setting up a branch network, the franchisor elects to offer franchises to others.
An individual who invests in the franchised concepts with the aim to:
- By-pass the uncertainties and growing pains that beset most independent start-ups.
- Benefit from the initial and ongoing support the franchisor provides.
- Participate in group schemes, for example bulk purchasing and marketing.
- Obtain easier access to funding because banks are known to like franchising.
A franchise is not for everyone
The proven advantages of franchising notwithstanding, not everyone will be happy as a franchisee. Individuals who:
- Don’t like to operate within firm parameters
- Are reluctant to invest for the long term
- Don’t want to pay franchise fees
…should not invest in a franchise.
The respective roles
The franchisor’s role is to develop the strategic vision for the brand, develop a national marketing strategy and undertake R&D. Furthermore, the franchisor is responsible for providing initial and ongoing training and initial and ongoing support. Last but not least, the franchisor must select its franchisees with care because the admission of one bad apple could damage the brand and with it the business interests of its franchisees.
The franchisee’s responsibilities include managing all aspects of running her business, brand ambassadorship and local marketing, participation in events arranged by the franchisor.
What franchises are available?
Contrary to a popular belief that simply refuses to go away, franchising is not just about food. Websites like www.whichfranchise.co.za and others list 15 different categories of franchises, and new concepts come onto the market all the time.
Selecting the right franchise
This topic was addressed by Eric. He stressed that there is no such thing as the ideal franchise that would suit everyone. It’s a matter of horses for courses. In South Africa, about 650 different franchise concepts are on offer but less than 50 withstand closer examination. Once you have done your homework and know that a franchise is really what you want to invest in, proceed as follows:
- Select a growing market segment.*
- The site must be right.
- Select an established franchisor with a proven success record in this field.
- Do extensive research. Ideally, the pay-back period for your investment should be around 3-4 years. (This is after you have drawn a market-related salary.)
- Select a business you will enjoy working in and make sure that your family supports you.
*Growing market segments are Internet; Green/environmentally friendly; Care for the aged; Education; Health and beauty; Convenience foods; Childcare.
Eric closed his presentation with a warning to think carefully before investing in a franchise because unless the right opportunity has been selected and there is the right fit it could result in an expensive failure. On the upside, if the right franchise is selected and there is a perfect match between franchisor and franchisee, the rewards will be great.
ãKurt Illetschko 2013. Published with permission.