Think Like The FBI
Thinking of becoming a Franchisee? Then you need to create your own FRANCHISING BUREAU OF INFORMATION
Before you select a franchise system or a site, you need information. In the words of Donald Rumsfeld, former US Defense Secretary,
“There are known knowns. These are things we know that we know. There are known unknowns. That is to say, there are things that we know we don’t know. But there are also unknown unknowns. There are things we don’t know we don’t know.”
The fear in taking on a franchise is the unknown unknowns. You can do some work to ﬁnd out about many of the issues relating to taking on your franchise.
There are many people who know about franchising and the associated issues. It is a wise investment to consider how these people may be able to assist you in what can be one of the most important decisions you ever make.
Whilst the business development manager will be able to tell you all the good things about the system, and the network development manager will be able to tell you all the good things about your new site or territory you are taking on, how do you verify this information, or at least obtain a balanced view?
Good franchise systems work like a well-oiled machine in processing potential franchisees, and I commend them for this. It is a combination of teamwork and sound knowledge in what they are selling. Hopefully they have a long term vision and a network development plan they are working towards. All this should be the result of a strong board of directors and good executive management, working in the same direction.
Your job, to go forward, is to decide what YOU need to know and demystify the ‘Unknown Unknowns’!
Selecting a Franchise System
The ﬁrst thing I suggest is look to something you like and hopefully have an interest or a passion about. If you are a ﬁtness fanatic, then a health club or a gym; if you like outdoors and exercise, then a lawn mowing round or a pool franchise; if you are into service and quality, then a retail type store may be for you. It should be relatively easy to ﬁnd something you enjoy. Try surﬁng around www.franchisebusiness.com.au as a good way to help you shortlist from the 1250 available systems.
Once you have an idea of what you wish to do, it comes down to looking to see if any of the franchise systems available suit you or not.
What can a franchise system do to attract you?
A good system will have good information to supply to its perspective franchisee. Whilst they cannot tell you what sales another store is making, or what proﬁts they are making, they can give you the name and contact details of other franchisees and let you have a chat about how the system operates.
Some franchise systems run what we call an analogue model, which effectively tells the franchisor the sites most similar to what you are considering. An analogue model works to select a couple of parameters which are considered to be the most important drivers of the stores. It then matches your proposed store to the most similar stores, based on these drivers.
A simple example may be that you are proposing to open a news agency in a country town. The franchisor may agree to classify country towns as:
• Large > 50,000 persons
• Medium 20,000 - 50,000 persons
• Small 10,000 - 20,000 persons
• Very Small < 10,000 persons A second major variable may be:
• Are you in a large shopping centre (mall)? > 30,000 sq m
• Are you in a smaller shopping centre? < 30,000 sq m
• Are you in a strip? (main street)
You may have decided you wish to open a newsagent in a small shopping centre
(< 30,000 sq m) in Ballarat (population 85,000).
An analogue model would tell you, out of all the news agencies in the franchise system, which ones are located in smaller shopping centres in large country towns. The franchisor can then supply a list of franchisees for you to contact.
Similarly, the franchisor may use a system like this to estimate sales (for their internal use only), by ﬁnding similar sites to the proposed and looking at their average sales.
The franchise system should also be able to give you the parameters for their site selection procedures. Most franchisors will not disclose their internal sales estimates, as this can lead to being accused of misleading you. However, they can arrange for you to talk to people in similar stores to your proposed store. What these franchisees disclose is up to them. You can also look at residential and business demographics to understand who lives and works around the area.
The most basic demographics for an area can be looked up for free on www.abs.gov.au and looking in quickstats. At least you can look at the demographics of an ABS postcode and see how it compares to the Australian averages.
Companies who specialise in site selection and territory planning can make available all the details for a speciﬁc post code such as the residential demographics (who lives there), business demographics (who works there), a good map of the area, and a 400 – 500 business hitlist. Tailored information can also be sourced, be it for a speciﬁed trade area, a group of post codes or a radius around a proposed store.
As the 2006 Census is now ﬁve years old, and the new Census is not due out to late 2012, companies who specialise in demographics also have information giving accurate population estimates for 2010/11, which is continually updated until the 2012 Census is released.
It is worth the effort and expense to employ such experts as they can provide crucial data regarding your proposed area of business and the possible customers within that area.
If you can think of who your proposed customers are, you can have a fairly good match to the area you are planning to go into.
If you are going into a service business, then the territory you take will have a good or bad effect on the outcome of the new opportunity. Again, information from the ABS or from territory experts can greatly assist you in understanding the potential of the area.
In many cases, franchisors will provide an information pack on the proposed territory. If they do not, maybe you should question why.
Types of consultants that can assist you
There are many different types of consultants that can help you, or the franchisor to move forward. These include:
• Consultants to help you choose a franchise system, or offer them for sale on behalf of the franchisor
• Consultants who specialise in demographic and site selection assistance
• Legal consultants who deal speciﬁcally with issues relating to the franchise industry
• Consultants to help you ﬁnd a job in the franchise industry
Overall, there are a large number of professionals who have specialized in the franchising industry. They are available to assist you in making good decisions.
No matter what franchise system you select to join, make sure you do your homework, and make sure they do their homework. Gather your information into your FBI ﬁle. You need to feel comfortable that the territory you buy, or the site where you select to open your new venture, has been properly evaluated, and is not the result of the SWAG (Scientiﬁc Wild A$&%d Guess) approach to site selection!
Select well Grasshopper!
Peter Buckingham is the Managing Director of Spectrum Analysis Australia Pty Ltd, a Melbourne based mapping, demographic and statistical consultancy. Peter is a Fellow of the FCA and a Certiﬁed Management Consultant.
Spectrum specializes in assisting clients with decisions relating to store location and territory planning, using various scientiﬁc and statistical techniques.