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Mike Adams-session 1 Fap fks 2013 s.1_fran 101_20_oct13_v.5
 

Mike Adams-session 1 Fap fks 2013 s.1_fran 101_20_oct13_v.5

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  • Strategy to market – not a businessSimilar to leasing a commercial buildingLease a proven business format….Infrastructure / formatFor a specific purposeFrom which to earn incomeFor a set termUnder agreementAssignable / or hand back at term
  • Franchisor credibility – To sell franchises, a company must first be credible in the eyes of its prospective franchisees. Credibility can be reflected in a number of ways: organization size, number of units, years in operation, look of the prototype unit, publicity, consumer awareness of the brand, and strength of management, to name the most prominent. Market differentiation – In addition to credibility, a franchise organization must be adequately differentiated from its franchised competitors. This can come in the form of a differentiated product or service, a reduced investment cost, a unique marketing strategy, or different target markets. Knowledge transferability – The next criteria of franchisability is the ability to teach a system to others. To franchise, a business must generally be able to thoroughly educate a prospective franchisee in a relatively short period of time. Generally speaking, if a business is so complex that it cannot be taught to a franchisee in three months, a company will have difficulty franchising. Some more complex franchisors offset this handicap by targeting only franchise prospects that are already "educated" in their field (e.g., a medical franchise targeting only doctors). Marketplace adaptability – Next, measure how well a concept can be adapted from one market to the next. Some concepts (e.g., barbecue) do not adapt well over large geographic areas because of regional variations in consumer tastes or preferences. Others (e.g., medical practices) are constrained by varying state laws. Still other concepts work only because they are in a very unique location. And some work because of the unique abilities or talents of the individual behind the concept. Finally, some concepts are only successful based on years of perseverance and relationship building. Proven & successful prototype business - Refined & successful prototype operations – A refined prototype is necessary to demonstrate that the system is proven, and is generally instrumental in the training of franchisees. The prototype also acts as a testing ground for new products, new services, marketing techniques, merchandising, and operational efficiencies. Documented systems – All successful businesses have systems. But in order to be franchisable, these systems must be documented in a manner that communicates them effectively to franchisees. Generally speaking, a franchisor will need to document its policies, procedures, systems, forms, and business practices in a comprehensive and user-friendly operations manual and/or computer-based training module. Franchise affordability – Affordability merely reflects a prospective franchisee’s ability to pay for the franchise in question. This criterion is as much a reflection of the prospective franchisee as it is of the actual cost of opening a franchise. For example, a multi-million dollar hotel franchise is affordable to real estate developers, whereas a franchise with a $100,000 start-up cost that targets prospects with clerical experience might not be. Franchisee return on investment – This is the real acid test of franchisability. A franchised business must, of course, be profitable. But more than that, a franchised business must allow enough profit after a royalty for the franchisees to earn an adequate return on their investment of time and money. Profitability is always relative. It must be measured against investment to provide a meaningful number. In this way, the franchise investment can be measured against other investments of comparable risk that compete for the franchisee’s dollar. Typically, the iFranchise Group looks for the franchisee to achieve a ROI of at least 20 percent by the second to third year of operations. To see how your business measures up to this criteria, take the iFranchise Acid Test . Market trends & conditions – While not an indicator of franchisability as much as a general indicator of the success of any business, these trends are key to long-term planning. Is the market growing or consolidating? How will that affect your business in the future? What impact will the Internet have? Will the franchisee’s products and services remain relevant in the years ahead? What are other franchised and non-franchised competitors doing? And how will the competitive environment affect your franchisee’s likelihood of long-term success. Capital availability – While franchising is a low-cost means of expanding a business, it is not a "no cost" means of expansion. A franchisor needs the capital and resources to implement a franchise program. The resources required to initially implement a franchise program will vary depending on the scope of the expansion plan. If a company is looking to sell one or two franchised units, the necessary legal documentation may be completed at costs as low as $15,000. For franchisors targeting aggressive expansion, however, start-up costs can run $100,000 or more. And once the costs of printing, audits, marketing, and personnel are added to the mix, a franchisor may require a budget of $250,000 or more to reach its expansion goals. Commitment to relationships – Successful franchisors focus on building long-term relationships with their franchisees that are mutually rewarding. Unfortunately, not all franchise organizations understand the link that exists between relationships and profits. Strong franchisee relationships enable the franchisor to sell franchises more effectively, introduce needed changes into the system more easily, and motivate franchisees and their managers to provide a consistent level of products and services to their customers. Strength of management – Finally, the single most important aspect contributing to the success of any franchise program is the strength of its management. The iFranchise Group has found that the single most common contributor to the failure of start-up franchisors is understaffing or a lack of experience at the management level. Oftentimes, new franchisors will try to take everything on themselves. In addition to absorbing several new jobs for which the franchisor has little to no time, the franchisor needs to exhibit expertise in fields in which he or she may have little or no experience: franchise marketing, lead handling, franchise sales, ad fund management, training, and multi-unit operations management.

Mike Adams-session 1 Fap fks 2013 s.1_fran 101_20_oct13_v.5 Mike Adams-session 1 Fap fks 2013 s.1_fran 101_20_oct13_v.5 Presentation Transcript

  • October 16, 2013 1
  • Session 1 Franchising 101 – Building The Strategy October 16, 2013 2
  • Good morning India! Mike Adams Managing Director Franchise Asia Pacific Pty Ltd Sydney, Australia • • • • • 30yr franchise veteran Developing brands & people throughout Asia Pacific CEO/BoD & Asia experience India, SEA & China Forte for establishing multi-outlet distribution channels Franchise know-how across multiple industries & business formats 3
  • Why India – market drivers • BRIC+2 countries = allegedly 40% world’s growth during next decade • Phenomena driven by “Emerging Middle Class” which has… • • • Disposable income -> greater freedom of choice Desire to live like the West Changing values / eroding class structures • • • • • India = 1.2B pop & narrower band of wealth spread than some Colonial heritage left infrastructure, bureaucracy & English language Largest English speaking nation in the world More western centric business psyche than China World’s 4th largest economy • • Allegedly 100M middle class 2009 -> projecting 580M by 2025? India is potentially the largest BRIC market globally? 4
  • What is a franchise? An agreement (license) between two parties, where the… • Franchisor grants the franchisee a license (system) to market a • Product or service, using • Brand / trademark • Operating methods of a proven business format • In exchange for a recurring payment (royalty) • For a set period of time (term), and • Provides support to the franchisee for… • Initial start-up • Ongoing • It is in effect, “leasing” a business! 6
  • Corporate v. franchise terminology Head Office Regional Office Business Unit / Store Franchisor Master Franchisee Unit / Sub Franchisee 7
  • For franchisor - why franchise? Why franchise my business… • • • • • Leverage resources – access to capital & other resources for growth Growth via an outsourced sales & distribution channel ROI – return on investment Leverage the franchisee’s local market knowledge domestic & contacts Entrepreneurial management style - more motivated to maximize sales & profits than salaried staff • Local knowledge an important source of new marketing & product concepts 8
  • Is my business ‘franchisability’? “Franchisability” of your business depends upon… • • • • • • • • • • • • Franchisor credibility Market / product differentiation Knowledge transferability Market adaptability Proven / successful prototype Documented systems Franchise affordability Franchise ROI Market conditions & trends Franchisor capital availability Stakeholder relationship commitment Strength of management team 9
  • When to franchise? When & only when, you have developed…. • • • • • • Market scalability & scope research Proven & durable business format Stand-a-lone (clone-able) business Systematized the business Documented business processes Company track record 10
  • Franchisor advantages  The franchisor gets easier access to capital for rapid growth  The franchisor leverages the franchisee’s knowledge of the domestic market & regulations  Franchisees are far more motivated to maximize sales and profits than salaried branch managers.  Franchisees are an important source of new marketing and product concepts 11
  • Sourcing franchisees • • • • • Greenfield franchisee start-up Sell company outlets Competitor conversion Franchisee selection criteria & process You “grant” a franchise, not sell 13
  • Franchisee advantages • Proven business model - increased chances of business success • Independence to operate business - in business for yourself, but not by yourself • Established brand recognition & acceptance • Access to pre-sold customer base which can take years to establish • Established methods & quality - proven product, service & methods • Access to bulk purchasing • Consumer branding attraction for quality & consistency • Pre-opening support… • site selection, design / construction, training, grand-opening program • Ongoing support… • Training, advertising, operating procedures & assistance, ongoing support 14
  • Franchisee’s disadvantages • • • • Lack of independence – in business for yourself, but not by yourself Must operate according to procedures & restrictions set by franchisor Include products or services offered, pricing & territory. Initial franchise fee (goodwill), plus ongoing royalties & advertising contributions • Must balance restrictions & support with own ability / skills • Damaged, system-wide image can result if other franchisees performing poorly, or franchisor runs into problems • Limited tenure & franchisee may have little or no say about termination or renewal terms 15
  • Franchisee start-up costs • Start-up costs / initial investment - CAPEX • • • • • • • Initial franchise fee (goodwill) Leasehold improvements Fixtures & fittings Plant & equipment COGS Inventory (product) Various utilities, deposits, advisor fees, etc Working capital (through to break-even) • Ongoing operating P&L expenditure – OPEX 16
  • Franchising killers! • • • • • • Corporate mentality staff Franchisee’s don’t require support Business can survive on royalty alone Store selection criteria Franchisee selection criteria Unproven business format 19
  • Constraints franchising faces in India • Lack of franchisor vision • Franchisor executive themselves • Ability to credibly impart the vision to franchisees • Lack of systems & process • Ops manual is malleable & legal extension of franchise agreement • Skills & experience within franchisor team • Hiring wrong people / not hiring the company’s needs • You “grant” a franchise – not sell • Signing up anyone with a “heartbeat & cheque book” • Lack franchisee & location selection criteria & process • Too eager to grow the channel at expense of the network #1 Fix: Gov’t legislation for Prior Disclosure? 20
  • Franchise Knowledge Series International Workshop on Franchising & Business Growth 20 October, 2013 21