Why is Franchising a good option for expansion?

Preeti Shishodiya
Preeti Shishodiya Nov 18 2020 - 4 min read
Why is Franchising a good option for expansion?
When you need to scale up and grow your business with no debt and equity, the best strategy is franchising!

India is a growing economy. With the current scenario of COVID-19, there have been a lot of changes in the economy and businesses. Some companies that were thought to have affected badly have sustained due to quick adaptation and change in their business model. Another set of not so popular companies have gone into franchising and scaled their businesses. Here, we are going to discuss the basics of the systems and processes of the franchising model.

Why is Franchising a good option for expansion?

Today, debt and equity aren’t very good options for scaling up. Though equity could be helpful, but it isn’t available for early-stage companies. When you need to scale up and grow your business with no debt and no equity, the best strategy is franchising!

There are three main reasons for a business to move to franchise:

-Operationally lighter model: Best suited for current COVID-19 affected environment.

-Liquidity: To get back liquidity into the business.

-Time: Faster expansion.

Franchising means transferring rights of privilege. It is the transfer of know-how and the brand itself where royalty is charged. With franchising, one can focus on other aspects of growing like product development, technological improvement, innovation, and customer experience. If we look around us, almost everything is franchising, the healthcare centres, restaurants, petrol pumps, schools, car dealers, fashion brands, etc.

Requirements for Franchising

1. How prepared you are? A new company will need some preparations but an old one also needs transformation.

2. The business model should be a sustainable one.

3. Organisational and operational efficiency is required to support and help franchisees.

Preparation to set up for franchising

Franchising readiness requires preparation in four areas:

  1. Business Model Designing

A business model should be designed in such a way that:

-It generates sustainable future revenue.

-Defines growth markets by looking at the opportunities and unlocking them.

-Improves financial efficiency and reducing costs.

-Choosing a growth or scale strategy.

  1. Franchise Recruitment

Recruiting the franchise is a selection process rather than a sale process. There are four fits in profiling franchise:

- Strategic Fit

- Financial fit

- Marketing fit

- Operational fit

Even after the use of these four fits, there still are some miss fits. Hence, the softer side of these fits are integrity, creativity, objectivity, and experience.

Micro market analysis is another area where how each neighborhood is unique is explained.

  1. Franchise Management

The process of franchising doesn’t end with selection. Franchise management is another important area. It relates to building mutual respect and relationship with franchisees and at the same time holding accountability.

  1. Existing franchise owners

The existing franchise owners need some kind of transformation before moving towards scaling up.

-They need to transform or innovate product, delivery, or process.

-Re-engineering the product or packaging is required. Also, to rediscover the target consumer and redo the communication and branding.

-Elevate the positive franchisees and exit the ones that are negative.

-Explore new markets

The timing of franchising also has to be considered in relation to demand markets, competition, innovation operational efficiency, capital, and distribution.

Here’s a checklist that shows you if you are ready to franchise:

Brand preference and engagement – The factors are credibility, positive PR through social media and print, and awards and recognition.

Proven business, systems, and processes - Factors under this are prototype, SOP’s and manuals, and strong vendor relations.

Financial performance and margins - ROI, affordability for franchising, and capitalisation.

Management and leadership team - People believe in founders. There has to be a key management team that is experienced and a proper organisational design.

Competition and market trends - Check if the market is overcrowded or there is any market gap. What are the industry trends that are forecasting the future demand for the next 5 years?

Product and service - The areas of concern include innovation and R&D, differentiation, and the change cycle.

This list shows some points that you already have and some that you might need to work on.


Edited By: Vaishnavi Gupta

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