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Franchisee Advice

The Danger Of Being Franchisee No. 1

Becoming a franchisee before a brand has become large (and expensive) can be tempting. But does the potential benefit outweigh the risk? Here’s what you should keep in mind.

Jeff Elgin

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Is it wise to become one of the first franchisees in a new franchise system?

Sure, it’s a thrilling proposition to get in on the ground floor of what is hopefully a great concept. And it might be particularly lucrative if start-up costs (compared with those of long-established franchises) are low.

But, of course, the downside is that some new franchises don’t survive the journey and are buried in unmarked graves along the way.

We-recommend-tickWe recommend: Financial Facts you Need to Know About Franchises

Before buying into a young or unproven system, it’s important to weigh the pros and cons. Most people think of young franchises as small start-ups, but there are typically three types of businesses in this category, including established companies that have finally decided to franchise.

The common denominator is that each is asking you to invest when there’s little or no proven results from other franchisees who have gone before you.

Here’s a look at the most common types of new franchise opportunities — and the questions you should ask before signing up.

1. The mature company that is new to franchising

In this situation, the company typically has many years of experience and has opened a number of company-owned units.

The people at the top know the business inside out and have worked out the bugs in the operating methods.

The only transition the company needs to make is learning how to work effectively with franchisees, rather than employees.

This is typically the least risky young franchise to invest in, though it can still be a challenge to deal with the growing pains.

Questions to ask:

  • How do your training programmes for new franchisees differ from the previous training programmes for new employees?
  • What support systems do you have in place for franchisees, such as manuals, DVDs or online intranets?
  • Are you willing to treat franchisees as business owners?

2. The experienced franchise company that is changing its traditional operating model to something new

Let’s face it, most companies don’t change their business model unless they are in trouble.

We’re seeing a lot of this in today’s market, especially with retail and discretionary-service operations, as the continuing recession has hammered franchisees’ results.

Though the company may have a big name in the marketplace and substantial operating experience, there is little assurance that the ‘new’ operating model will be a success until a group of new franchisees have put it to the test.

Questions to ask:

  • What research and testing supports the proposition that this new model will work better than the old one?
  • How many units of the previous model have failed in the past two years?
  • How many do you expect to lose in the next two years?
  • What changes have been made to your marketing programmes to support the new model, and how will you allocate marketing support and dollars in the future between the new and old models?

We-recommend-tickWe recommend: Understanding the Terms of Agreement

3. The fairly young company that’s new to franchising

You’ve got to admire the bravado of entrepreneurs who have the confidence to start a company and then begin franchising with little or no practical experience. That’s how most of the big franchise companies got started.

Ray Kroc of McDonald’s or Fred DeLuca of Subway are just two examples. That said, this is by far the riskiest venture to invest in. For every one success story, there are dozens of others that did not succeed.

As a new franchisee in a young system, you’ll have to suffer not only through your own learning curve, but the franchisor’s as well.

In fact, you may wish to find a different franchise with a proven track record or else wait a year or two to see if the young company can create a reliable success pattern with other new franchisees.

We-recommend-tickWe recommend: What a Franchisor Wants

If you decide to take the risk anyway, the rewards for being a pioneer — namely, better economic terms and intimate relationships with top executives — can be great if the business succeeds.

Questions to ask:

  • Do the company executives have previous experience growing a franchise company, or are they working with advisors who do?
  • Does the company have sufficient cash reserves to weather any storms during its initial ramp-up period?
  • How many training and support people does the company have and what is their background and experience?
  • What kind of discounts on fees and other expenses are you offering to the initial group of pioneer franchisees?

Jeff Elgin has developed a consulting system that matches pre-screened, high-quality prospective franchisees with the franchise opportunities that best fit their personal profile.

Franchisee Advice

6 Questions Before You Discount

Try this checklist so that discounting doesn’t give you nightmares.

Richard Mukheibir

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For some retailers, discounting is a way of life. Most, though, begrudge the thought of discounting – and I completely identify with that.

It was not until last year that we ran our first company-wide discounting, our “Spring Clean” campaign. It took Trevor Locker, our Chief Operating Officer, to convince me that there are times when discounting makes great business sense – just as there are times when it could spell business disaster.

Here is the checklist of questions which we hammered out as a guideline to successful discounting that will let you sleep peacefully at night:

1. Is this a stock clearance?

Some businesses stock ranges that have a very short shelf life, such as clothing that quickly goes out of fashion. If this is your market, you need to learn to accept that some of the goods you have bought in will be less appealing than others to your customers. The sooner you shift them out of the store through sale discounts, the sooner you can replace them with goods that repay you with a full profit.

Related: What To Know About Franchising Your Business

2. Is this a cashflow crunch?

If you are reluctant about devising quick discounts on selected ranges to generate enough cash to pay the rent, you are right. This is a red flag that your business could be in trouble. Pay attention and spend time focusing on how you will recover once you are past this immediate crisis – otherwise you are in a downward spiral.

3. What are you celebrating?

Maybe you have a business or seasonal anniversary that you want to celebrate. Selected discounting in this situation can help you reward repeat customers and consolidate their loyalty as well as attracting new customers into your business.

4. Is your promotion a win-win?

Long-term repeat discount promotions can have a negative impact on even your most loyal customers. Effectively you are training them to wait for your discounts – unless you set up a win-win strategy such as partial discounting. A great example of how this can work is Steers’ Wacky Wednesday. Customers win when they come into the branches for a discounted hamburger. Steers wins because customers still pay the normal price for cool drinks, chips and so on, sales that the company probably would not otherwise make on a quiet midweek trading day.

5. Are you joining the herd?

black-fridayBlack Friday is a classic example of this. Some retailers have felt stampeded into offering discounts because they worry that everybody else is. The jury is still out on whether this new trading phenomenon increases sales overall or just moves them out of December and into November. To benefit most, you need to have stock that you want to clear or loss leaders that you have bought in at prices that do not cripple you financially.

Related: 5 Last-Minute Tips For Small Retailers To Boost Black Friday Sales

6. Do you own your own sale?

Our company-wide “Spring Clean” concept sale was a great example of finding a reason to discount that worked for our branches, our customers and our brand and meant that our discount was not drowned out in the marketplace.

We encouraged customers to bring us unwanted goods from their homes and benefit from freeing up the cash value.

At the same time, we also attracted customers into the stores to pick up bargains from stock that we wanted to clear. Running this promotion at a time of year when many other retailers are quiet promotionally meant that we owned the spring-clean discount concept and it highlighted our brand across the market.

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Franchisee Advice

What To Know About Franchising Your Business

For many businesses, franchising is an excellent route to growth, opening up new opportunities and markets. Laurette Pienaar, National Franchise Manager at Nedbank, unpacks why it’s worth considering this route.

Nadine Todd

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Vital Stats

  • Player: Laurette Pienaar
  • Position: National Franchise Manager
  • Company: Nedbank Limited
  • Visit: nedbank.co.za

What type of business is ideally suited to the franchise model?

Franchising has been proven successful across all industries, including the automotive, food, entertainment and retail industries. However, several key qualities ultimately determine a concept’s ability to successfully become a franchise.

Firstly, the business model must be scalable and able to be repeated in several locations. Secondly, there must be demand for the products sold and, thirdly, the franchise model must be proven as profitable.

Related: (Infographic) 7 Digital Marketing Strategies For Franchises

Why is franchising a good growth option?

Franchising is often used as a cost-effective growth strategy for businesses. A key benefit of this strategy is that no capital layout is required for a new franchised store as opposed to corporate-owned stores.

Franchised stores are also proven to be more successful than corporate-owned stores. This is mainly due to the fact that the franchise owners have a vested interest in the store, whereas corporate stores are supervised by a manager. Franchising is therefore also a great way to build your brand.

What should business owners focus on?

Franchisors should set up good infrastructure to support their franchisees, including good upfront and ongoing training to both the franchisees and their staff, the correct legal advice and assistance, and a strong operational team to assist franchisees daily.

Many successful franchisors provide support by expanding through vertical integration, which provides franchisees with logistics, supply chain security and product consistency.

Several franchisors advocate a structure with both franchisee and corporate-owned stores. This enables a franchisor to keep in touch with the daily challenges franchisees experience and new products and solutions can be tested at a corporate store before being rolled out to the franchise network.

How can franchising consultants assist business owners?

Franchise consultants provide daily operational support to franchisees. They are responsible for daily store visits to assist with quality checks, process flows, supplier relationships and, often, financial assessments. They are a helpful soundboard on any improvements to be made in the business model and can convey suggestions to the franchisor.

Related: The Secret Sauce To Great Franchise Leadership

What challenges should business owners be aware of?

Businesses looking to franchise need to ensure that their business is teachable to others. Overcomplicated products and systems may deter franchisees from investing in your brand.

Franchisors have to do ongoing introspection regarding their company culture. For example, does the culture promote innovation and inspire franchisees and consumers, which ultimately is a culture worth investing in?

New franchisors’ selection criteria for franchisees are often not sufficiently thorough and comprehensive. For a new franchisor, it is important to choose good quality franchisees and to have strict selection criteria to ensure that your brand remains reputable and stable during fast-expanding cycles.

What lessons can be learnt from SA’s successful franchises?

Businesses looking to expand through franchising should consider setting up several corporate-owned stores first. This assures potential investors that your business is based on a proven model with a track record and supportive infrastructure.

There is not always a one-size-fits-all model. Many franchisors have created custom models to accommodate and adjust to the need of a specific property or consumer market. A great example of this would be the food industry where many franchisors offer shopping centre concepts, drive thrus and kiosk or express concepts. Consider this when developing your model.

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Franchisee Advice

Develop Digital Marketing Competency In 3 Simple Steps

Conquering the digital revolution needn’t be daunting. Polish up your tech skills and watch your digital marketing prowess increase throughout your franchise.

Diana Albertyn

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As a franchisor, digital marketing may be proving to be a challenge due to the unique structuring of the business.

“The very nature of franchises is ‘structured’, however, when it comes to marketing, that structure often lacks,” says Marcela De Vivo, Founder and CEO of Gryffin Media.

Franchisors and franchisees often struggle to reach common ground when looking to achieve different marketing goals. While the franchisor needs to control the brand in its entirety, the franchisee wants to market their business using particular strategies suited to their location.

Research has found that smartphones are the biggest influencers of 82% of users when they make their in-store purchase decisions while. It’s for this reason that the importance of digital marketing for franchises has increased.

Here’s how to harness its power of influence, amplify foot traffic and solidify brand loyalty:

1. Recruit digital natives and early adopters

As much as you’re the leader of your franchise network, there are franchisees in your chain you could learn from. The global increase in millennial franchise owners means it is highly likely that you’ll be able to identify early digital adopters within your franchise network.

“The best people to learn from are those who have been in your shoes before,” says Matt Forman of the Franchise Centre at Griffith University.

“Encourage and support their efforts and use them as case studies to demonstrate to the rest of your franchisees the value of digital marketing, and how to do it right.”

2. Invest in training your team

“Each digital competency level requires more education and resources in order to integrate digital marketing with your physical stores,” says Forman. For this reason, regularly investing in continuous training for your team so as to ensure they keep abreast of any new and emerging trends.

Proactivity and adapting to the constantly evolving digital landscape led KFC to open a LinkedIn account for its founder and mascot Colonel Sanders. KFC’s out of the box tactic is a fresh approach to what has long been considered a B2B platform, under-utilised as a B2C platform.

3. Apply custom targeting techniques

The discovery of new and small businesses is being fuelled by Google searches, social media and online reviews, making these platforms a goldmine of invaluable tools.

Leveraging certain custom targeting techniques like easily searchable keywords and exposure on other reputable and high-traffic websites, gives your franchise’s digital marketing efforts a boost. This results in an effective campaign, favourable reviews and meaningful and lasting interactions with consumers “whether it’s a reply to a Facebook comment or a retweet,” says Entrepreneur’s Emily Conklin.

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