Positive Vibes

• DCS Article - Positive Vibes.pdf

DCS Article - Positive Vibes.pdf

Not all franchise systems are created equal. What is it then, that elevates one network above its competitors and how can a potential franchisee select the right business opportunity based on the limited information available during the recruitment process? In the experience of DC Strategy the attributes that make a good franchise system, namely its brand, systems and support, training, financial value proposition and the synergy between the network and individual.

Brand

Not only is brand one of the most difficult to evaluate it is also the most deceptive. Many potential franchisees are excited by a prominent or rapidly growing brand and lose their focus on the operation and profitability of the system. It is therefore critical not to misinterpret momentum for success, but rather to evaluate the brand based on its recognition within it relevant target market.

Strong positive indicators are the franchisor’s commitment to invest in and protect the brand, the local area marketing support and tools and most importantly, the extent to which the brand assists in generating customer demand.

Systems and support

Being a part of a franchise system is an ongoing partnership where the bilateral value transfer is sustained throughout the entire tern, of the agreement. If the role of the franchisee is to provide the operational enthusiasm and micromanagement of the day-to-day, then the franchisor should endeavour (whenever possible) to develop centralised systems that facilitate these tasks and ease the operation of the business.

When evaluating a network, the extent of these systems and potential value (as estimated through the cost or labour savings in outsourcing these services) must be measured by the prospective franchisee.
It is natural for the franchisor to charge for these services, however, the franchisee should discover the franchisor commitment to the provision of critical systems, the associated remuneration structure and how it may change over the term of the agreement.

Franchisees often select a network because of the system’s ability to complement the owner-operator’s skill-gap during the early phase of establishing the business. A long term approach is recommended however, and the franchisee should also consider how the franchisor’s systems will support the owner-operator after this initial phase.

Will the systems facilitate the management of additional sites or potentially multiple locations? And most importantly, what ongoing support will the franchisor provide relating to the day-to-day operation, management and training of staff, sales and marketing and other key areas of managing a business?

Often these questions are best answered by existing operators within the system or can be gauged through the franchisor’s approach to developing a comprehensive infrastructure, which facilitates the ongoing profitability and growth of the network.

Training

The training provided by the network should be scrutinised to determine the elements that it covers and to what level of detail. It is worthwhile understanding what training is delivered through the induction, what assistance is provided during the first few months of establishment and whether the franchisor has proven experience in core activities.

Many systems which have grown from a strong business to a franchise network might potentially lack sales, management or reporting expertise. One such example would be a service business which has grown due to strong client focus and referrals but whose proactive sales have always been low.

Consequently, if a core activity, such as sales, is not covered in sufficient detail or is outsourced, it is prudent to enquire about the company’s expertise around the area. This feeds into its ability to provide ongoing training and to support franchisees in achieving business success.

It is also important to understand what structured ongoing training programs are being utilised by the franchisor and how information is shared between franchisees. Lastly the prospective franchisee should enquire as to what expectations the franchisor has of them and their knowledge and skill sets, as some systems may be able to exit franchisees whose skills are below expectation.

Financial value proposition

Entering a new and growing system or one which is more established both present valid opportunities for the owner- operator. Depending on which option is selected, a different approach to evaluating the financial value proposition must be taken.

In early systems it is important to understand the cost and revenue drivers of the business and how these assumptions or figures were derived, whether they are achievable and who the performance can be benchmarked against. 

In a more established system the figures should be historical and representative of the existing network/industry. Also it is important to ensure that all costs are explored, including the cost of finance, salaries and operation. Wherever possible speak to existing franchisees and employees. 

Franchising: September/October 2007

Kamil Kreiser

Kamil Kreiser is an Executive Consultant at DC Strategy.

DC Strategy is the region’s leading specialist consulting and legal firm. Our specialist teams in Strategy, Franchising, International and Legal have developed the networks and brands of many of the region’s most successful businesses. Contact Kamil Kreiser at kamil.kreiser@dcstrategy.com