Entrepreneurship The Franchise Path

What makes entrepreneurs more successful from the rest of the pack? This is not unusual. Successful entrepreneurs don’t try and figure everything out themselves. There are so many challenges when starting a business, re-inventing the wheel should not be one of them. Entrepreneurship is a journey to achieve self desired career and financial independence. An entrepreneur would take financial investment risk and bet on self confidence to provide products and services to targeted market for the objective of making profit. The supply of products and services need to be supported by business model, marketing plan, operational system and correct implementation in order to the desired result of profitability and return of investment (ROI). For first time entrepreneur, the lack of business experience becomes a major risk. One of the option to mitigate the risk from lack of experience is to search for the availability of franchise business related to the desired products and services and evaluate the suitability of the franchise business system to achieve desired result. We shall analyse some critical elements of running successful business and refer it to the context of franchise environment. The elements of running successful business:

1)     Vision of the entrepreneur:

Every entrepreneur has their own goals to achieve. Franchise business can be your starting point to learn business experience, lower capital, lower risk to achieve reasonable profit. If you are ambitious, you can always expand new business (may not be franchise business) with your new found experience, financial capital and consistent profitability from your existing franchise business.

2)     Adequate financial capital:

Financial capital is needed for every new business – initial capital of getting the business operational (start up capital), pre-operational capital which is to develop the products and services, continuous marketing to generate leads and enquiries, working capital to sustain the business until it reach a level of break even and profitability. For franchise business, the financial capital should be lower if the franchise business is managed well. The products and services have already been established and accepted by the market. There are lower preoperational cost, very little or no product development cost, less marketing cost in the market that the brand has been established, less working capital with franchise system that guide you onoperational cost and proven products to generate sales over shorter period of time. However, for Master Franchise from overseas franchise brands that is unknown locally, the financial capital would be much higher and need greater financial analysis to determine the value of franchise system as it require higher franchise fee.

3)     Time commitment:

Everyone has 24 hours a day but not everyone has same time to spare for their business. Do you have sufficient time for the business that you are interested to invest? Franchise business could help to reduce your time commitment for the business as the franchisor would be providing you with business support system, advisory and proven products to offer to the market.

4)     Products and services to offer:

Any product or service needs to be tested and accepted by the market. This takes time and involves various cost of trial and error. Franchise prospects could validate the market and research over the internet to understand market response for the products, brand and competition.

5)     Marketing budget:

Any new business will require substantial marketing budget to build the brand and promote the products and services. Marketing experience is crucial to deploy the marketing budget productively. Franchisees would need much less marketing budget and marketing experience when joining an established franchise network. Marketing collaterals and channels would have been developed for use at nominal or no cost.

6)     Market acceptance of the products and services:

There are risk of time and marketing expenses when launching new products and services. Franchise business would enable franchisee to have less risk when franchisor is responsible to develop and launch new products and services. New business owners could decide if they want to join the franchise before investing by doing research on the market acceptance of franchisor’s products.

7)     Pricing for the products and services:

New products and services need various promotional activities to gain acceptance from the market to pay acceptable prices. This will involve plenty of efforts, time and expenses. The pricing may be too high for the market to accept or the lower prices that the market is willing to pay may not be profitable for the business. Prices will also affect the revenue model as it determines the quantity of sales to the market. Franchise business would have pricing issues tested and proven with established selling price and quantity of sales, thus, saving franchisees the time and risk.

8)     Cost for providing products and services:

To produce desired quality of products and services will require research and development efforts and investment. In addition to the quality, the business will strive to produce the products and services at lower cost and this requires economy of scale. New business will need much more capital and longer time to build up the market share. However, a franchise business could have market share build up over time and franchisee would be able to enjoy the economy of scale and lower cost at the point of starting the franchise business.

9)     Operational expenses – labour and rental:

Employees salary and rental cost are two major operational expenses in many businesses. New business owner need to understand how to hire, train and maintain productive employees. Employees will be looking for career path, growing business and earning opportunity. Franchise business will project the brand as a group and provide continuous training program to improve the skills and productivities of the employees. Franchisee save learning time with franchise training and development program. Franchisor may have contact with landlord for preferential rent and location of business space which could be benefitial to franchisee. Franchisor may also assist franchisee to negotiate better renewal terms. It is common for renewal to be at prevailing market rental rate but it will have potential upside if franchisor could advise franchisee to negotiate for 10% limit for increase in rent for tenancy renewal.

10)Suppliers list:

Can suppliers make any difference to your business? Reliable suppliers providing timely supplies of high quality products and services to your business at competitive prices will make lots of difference to your customers satisfaction. Franchise business would have established their suppliers relationship and has certain economy of scale to provide franchisees with lower cost and time saving efforts. The benefits of franchising has attracted great support from many governments in Asia to create jobs and business opportunities especially for first time entrepreneurs. It will normally cost more in terms of financial capital and risk to start unknown new business. However, franchising has limitations too. There are cost of franchise fees, ongoing royalties and other fees to pay to franchisors. One need to understand both the specific advantages and disadvantages of franchising related to the specific business that is being considered and make decision based on balance of probabilities and personal interest.

T.K.LeeAsia
Franchise Networks
81, Amoy Street,
#02-01 Singapore 069900
Email: tklee@asiafranchise.net