Secrets to Succeed as a Franchisee
You may have come across the statistic that nine out of ten franchisees renew their franchise after their first experience.
And if you think like me you will presume that the failure rate for a franchise business is about 10 per cent. To make sure you’re not in the 10 per cent, I’ll highlight a few areas to help you minimise the risk.
But first let me ask you a question.
What does opportunity mean to you?
The term is widely used by business professionals and ‘want-to-be’ entrepreneurs, often meaning different things to different people. Just because you have an idea does not mean it’s an opportunity. I would define an opportunity as “The process of articulating an idea, assessing its commercial value and matching that with your capabilities to make money out of that idea”.
Do you realise that for an idea to be classified as an opportunity it must fulfill the following criterion:
• Articulating the idea
• The idea must have commercial values
• It matches your capabilities
• You can make money in the process
Let’s discuss these aspects a little more closely to see what each of them means.
Articulating the Idea
Articulating the idea means defining the idea. Throughout my entrepreneurial career I realised that defining the idea is very important and it could make or break your opportunity. In a real sense this will mean defining the business model or how you want to make money from the opportunity. During 2007 I was in the business of trading in electrical water heaters and we had more than five distributors buying our products that were contract manufactured for us by a company in Singapore.
For every unit, we were making a gross margin of US$6 and it was a simple idea. I would get the order from my customer in Myanmar or Vietnam for let’s say 2000 units and we then place an order with our manufacturer and the goods are shipped to the customer from our supplier and we would make US$12,000 for every container we shipped out. After two years a brilliant idea from one of our team members was proposed to start our own assembly plant and our margins would increase from US$6 to US$10. So now the idea changed from trading to assembling.
The idea must have commercial value
This simply means is there enough demand from the market for what you are thinking to do or offer to the marketplace? From my example above you could conclude that my idea had commercial values as we had orders in hand. All we needed to do was produce them.
It matches your capabilities
Your idea must match your capabilities. In other words it must be something that you are good at or that you can do better than anyone else in the competitive landscape.
My real competency is to find customers and build relationships. This was very well suited with our initial idea of trading only, but when we decided to modify that idea from trading to assembly we became exposed. We had a great idea that was commercial but assembling was new and we had never done it before. So we embarked on our assembling idea which took us eight months to set up. Our assembling plant and our bill of materials revealed that we sold our products at a loss of US$2 each. We struggled to fulfill orders on time so we had to compensate our customers for that, then our product was not stable and customers were not willing to accept a price increase.
You can make money from the process
Your idea must allow you to be making reasonably good profits. From the example I shared above, you can see clearly that the trading idea was making money, but that was not the case for the assembly idea.
Now, you may think that similar risk is not available in the case of purchasing a franchise opportunity and to some degree this is true. However, you do need to ensure that the idea is well defined. This usually is the case unless you are buying a new franchise.
The idea must be commercially sound, so you need to look for data or evidence that shows the real demand for the products or services offered by the franchise system in the market you are operating. Evidence of demand in another market may not mean similar demand for your market.
Another aspect is to ensure that your franchise matches your capabilities and one of the most overlooked capabilities in a franchise system is your ability to follow the franchise system. If you know that compliance is not your strength then perhaps franchising is not for you.
Lastly, check the business model of the franchise system to discover how you will make money out of it. Ask the franchisor to show you evidence of how you will be able to make money out of their franchise.
You need to assess the franchise opportunity for YOU and NOT for others. Simply ask yourself the following questions:
• Do I clearly know what the franchise idea is?
• Do I have evidence of the demand for such products and services in the market I want to operate?
• Do I have the capabilities required including compliance to execute the franchise idea?
• Do I have evidence that I can make money from this idea?
Just because the franchise has worked for someone else in some other market does not mean it will work for you. I decided to move from a trading idea to an assembly idea because I looked at my contract manufacturer and not myself when assessing the opportunity. That can be dangerous. It may look exciting but that’s because you don’t know enough about it.
Why not download our free report entitled Top 5 Franchise Opportunity Mistakes to Avoid and decide to buy the franchise opportunity and not false hopes. I wish you good luck with your entrepreneurial dreams.
Ali Kasa is the founder of Egnatium, a B2B franchisor specialised in helping organisations achieve sustainable growth. Ali is a regular speaker, trainer and coach on business growth and sustainability. Ali can be reached at:
T: +61 439 222 377