Franchising: A good business model?
Written on the 22 December 2022
According to the Australian Bureau of Statistics, 48% of start-up businesses fail within the first four years of operation. And apparently, only 77% make it to the end of their first year. It seems that the survival rate of the non-employing businesses is even worse.
It is difficult to ensure the success of an entrepreneurial venture. With overcrowded international marketplaces attracting an ever-increasing influx of new companies each year, it can be difficult to break into any industry with a unique value proposition that is both appealing at first glance and yet a sure bet for investors.
So, how do you beat the odds?
For the longest time, and despite the occasional bad press, franchising has a proven record for providing franchisees and franchisors excellent opportunities to build lucrative businesses and to create generational wealth.
The franchise industry remains a viable and attractive business model for many entrepreneurs and investors.
There are numerous paths to success for the modern entrepreneur, one of which is significantly less risky than going it alone, which is franchising the business – or if you are looking to invest, then investing in a franchise brings its advantages. The abundance of successful franchises around the world attests to the benefits of this type of this business model. One could consider the global megabrands of McDonald's, Hilton Hotels and Hertz, but closer to home the successes of Poolwerx, Boost Juice and Total Tools are within easy reach of a business looking to expand their enterprise value.
So, let’s take a quick look at the advantages of franchising.
Franchising as a proven source of capital
Franchising your business allows you to fund your network growth without resorting to debt or giving up equity. That’s a fact. If you want to retain control of your brand, but you’d prefer not to go it alone, then recruiting the right investors in terms of franchisees willing to buy into a business is akin to procuring a funding source that also works towards their generational wealth.
The advantages of brand recognition
Good franchisors protect their brand. And a great brand provides a halo effect to those franchisees who buy into the business model. Franchisors who understand the importance of brand power continually invest in the awareness and desirability of their brand. And this is an attractive trait for franchisees. They want to know that their investment is not stagnant and that the asset is growing as a result of a brand moving with the times. For franchisees, the recognition that comes with being a part of an established brand is a consequential advantage. Specifically for a franchisee, this brand recognition reduces their investment in start-up advertising and establishing a client base.
A ready-made management team
While each franchisee is established as a separate business entity, the franchisor is deriving a highly motivated and commercially minded team of collaborators.
Franchisees share in the collaborative benefits of the organization through support, experience, knowledge, and community. But similarly, the franchisor benefits from the collective experience garnered from the frontline operations of the franchisees. This kind of experience has delivered some of the most innovative service offerings in the franchised Australian market.
A great franchisor focuses on delivering profitability to the franchisee. The happiest franchisee is often the most profitable.
A franchisor can deliver franchisee satisfaction by providing the best means to make money. In concrete terms, this will include training programs, marketing support, technology platforms, and accounting systems and tools which take the burden of the “back-office administration” away from the franchisee.
Enabling franchise partners to focus on delivering outstanding customer service rather than the administration of their business helps them unlock their earning potential.
For the benefit of franchisees, a good franchisor will have a team of professionals ready to support franchisee operations, marketing, finance, purchasing, and training.
It’s also worth noting that at the start a franchise requires less time and effort than would otherwise be necessary to open and start a similar business.
Choosing the right business partner
The phrase “commercial marriage” has been coined to describe the partnership between franchisor and franchisee. It is a relationship based on trust, that is mutually beneficial. We have a saying; “If you wouldn’t hire someone to run one of your corporate stores, you wouldn’t hire them as a franchisee!” And it is imperative to stick to this mantra. Why? Because a bad operator will destroy your brand equity faster than you can say …. Well… brand equity. Every touchpoint with employees, the cash register and the customer is a touchpoint for either excellence for your brand or disaster. The objective in putting your trust as a franchisor into the hands of a franchisee is so that they will adhere to your brand guidelines and your proven and tested systems. This includes the customer experience. So, choosing the right business partner is like choosing a soul mate, someone who mirrors your values.
Franchises providing risk minimization
Starting a new business is risky. Opening a franchise is no exception. Trends may shift, causing sales to plummet. A torrent of new competitors may emerge in your area Your company may fail to generate enough revenue to repay your debt. Topically, extremely high inflation may cause your costs to rise and your customers to purchase less.
The risks are the same for a franchise as for a standalone start-up.
However, statistically, the risk of failure is significantly greater with a small business than with a franchise model, especially if an existing franchise is purchased.
The franchise business is appealing not only because there is an existing brand, a system, and a process in place, but also because you’re not going it alone. A true partnership means complementing each other’s weaknesses and driving the network forward in synergy.
If you are interested in franchising your business and growing the footprint of your business, get in touch and click here to book a call with our experts.
Barry Money is the Group CEO of DC Strategy. He is a graduate of the Australian Institute of Company Directors and a C-Suite professional, with a MBA in entrepreneurship. For the first ten years of Barry’s career, he consulted in Toyota’s franchise standards to the global Toyota network, including leading innovation and transformation projects. Barry has senior corporate executive experience across multiple disciplines including sales, marketing, export, customer service, engineering, systems development and supply chain with full accountability for P&L. Originally, Barry trained as a linguist and interpreter. After many years living and working all around the world, he is fluent in Japanese, French, German and conversant with several other languages.
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