Ask John – Issue 3#3
This article appeared in Issue 3#3 (March/April 2009) of Business Franchise Australia & New Zealand
At the moment I have one territory and am in a position to make the jump to two. I am concerned about being able to work on two businesses at once, but I do keep hearing good things about multi-unit franchising. What should I factor into my decision?
There have been a number of letters on this theme so I am going to broaden your question to include those who are still in the process of choosing a system, with a view to multi-unit franchising (MUF).
MUF is surely the way of the future and already the ‘big thing’ in the US. Personally, I think that most people going into franchising today will probably have the ambition of ending up with three to five territories or even more. But while the principle is sound, some franchise systems are not (or not yet) structured and geared to make it as sensible and straightforward as it should be. Some factors to consider are:
- Is MUF being actively promoted to both existing franchisees and enquirers? A system that makes no mention of it is behind the times, uninterested, or incapable as yet of providing MUF-dedicated resources. At PoolWerx, we ask the question and if your end game is one territory, then usually our advice is to find another system;
- Is MUF made attractive by reducing franchise fees for additional territories, providing for diminishing royalties on rising turnover, and building in supplier-direct incentives? For example, while all PoolWerx franchisees have the same buy pricing, suppliers provide post-buy rebates or other forms of recognition to franchisees with MUF-boosted ‘group’ turnover;
- Have IT, reporting and other systems been developed so that you can centralise and manage a multi unit situation effectively?
- Have territories been structured to encourage you to develop into neighbouring areas? Having one franchise in Tasmania and another in Cairns doesn’t work;
- Is there a comprehensive, documented workplace health and safety system in place? If you’re employing people you will need to have this.
One of the end advantages of a MUF situation is that you get other people to work ‘in’ the business, freeing you to work ‘on’ it but this probably won’t happen straight away. You are likely to be working in one location while managing the other for a while and as they say, having two children isn’t twice as demanding as one; it’s three times the effort! Without your physical presence, your people might be opening 10 minutes late or closing half an hour early and if there’s cash involved you will need good systems to keep fingers out of the till. I should also caution against taking up your second franchise in a different system. Some people say it spreads the risk. I think it spreads mayhem!
I am in the process of researching a franchise and talking to working franchisees. It’s confounding because some are saying it’s the best thing since sliced bread, some say it’s the worst decision they ever made, and most are neither wildly enthusiastic nor critical. What’s going on?
Bill there’s an easy answer but not an ironclad solution.
I think you have to work on a 20:60:20 ratio. Let’s say you call 10 franchisees. Theoretically you can expect two to be ecstatic, six to be cautious, and two to be frustrated – perhaps extremely. That’s because my experience is that (roughly):
- 20% of a system’s franchisees will be over all the humps, making good money and seeing growth in the value of their businesses;
- 60% will be on their way, making money and getting there, but still facing hurdles;
- 20% should never have entered the system, or a franchised business of any kind.
If that’s the way it pans out, then you’re looking at a typical, reputable and viable system. But you will need to use your instincts. Chaos theory says at some point, some enquirer is going to encounter only the 20% of franchisees who are negative, or only the 20% who are ecstatic, and there are other factors in play regarding their response.
- Say that 90% of the time you love your job but you have had a stinker of a day, as happens to us all. You might well respond to a caller like a dog with distemper;
- Say you have had a bumper of a year but are moping through the down season. At that point, you are frustrated and peeved and your partner has just booked the family a holiday in Morocco;
- Say you have been busy as all get out and the last thing you need is an interruption to your day or evening. Your tone of voice will reflect this;
- Say you have just pulled in a fantastic new client (and might have celebrated accordingly).