Tony Fitzpatrick’s Lecture About Franchising

Good morning everybody and thank you for coming. I am going to talk to you about one of my favorite subjects which is franchising. Franchising, there are a lot of aspects to it but the only aspect I will have time to really discuss this morning is the subject of how to franchise your business. Does anybody here have a successful business that they think they could expand by going the franchise route? Nobody, so hopefully by next year there will be people in the audience who have developed their business to a stage where it is worth franchising because that is an excellent way to develop your business. You are going to be expanding your business by using other people’s money. That is what franchising is all about.

So I am going to start with the first point: what is franchise? Franchise is a license to use a proven business, its brand identity, its operating procedures, marketing, advertising, training and support. The three most important words there are system, training and support. If a franchise does not have one of those three things it is not a proper franchise and, unfortunately, some even well-established franchisors fall down really on support. They say, off you go back to you town and keep selling!  But it doesn’t work like that. The franchisor must have an invisible army. If he is some distance away he must have that invisible army around the franchisee because he doesn’t make any money until the franchisee makes money. Now, we all come to business from different angles because our life experiences are different but we need entrepreneurial skill. You know you don’t have to be a major name in the world to be an entrepreneur. Anybody who is self employed is an entrepreneur. But for the franchise to succeed we all need energy and commitment. If we go off and start our own business, our chances of still being in the business in two years time, statistically, are only about 55%. Why is that? Well we may choose the wrong location, we may choose the wrong service or product to sell, we might not get on with our colleagues but as any manager will tell, the reason why the business has failed, the main reason, is the lack of working capital. We invent something or create a service we think the world would want to have it and after six months or more or shorter sometimes, we find that we were wrong. We have spent our money; there is no more money, nobody to help us so the business goes down. However, if we buy a franchise our chances of success, of still being successful in 2 years are more than 90%, statistically. Why is that? It’s because we are planting into a system that someone has created: they have spent the money, they have made the mistakes, and now they have a system that works. If it works for all those people in the network why wouldn’t it work for us? That’s basically what it is. You will always get failures in franchising as in any other business but the chances of being successful in a franchise are more than 90%, statistically. The slogan in franchising which you may have come across with is: “Franchising provides an opportunity to work for yourself, but not by yourself.” And as I said just now by owning an operating franchise you are investing in a proven method of doing business where all the problems associated with a start-up business have already been ironed out.

Ok, let’s look at the market for franchisees. Thousands of people are looking to start their own business, be their own boss, and pay themselves what they are worth. Now that’s a bit of a cliché but it is still true. These are people who have been made redundant, they are people in current employment, and they are people who are looking for a second income.

Redundancies: the dramatic effect of the recession. Every country in Europe has high unemployment rates. Large numbers of people are losing their jobs. What can they do:

 

• They can stay unemployed
• They can start their own business, or
• Then can buy a franchise.

Now, many of these people lack the skills or confidence to start their own business. The only alternative is to look at franchising.

Current employees: job security is history. Any job is at risk these days. People look to control their own destiny and franchising can be the answer. They can be their own boss, work what hours they want, and benefit directly the more successful they become.

There has been increase in the number of people unable to work full-time but need additional income because partner has lost job or family income has been reduced. Again franchising can solve their problems.

How do you make money from franchising? There are three ways to make money as a franchisor.

1. You can put a markup on the product you are going to sell to your franchisee.

2. You can take a percentage of the franchisee’s gross sales.

3. You can employ the flat monthly fee.  The flat monthly fee will come very handy where your franchisee is in the cash business. You will never know, if it is cash business, how much it is making so there is no point in saying “pay me 5% or 6% of your annual turnover”. They are never going to tell you what that is so unless you have a very strict control you are not going to know. So it is better that you agree a fee which you will get every month from that person. You don’t care whether he does one job or а hundred jobs: you get the same amount of money.

Now this is the most important point of the discussion today: is your business worth franchising? You have to ask yourselves these questions:

• Have you run a successful business for at least one year and preferably two or three?
• Have you proven your concept?
• Will it survive in the long term?
• Is it profitable?
• Can you produce audited accounts?
• Do you operate in a niche market or offer something different in an established field?
• Can your business be replicated and easily taught?
• Can you offer leadership, strong management, motivation and support?

Those are the things that when a franchisee invests in your business is particularly looking for. He wants leadership.

• Can you offer a franchise at a cost that is good value for money and can make a decent return on investment in the short to medium term and a good living for its owner?

As a franchisor you can expand your business, and your income, more rapidly and at less risk using other people’s money. People are paying you for the privilege of using your brand and marketing your services. They pay the costs of a shop, or an office or a staff, whatever they need to run that up; you don’t need to do it.

When you award a franchise you are creating an income stream from royalties or management fees for the foreseeable future. You are in it for the long term. Profits are higher because your costs are lower. You’re working with motivated business people who will bring creative, innovative ideas to the franchise. They will come up with an idea which works for them and you say, hey that is a good idea, I will pass that along to the rest of the people in the network. This is how they improve their business.

The psychological element is worth considering. Apart from setting up businesses as franchises I also, in some cases, sell the franchises for the client and I can’t tell you the number of people over the last 15 years that I have been doing this, who when we meet them again they say, “hey I want to thank you for allowing me to buy that franchise because I have changed my life. I am only earning money now. I was unemployed for years, now I am in a business that I like, I can handle it, I can work only 16 hours a week if I want to and work weekends if I want. I can do what I want because I make my own money, I am my own boss. So there is the psychological element. You are helping others to achieve financial independence.

The ten key questions you ask before you go into franchise:

1. Do you work well with others?

One of the greatest skills you will need in franchising is the ability to work effectively with other people.

2. Can you accept and manage risk?

To franchise, you invest time and money in an endeavour which has an element of risk. Tell me a business that has no risk. Every business has risk. You must be able to understand the nature of the risk and to manage it.

3. Are you single minded?

The ability to stay the course and commit to the long term is a big advantage in franchising, which is a long and involving process. The determined and focused franchisor is often the successful one.

4. Do you have a strong Ego?

You have to believe in your dream and have a confident personality to build enthusiasm and interest in other people. Franchising is a high profile undertaking.

5. Are you a good salesman?

Salesmanship is critical to franchise success. You can have a wonderful franchise but unless you convince other people that it is wonderful and that they can make a good living out of it you will never be successful. It depends on finding suitable prospects and then selling them on the benefits of your business.

6. Are you a good communicator?

So much of franchising involves communication that a system that does not facilitate the free exchange of information is doomed to failure.

7. Are you an entrepreneur?

An entrepreneur sees potential where others see problems and opportunity where others see only obstacles. The entrepreneur identifies real needs in the market and commits the necessary effort to fill those openings.

8. Are you hard working?

Getting a franchise off the ground is a significant undertaking. It takes time and effort, which translates into work.

9. Are you adaptable?

The ability to adapt to constantly changing circumstances is a necessity in a multi-faceted industry such as franchising.

10. And finally can you afford it?

I talked to my colleague there earlier about this. Franchising is not easy, and it’s not cheap. Apart from the costs of setting it up you need to have the money to promote it into the long term and building business takes time and patience.

OK, that is all I have for you. I will be happy to take any questions and if you don’t have any questions now I will be here all day and tomorrow as well if anybody wanted to have private discussion. No, OK, you all are very happy now about how to set up your franchise.