Franchising part 2: What to consider when finding a frachising partner

From our previous discussion on franchising, we were able to establish what franchising is and how it can be an effective model to break into new business territories and begin to see results within a reasonably short period of time. We described franchises as authorizations granted by a government, or a company to individuals, or groups enabling them to carry out specified commercial activities. We also described the two parties involved in a standard franchise agreement (the franchisor and franchisee) and how both parties can work to create a mutually beneficial business partnership where the strengths of both parties are properly leveraged upon, and the risks minimized.

Risk is part of business. In any business endeavor, there are tasks and ideas whose eventual outcome cannot easily be predicted. This does not mean that the business person should abandon his pursuit. Risk can be calculated, managed, or avoided altogether with the right amount of knowledge and foresight. In franchising, much of the risk involved is in the choice of what type of investment to go into, and which business outfit to partner with, therefore, before going into a franchise agreement of any kind with any partner, there are crucial issues that need to be considered.

Brand and Product Knowledge

Firstly, the franchisee, even before attempting to secure a franchise partnership, must ensure that the basic skills and knowledge required for whatever field of interest being considered, has been acquired. You must develop competence and know the ropes of the business of your interest before thinking of attaching yourself to the successful brand of your choice. If required, further training and competence building initiatives can be organized by the franchisor to align the franchisee and his company to the parent brand.

Control

One of the most important things to consider before joining a franchise is how much control you would like to have in your business. The unique thing about the franchise model is the uniformity of processes and procedures. So much so that many customers hardly know which outlet belongs to the parent company and which is a franchise. This uniformity means that the franchisee does not have that much latitude to do things his own way. In many franchises, staff are trained to dress, work and receive customers the same way as they would in any branch of the company in any state or country. This takes away a lot of control from the franchisee. The franchisee may have a lot of ideas on how he wants to run the business, but may not be able to implement them due to the constraints imposed by the franchisor in a bid to maintain uniformity in the franchise. Any individual interested in joining a franchise must be prepared to see his company not as a single unit, but as a small part of a complex arrangement of organizations operating under the same umbrella.

Health Check

The main reason people buy a franchise is to be able to identify with a bigger, stronger brand and so, attract customers based on the strengths of the acquired brand. But one thing to consider before taking up the identity of a bigger brand is whether such a brand is on the way up, or actually in decline. How does the public perceive the brand now? Where is it in the brand cycle? Is the brand growing? Is it entering maturity? Or has it hit the brand acceptance wall and begun to decline? Joining a brand already in decline can be a hazardous investment. You may be better off on your own, or joining a smaller, but growing brand than a dying one. Research is another important item on the ‘to-do’ list before joining a franchise. Find out as much about the company as you can. Find out about their financial performance over the past few years and how much they project to make in the short-to-medium term. Visit the business in person, if possible to assess the staff and the way things are done there. Speak to them to get a feel of their morale and welfare. Find out about their organizational culture. Find out whether the franchisor has a well-organized coaching program. Do they actually provide on-going support to their franchisees as expected or is it mere conjecture? Do they adhere to industry standards, rules and regulations? No amount of research on the intended franchisor can be too much. You don’t want to find your business suffering as a result of brand reputation and financial mismanagement when the regulatory bodies slam huge fines on the franchise. Speak to other business owners who have joined the franchise. Get their advice on whether the venture is worth going into.

Another research related consideration in joining a franchise is the overriding internal and external market trends in the sector of interest. Turning a blind eye to business trends can turn out to be calamitous for any businessperson, particularly where franchises are concerned. Conversely, having a finger on the pulse of local and international trends can open the doors to enormous success in any business field. Take for instance, a business owner who joins a transportation, or haulage franchise business only a few weeks before there is a government ban on the movement of heavy duty trucks on specific routes on specific hours of the day. Such a policy change can adversely affect the business. The risk involved could easily have been avoided if the business owner was previously sensitized about the likelihood of such a policy being introduced in the near future. On the other hand, having knowledge of a planned reduction in import tariff can be advantageous to businesses planning to join an importation franchise. Research is an important aspect, however there’s a fine line between carrying out research to gain knowledge to understand the possible policy trend and direction and “insider dealing” which is a criminal offence. People have gone to jail for long periods in the developed world for such illegal practices i.e. using privileged confidential information to act pre-emptively to secure business advantage. Mr. Saunders, one-time M.D. of Guinness International was sentenced to 12 years for share –trading-fraud. People who manipulated stocks based on inside knowledge of interest rate changes have also been punished. So, as a business owner, it pays to toe the line of caution.

Negotiation

After conducting sufficient research in the area of interest and the identified brand to partner with, your negotiation platform is usually another key aspect to be considered. What is it about you and about your business that makes it a worthy addition to the already established franchise? You have to be able to put your best foot forward so as to be able to give yourself an advantage at the negotiation table. The best way to do this is to start by preparing a good franchisee business plan. The franchisee’s business plan must be a comprehensive success plan, and not just a financial document. There must be a demonstration of an understanding of the franchisor’s mission, vision and organizational culture displayed within the plan to let the franchisor understand that you know all about the company and would be an easy fit into the overall scheme. Naturally, the financial benefits on both ends must also be properly detailed.

Relationship

With enough knowledge of franchising, the next step would then be to actually approach a company and get things started. The choice of what business to go into and what partner to approach is really down to the areas of personal and business interest, but what is not in doubt is that there are opportunities out there available for franchising even in Nigeria. Areas in Nigeria where franchising has been successful include hotels, restaurants and fast food; telecommunications, transportation, education, agriculture, construction and many more.

Some of the most successful franchise brands in the fast food industry include Mr. Biggs, Kentucky Fried Chicken, Tantalizers and Sweet Sensation among others. Mr. Biggs is Nigeria’s first indigenously owned fast food franchise. Founded in 1991, Mr. Biggs now has about 165 outlets across Nigeria. It is owned by United African Company of Nigeria (UAC). In the 90’s, Mr. Biggs was the fast food place of choice, but the franchise is perhaps not as widely patronized as it once was, due partly to the influx of other local and international brands like KFC. However, with its wide spread across the nation, the brand is still one to be reckoned with.

A recent report in October by Businessday, stated that hotel brands made about N5 Billion in Nigeria in 2015. So, if you are looking for a money funnel, a hotel franchise might be one to explore. Nigeria has over 15 international hotel franchises in operation in many of its big cities. Globally recognized brands like Sheraton, Hilton and Nicon are well represented, and provide some of the most luxurious experiences in Africa. There are also smaller and more affordable hotel brands in operation. Owning a hotel is highly capital intensive, but has its advantages. Beverages provide another huge and affordable opportunity for franchising in Nigeria. Global beverage brands like Coca Cola, Pepsi and Guinness are all present, with Nigerian Breweries giving them a run for their money with their products. These brands require a nationwide network of partners for distribution and sales. This opportunity has been capitalized on by thousands of smart business onwers nationwide.

One cannot discuss the heavyweights in franchising in Nigeria without mentioning the telecommunications industry. Since 2002 when the GSM networks became operational, many Nigerians have seized the opportunity to partner with them as recharge card dealers, both on a large and small scale. The telecommunications sector is second to the oil industry in terms of contribution to Nigeria’s GDP. There are many segments of the value chain that require different sets of skills and knowledge. If you’re interested in franchising, it would be wise to conduct some research to see where you fit in.

Finding and taking advantage of a profitable franchise opportunity comes from a combination of personal competence, proper research and an ability to blend into already set standards and regulations. The advantages of franchising include access to a successful business model of operation, trademark recognition, management and employee training, ongoing research and development, proven profitability, and a higher business success rate than individual start-ups. Having the required knowledge of what to consider before joining a franchise and what franchise to invest your time and resources in, is a sure way to achieve the desired results for both the franchisee and the franchisor.

MUNA ONUZO