For many entrepreneurs, franchising can help them standardise their services, create rapid growth, and support other Australians who have the drive and desire to be own their own businesses.
Just some of the benefits of the franchise model include:
- Easier access to capital: Capital raising is built into the franchise model, with franchisees having to invest in your chain to open their own outlets.
- Access to entrepreneurial talent: Many people have entrepreneurial skills an interests, but lack the confidence, experience or capital to launch their own business from scratch. Investing in a franchise gives them the opportunity to become a business owner, but to do it with a safety net of a proven business model.
- Minimal capital risk: When compared to other methods of business expansion, like opening new premises, the franchise model involves much less capital risk. Launching new company-owned shops, factories or offices (and staff to run them) is a significant capital investment. In the franchise model, the franchisee takes on the bulk of that risk.
- Potential for rapid growth: Once your franchise model has been proven, there is the potential to grow your business much faster than you could independently, especially with good marketing.
Unfortunately, it can be difficult to know where to start, with much of the franchising advice available being targeted at the franchisee rather than the franchisor.
Having built multiple franchises over the past 40 years, I’ve learnt that there are some common threads between those businesses that successfully franchise, and those that don’t.
In fact, my team and I are putting these ideas to the test with our current venture, Maximus Industrial Group, which we launched in February 2017. We’ve built the initial business as a pilot of a franchise model, with the intention to create 50 franchise businesses under the brand and potentially expand internationally.
Following are four key activities we’ve used to establish Maximus as a franchise pilot, which you can also adopt when franchising your own business.
1. Develop your unique selling proposition
Whether you intend to franchise or not, a key question is whether you have a unique selling proposition (USP) within your business? Why should a potential customer choose you, rather than one of your competitors?
Having a value proposition that is unique will make others want to participate in it – both as customers and as franchisees. At Maximus, our USP is that we’re a one-stop-shop for the industrial, hydraulic and irrigation markets – something that has never been done in our market before, and something that saves our customers time and money.
Once you have that USP, it needs to be protected by a trademarked brand.
2. Start as you intend to finish
In any endeavour, it’s important to start as you intend to finish. In other words, if you are going in to develop a business, or you’ve got a small business that you want to develop, understand where you want to take it in future. It’s much easier to transition to a franchise model if you’ve already established standardised processes and systems that can be scaled to multiple locations than it is to retrofit that standardisation after you start expanding.
At Maximus, we’ve started the business as we intend to finish it. Our intention is to have a national network of Maximus stores around Australia, and potentially internationally as well. The plan is to expand to fifty stores locally before looking at international markets.
So, the first question we asked is what do we need in place in order to achieve that growth? Standardised processes are key, but so is the collateral we need to support them – the training manual, the operating manual, the franchise legal documentation and so on. All of this is being built in the background, so that once we’re ready to franchise, we will not only be ready on time, but we will be ready with all of the necessary collateral to satisfy the franchise code, and to ensure that any offer we make is sound based on the investment we made in the pilot operation.
3. Assess your future profitability
Another key consideration is profitability. Does the business make money? And will it continue to do so, or could it be easily replaced by a new technology? Or could it be influenced dramatically by a regulation you might not see coming?
Just consider windscreen tinting companies. In the old days, everybody wanted tinting on their car windows, but that was never a standard inclusion of the car itself – they needed to have the windows tinted separately. Then the government enforced minimum and maximum tints for motor vehicles, which meant the tinting was suddenly a standard inclusion, leading many of these businesses to fail.
As a business owner, what can you see coming that can be likely to be an influence on the business you are trying to, not only run in your own right, but also to replicate as a franchise business model for others to buy?
If you’ve considered potential disruptors and believe the business still has the potential for long-term profitability, the next question to consider is whether it will be profitable for a franchisee.
How much will it cost a franchisee to buy into your franchise? How long will it take them to make a return on that investment?
At Maximus, we’ve considered that investment in terms of our projected profitability, but also in terms of the current competition in industrial product franchising. What we discovered was that most of our competitors are pitching franchises at a $500,000-$600,000 investment. If we then pitch Maximus at a $300,000 investment, that gives us a competitive edge for potential franchisees who are considering their options – especially if we can demonstrate how quickly they’ll generate a return.
4. Test as you go
Finally, it’s important to test the model as you go, and be willing to adapt if necessary.
At Maximus, we’ve had our first few months of trading and have been very happy with both the revenue response as well as the customer response across our three product categories. The idea of a one-stop-shop was untested in our industry, so this response (and the resulting revenue) has demonstrated that the model works – a customer will come to our trade centre and will buy across at least two, if not three, of the product streams.
Once we have six months of financial data behind us, we’ll have the data we need to assess whether there’s a long term financial future for anybody that might want to invest in Maximus as a franchisee.
Then we will look at opening a second company-owned store or joint-owned store in a different site preceding the franchise rollout. This will allow us to prove that the business can work in different locations, along with demonstrating the potential markets and financial returns across those locations. Once we have that backing, we’ll then have a very strong case for potential franchisees.
About the author
Wally Davey is a serial entrepreneur, being the co-founder of Pirtek, one of the first industrial franchising brands to gain international market penetration within 10 years, and Maximus Industrial Group, a one-stop-shop for the industrial, hydraulic and irrigation markets.
Wally’s passion is the success of Australian niche businesses. He is a strong advocate for Australian presence in global franchising, a creative and innovative personality.