When unemployment soars increased interest in franchising often follows - as many individuals take charge of their career by purchasing and operating a franchised business. This proved true during the 1990s and current sector reports suggest building prospective franchisee interest in the US and UK. We predict increased New Zealand activity will follow.
Now is also a good time to consider franchising a strong, established multi-location business for a number of reasons. After establishing the right structure, one of the most important ingredients in a successful franchise business is to select good franchisees. When interest in franchised opportunities builds good franchise businesses have the opportunity to improve both franchisee quality and network growth - thereby grabbing bigger market share.
Another key advantage in the current environment relates to motivation. Franchisees will typically outperform company manager because of incentives. Franchisees' investment incentivises (or motivates) the franchisee to make their outlet a success. The potential profits (or downside losses) faced by franchisees provide a type of incentive rarely found in a company employee situation.
For many companies, small and large, access to capital provides an aligned franchising imperative. Franchising can facilitate more rapid growth as franchisees provide the investment to establish and operate additional stores/locations. For some established chains converting existing company-owned outlets to franchises can improve return on capital employed (ROCE), and free capital for investment in other areas of the business.
There are also other advantages, not least having a 'hotbed' for innovation - provided through a network of franchisees motivated to improve their businesses.
However while franchising has the potential to build growth and leverage profitability, a franchise system must be well-structured and managed to achieve these objectives. This is particularly true in the current environment.
The franchise must be appropriately structured for your objectives, your business, its market and wider-environment the business operates within. Key here is first determining the feasibility of franchising for your particular business, and second, establishing the necessary structural configuration and infrastructure to launch a credible franchising programme.
Once the franchising programme has been established the managers and executives of the franchise company need to learn how to be successful franchisors. Developing and managing a network of franchisees requires a very different approach to managing company employees.
Franchising can provide many advantages. However, a franchise programme must be developed properly. It will require investment and it does require the input of specialist franchising advisors.
Win Robinson is Managing Director of Franchize Consultants (NZ) Ltd, the leading specialist franchise consultants in New Zealand since 1989. www.franchize.biz