We can see a lot of franchises around us in our daily lives. Be it hospitals, laboratories, restaurants, laundry, education, or clothing, we see franchisees in almost the whole of the organized sector.
Lately, the importance of franchising has gone up. Companies want to grow faster without any huge investments. A large number of entrepreneurs are looking for business opportunities. This is where franchising has come into the picture. Franchising can be a strategic advantage to scale business and expand to new markets.
Let us explore a few aspects of franchising.
Why franchise?
Companies need a large distribution system to go wider and deeper into the market. This in turn helps them become the largest market shareholder and capture more regions throughout the country.
Franchising is thought to be the greatest distribution idea because of three reasons. Franchising gives a faster expansion everywhere. It saves capital since others are investing in the business as franchise partners. The partners involved in franchising are locked-in entrepreneurs who would be committed to the business as they run it.
India has millions of entrepreneurs looking out for business opportunities. This is the right time to move to franchising. On one side, some companies do not want to take up the operational hustle and wish expansion without investment, while on the other side, many entrepreneurs have lost jobs or have moved to a different city that is looking for good opportunities. It has also been seen that franchise-owned companies have bounced back much faster than company-owned stores during the COVID times.
Franchising is a lucrative option if a business model has a compelling idea where the brand, its know-how, and idea can be shared against royalty.
Who can franchise?
When thinking about franchising, not everyone can jump into it. It has certain aspects to it:
- Enough margins both for the company as well as the franchisee. If enough margin is not there either the company or the partners lose his margin or the customers are overcharged.
- The business model has to be ready to adapt to the new market. There should not be a significant change but a little is required.
- The company has to be committed to a long-term relationship. Business cycles vary with time. New startups have many franchisees. After a certain time, there might be few negative franchisees. The business might see a fall also. Here, the reinvention of the business model brings back the franchisees and excitement.
When is the right time to franchise?
There are several circumstances when an organization can think of moving towards franchising.
- When the organization’s product has a higher demand in the markets not served by the brand.
- When the competition takes lead and the brand has a better or equal product.
- Where the brand can see growth but lacks capital
- Where the brand has an innovative or first-mover advantage.
- The product or service needs distribution and economies of scale.
Strategies to Franchising
Franchising has to be strategically planned. There are four pillars to franchising.
1. Business Modeling
Business modeling is the heart of any business. A business model has to be well thought through and futuristic. It has to carry a lot of predictions that can happen to the business.
Business modeling needs to work on a few important aspects. It has to make sure growing margins over a period of time. The margins have to be right. Next the growth areas and market have to be found. Finally, the cost reductions and financial efficiency need to be carried out.
2. Franchise Recruitment:
Franchise recruitment has to be carefully done, considering the selection and analysis.
Selection- It is done based on critical factors and soft skills. The critical factors include the financial fit, operational fit, marketing fit, and strategic fit. Amongst these one should be the most critical factor depending on the type of business.
The other side is the softer side of the selection. These factors were much ignored earlier, but they play a very vital role and without these, the franchise may not work well. They include maturity, objectivity, experience, creativity in running the business, and integrity towards the brand.
Micro Market Analysis– Understanding the market is another important factor to consider. How the market will react to the new changes has to think about.
Selection Process- It has to be an exhaustive multi-layer process to select the right partner. Whether it is a startup or a well-known brand, each has to right to select the right partner for future good. The selection process must not be compromised.
Develop Your Franchise Team- A focused team designated for franchising has to be developed. It should be able to work on-site selection, franchisee selection process, and franchise development.
3. Franchise Management Strategy
Once the franchisees are selected, there is still management that needs to be done. There are several things to look upon when managing the franchisees.
Building a relationship: A franchise relationship is not a friendship. The relationship should be set such that there are respect and accountability. This is important because amongst friends one cannot express the difficult situations in business.
The company has to work as a facilitator and not commit itself to run the business.
Audit Policy- The audit guides the brand as well as the franchisee where they stand and what needs improvement.
One of the exercises that a company follows to know the business is ERR. Here, E stands for encouraging the partners every month. R stands for recognition that is given quarterly and another R stands for the reward which is given annually to the partners.
While the other 3 strategies are for the organizations going for franchising for the first time, the 4th strategy is for existing franchise organizations.
4. Franchise Transformation
Even an existing franchisor needs to plan and upgrade to keep up with franchisees.
Innovation- Constant innovation is required to keep business and brand relevant. There are has to be a significant change or prioritization brought in business from the customer point of view.
Rediscover- The brand has to look for the target group, who is the target group, and what are they looking for?. Accordingly, the organization repackages its product or service.
Elevate and Exit- The organization needs to identify the misfit and negative franchisees and exit them. It is necessary to elevate the positive and energetic franchisees to keep up their good work and at the same time exit the ones that are not performing.
New Markets- The organization needs to focus on new markets and short terms markets that it can serve through its franchisees.
Is the organization ready to franchise?
Here’s a checklist that shows you if you are ready to franchise:
1. Brand preference and engagement– The factors are credibility, positive PR through social media and print, and awards and recognition.
2. Proven business, systems, and processes- Factors under this are prototype, SOP’s and manuals, and strong vendor relations.
3. Financial performance and margins- ROI, affordability for franchising, and capitalisation.
4. Management and leadership team- People believe in the leaders. There has to be a key management team that is experienced and a proper organisational design.
5. Competition and market trends- This means a check on the market if it is overcrowded or if there is any market gap. What are the industry trends? Also, forecasting the future demand for the next 5 years.
6. Product and service- The areas of concern include innovation and R and D, differentiation, and change cycle.
Edited By: Vaishnavi Gupta
