Feature

Growing A Business Through Franchising

Some of the world’s best-known brands – McDonald’s, Pizza Hut – are franchises. What is less well-known is that this route can be an effective path to growth for many kinds of scalable businesses.

Franchising a business has long provided a low-cost and relatively low-risk way of expanding a business, not just in the UK but internationally. Some of the restaurant and fast food sector’s best-known brands are successful franchises, including McDonalds, Subway and Pizza Hut. In the UK, the franchise model is alive and well across many parts of the business-to-business and business-to-consumer worlds. Franchising has also grown steadily over the past two decades. According to the British Franchising Association, UK franchises have a combined turnover of £13.4 billion compared to just over £5 billion 20 years ago. It also employs over half a million people.

Tom Endean, Marketing Manager at the British Franchise Association, believes members have often found this method to be a straightforward and cost-effective means of growing their businesses. It also provides a secure route into business life for franchisees. Franchise outlets are six times more likely to survive than non-franchise start-ups. If the right systems and approaches to recruiting franchisees are in place, then the business can expand at an impressive rate – faster than organic growth. It is also possible to operate a wide network of perhaps 100 outlets without the kind of infrastructure and level of expense that a corporation with centralised HR and IT would require.

Greater commitment

As franchisees have to pay an upfront fee, business owners also benefit from a greater level of commitment, Endean argues. “The difference between a franchisee and a store manager is vested interest,” he says. “A franchisee will work the business harder.”

However, there can be drawbacks. It is a bad idea to franchise an ailing business, for instance. All you will do is replicate problems on a larger scale. Before it is franchised, a business needs to be proven, working and transferable. “Your model needs to be one that can be operated in more than one location,” says Endean. “If you have set up in London you need to ask whether it has the same chance of success in other locations.”

Scaling a business through franchising is reliant on considerable upfront effort in establishing strong systems, brand and trademark protection and good procedures – all of which can take time and expense to put in place. The right advice is important. Endean recommends using BFA-accredited advisors for these, plus putting in place a watertight franchise agreement.

“Your model needs to be one that can be operated in more than one location. – If you have set up in London you need to ask whether it has the same chance of success in other locations.” - Tom Endean, Marketing Manager, British Franchise Association

Recruitment

Recruiting the right people as franchisees is a significant risk area and one that can eat up a great of resource in terms of time and expense. “If the business you have built is heavily reliant on your own skills, you need to ask are you going to be able to find the right people,” says Endean. And this is not an aspect of franchising that can be skimped on. “Recruitment efforts can generate up to 100 serious enquiries, so factor in the time and costs associated with that,” he adds. “You want the right people, with the right aptitudes and attitudes. If you have worked hard to establish your business and brand you don’t want to squander that.”

Then there is return on investment. Franchisees pay upfront and ongoing fees, but they take any revenue in return for their efforts. It is up to the originator of the business to decide whether they can live with a lesser return, albeit arguably with faster, more secure growth.

Case study: Jaspers

Nathan Siekierski, Director, founder and joint-owner of corporate catering business Jaspers, regards franchising as an intelligent way of scaling up an enterprise. “One of the biggest challenges of going to multiple sites is the people risk,” he says. “We thought that someone we employed would not have the same level of investment as someone who had effectively bought into the business, not just materially, but emotionally.”

Jaspers, which provides on-site catering and “delivered hospitality” for business clients, took on its first franchisee in 2008, and now has 22 franchises, with plans to increase that to 26 over 2013. Siekierski believes that the approach gives a better net growth experience than organic growth.

“We stopped recruiting for 18 months during the recession because we wanted to make sure our franchisees had the proper level of attention from us. But we see it more as a partnership,” - Nathan Siekierski, Director, founder and joint-owner, Jaspers

However, recruiting the right individuals as franchisees is challenging. “It’s not difficult to find people with money to invest, but the correct match is worth 20 incorrect matches,” he says. “Ethically, you have to lay on the table what’s required.”

Becoming a franchisee can require considerable upfront investment, says Siekierski. In return, the franchisor must provide thorough training and ongoing support if the relationship is to work. “We stopped recruiting for 18 months during the recession because we wanted to make sure our franchisees had the proper level of attention from us. But we see it more as a partnership,” he says.

Franchising has been a rewarding experience for Jaspers, and not just in material terms. “One thing that doesn’t get mentioned is that franchisors get a buzz from seeing people get into business for themselves,” he says. “You get that commitment. A lot of franchisees want to build something for their families. Their children are a big motivating factor.”

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