As a way of developing your business, franchising has a lot to offer – But, Cameron Bayley finds there’s a lot involved before and after you hand over your processes to a franchisee.
A quick look online at what franchises are currently for sale in Australia brings up businesses such as photocopy centres, dog washing and pool cleaning services, as well as home loan providers and fitness centres. Sergio Alderuccio, from franchise consultancy Franchise Developments, is no longer surprised by the variety. "Ten years ago I wouldn’t have thought banks or post offices would turn into a franchise," he says. "I wouldn’t have thought mowing could be franchised or that the Wiggles would turn into a franchise. Now, even table-top dancing is going to be franchised."
While these examples might not have a lot in common on the surface, they can be connected. It all comes down to having a business that is replicable, says Richard Evans, CEO of the Franchise Council of Australia (FCA). This means, your business processes can be clearly documented. "In other words, you can give it to someone and they just open the book and follow it from day one and they can run the system."
If you’re finding yourself run off your feet, or if you’ve already opened a second business that is doing well, you might have a franchise-in-the-making and be ready to join the 900-plus franchise systems that currently exist in Australia. "What we would recommend is that a business has at least a couple of years’ trading history under its belt—ideally in more than one location, to eliminate the possibility of success being based on a unique location," Alderuccio says. However, it’s definitely not something to rush into, he says, warning that some businesses go into franchising too soon, with few systems in place, and spend most of their time playing catch-up and compromising their business practices. "If you’ve got the trading history, it not only says something about the maturity of the business, it also usually means you’ve the resources and the experience to go on with a franchising expansion plan."
Deciding to take the first step will take some preparation. In the preliminary stage, Alderuccio says there are plenty of books and magazines to help you get started. Then you’ll probably need to start consulting with experts such as specialist franchise consultants, the FCA, and specialist lawyers and accountants. Quite often these parties will work together to help a business launch their franchise, says Alderuccio.
He says the team at Franchise Developments recommends undertaking a full feasibility study of the business, taking in factors such as the business model, financial model, potential returns, positioning in the marketplace, processes and marketing. From this point, he says, the company can work out what documentation might be needed, such as manuals or agreements, and what compliance issues may need to be addressed.
While it may sound daunting, it’s certainly not about quashing any franchise dreams. "It doesn’t always only flesh out whether someone should or shouldn’t franchise, sometimes it’s just a matter of timing." Many potential clients will spend six to 12 months getting their business in order and then come back to start franchising, he explains.
Running a Franchise
Mark Langford, from computer game store GameTraders, which currently has nearly 40 franchises around the country dealing in new and secondhand games, says it took about nine months to get the first franchise up and running. He enlisted a franchise consultant, and found the majority of the work involved working with lawyers to construct the franchise agreements and, just as important, the operations manual. As the blueprint for a franchise, the manual comes in at around 200 pages. "It covers every aspect of the business. What you say the minute a customer walks in the door, how you address them, how you go up to them, what you say, how you close the sale, how you say goodbye, how you answer the phone."
While it may seem that running a franchise is simply a case of then handing over your operations manual to your franchisee and kicking back and waiting for the returns (which generally come by way of royalties earned from the gross yearly sales of each franchise), the ongoing role of franchisor is quite complex. "They have to have a certain empathy for the business and the franchisee," says Evans. Good franchisors are those who make sure they have a good team of advisers and staff around them, and know how to get the best out of them, he explains.
"You’ve got to have the power to dictate but you can’t go running around like a little Hitler," explains Langford. And advises franchisors to be aware of the substantial commitment by franchisees, who put up anywhere between $20,000 to $150,000 or sometimes more for a licence. "You’ve got to care about people who put their faith in you," he says. "You’ve got to be really good with psychology and what makes people think and why they react the way the do. And be a person who truly cares about their welfare, and realise that they’re putting their house on the line and everything at risk."
Naturally, picking your franchisees plays a big part in creating franchise success. With many franchisors looking for similar qualities in their franchisees, it’s becoming more competitive, says Alderuccio. Advertising, PR campaigns or business exhibitions are all good ways to find trusted partners, and nothing works better than word-of-mouth. "If you’ve got happy franchisees, they’ll often recommend someone or endorse you. You get a franchisee endorsement, it’s as good as sold," he says. "That’s why I think you’ve got to have a sound business. Culture is really important, because people buy into something they think is working well."
A lot of potential GameTraders franchisees come from visiting the store, but that’s not to say anyone who wants a licence gets one. "We’re pretty strict about who we let in. We have online evaluations and psychology tests. Then we have an interviewing process," Langford explains. "And then, if we think there’s any risk that they won’t be suitable we just say no. And it’s quite difficult to say no to an upfront franchise fee, but you’ve got to do it or you’re just going to have a big problem on your hands."
Once the franchisees are onboard, the business owner moves into more of a management type role. It can be a bit of a challenge to work out how many support staff are required, says Langford. "You get to the stage where you need another staff member, but you’ve got to have the extra income to pay for it." The head team at GameTraders operates with a support staff of just six, including Langford. "We run a fairly efficient ship, I suppose. If you had double the staff you’d go broke, you just don’t have the income. We’re all pretty efficient, we’ve got very good systems in place, we’re automating things, so it’s always improving."
To maintain good franchisee morale, it’s important that any changes to the business are supported by everyone in the business. When GameTraders started, it specialised in trading secondhand games only. Four years ago, Langford decided to change the business model and start selling new games as well. "We had a fair bit of resistance from the
franchisees. For them it was a big risk," he explains, adding that it took about a year to convince everyone this was the best move forward." There were a few who could see the logic, so they led by example." This has been the biggest challenge to the franchise so far. He also felt the pressure when deciding to re-brand the stores last year. With the associated costs for franchisees of getting new signage, it was a risk, but when the concepts were presented at the annual conference he hosts for his franchisees, the new look was applauded.
The advertising and marketing of your franchise business happens on two levels, explains Alderuccio. Because the franchisor will have more funds and resources, they will take care of the bigger picture. "As a general rule, franchisors take care of the corporate or the company advertising and marketing," he says, "The franchisee will normally be equipped to work at the local level. They’ll promote in their area, and develop an identity with leaflets, that sort of thing."
Evans says achieving this kind of balanced relationship between franchisors and franchisees is at the heart of the legislation that governs franchising—the Franchise Code of Conduct (FCC). The code sets out various aspects of the franchising relationship, including explanations of the franchise agreement, how to resolve disputes and what information the franchisor needs to disclose to a franchisee. It’s more than a guide, however, with all aspects enforceable by the Australian Competition and Consumer Commission under the Trade Practices Act.
The code is actually a tribute to the Australian franchising culture, which is one of the best in the world in terms of best practice, says Evans. "We concentrate on the relationship between the franchisor and franchisee and we tend to concentrate on a win-win relationship, as opposed to just taking the money and telling the franchisee ‘Thanks for your money, now go off and make it work’."
With the growth GameTraders is seeing, it’s proven to be a way to expand the business and develop clear goals for the future, which includes hitting the 100 franchises mark. "We’ve got to the stage now where we know exactly where we want to go," Langford says. He’s glad he made the choice, but understands business owners might find it daunting to trust something they’ve built in the hands of others. "When it’s something that you developed, it’s very important the people follow it. It’s important to us that they succeed." Evans takes an almost parental view of the role franchising can play for any business owner with an entrepreneurial bent: "For anything to grow, you’ve got to let it go."