Franchising is fast becoming one of the most popular ways to do business in Australia. It offers small businesses a way to become established with all the benefits of a larger business. A well ordered and efficiently run franchise can provide immense advantages for both the franchisee and franchisor.
No one really knows who is franchising in Australia, so any statistics you read broadcasting the growth of franchising can be taken with the proverbial grain of salt!
However, here is what we do know: of the 1,200 business format franchisors we have on our database, most of them would be lucky to have 20 franchisees. The Australian Bureau of Statistics tells us there are 900,000 businesses in Australia, so taking 1,200 x 20 = 24,000 divided into 900,000 gives only a 2.5% market penetration of franchises. This is vastly less than the current figure of 40% in the United States!
Why is Australia so out of whack with the overseas trends?
I think it boils down to several factors:
1. Small businesses that are attracted to growth through franchising are frightened of the development costs, time and support commitment it takes to build a professional franchise marketing and management system.
2. Big business, which could easily dedicate finances and management resources to franchise, is also frightened of adopting what I call “the culture of caring”.
It’s not a case of can you franchise your business but more to do with should you!
Franchising means you have to become a self-appointed leader, and each and every franchisee is a team player, happy to give up a certain level of independence to follow your lead. In the process they benefit from the growing buying power that the franchisor can negotiate as the group grows.
When we get calls from prospective franchisors we say:
1. You don’t have to be a big business but you do have to think like one.
2. You must have a ‘model’ business that can show by historical example you know how to make a profit.
3. A strong caring style of management and the ability to teach and lead others is also very important.
4. The profits generated by the business must be sufficient enough so that the franchisor can charge a management fee to provide an ongoing ‘mentoring’ service to each and every franchisee, and the franchisee will still be significantly better off financially than they would be had they chosen to be an independent businessperson.
We typically take about five months to teach a potential franchisor ‘the business skills of franchising’. We provide all the franchise control documentation and while the client must pay ‘up front’, these one-off development costs are quickly recovered when the franchisor starts granting territories to their well-qualified franchisees.
Anyway you cut the ‘franchise equation’, it’s a numbers game. The quicker you grow the stronger the commercial benefits become for all concerned.
Here are some common characteristics of successful franchisors:
1. The franchisor started the growth plan without compromise.
2. The franchisor knew how important the selection process was.
3. The franchisor had already grown ‘in their mind’ to be Australia-wide, in developing their sales or service distribution system.
4. The franchisor was frustrated by employees – their cost or just finding them – or by uncommitted agents/distributors.
5. The franchisor knew their own business backwards and believed their particular operational methods were as good or better than their competitors.
You know better than most people it’s lonely in small business. Who do you turn to for unbiased and yet knowledgeable advice? You join business networks to try and get benchmarks on how well your business is doing but in most cases pride and ego get in the way of people telling each other the truth!
Compare that to a franchise system where all franchisees openly share information because they are on the same team.
Finally, here are some things to think about:
1. You don’t have to be a big business, just act like one.
2. You don’t have to have a 20-year track record.
3. It doesn’t cost millions of dollars to create your own national marketing identity, the franchisees willingly do it for you!
4. Most Australian businesses are still ‘out to lunch’ when it comes to taking the time to understand the unique culture of franchising.