Why Franchising Works

Franchising offers an attractive route into business for people from all kinds of backgrounds. To find out why so many budding entrepreneurs choose to work ‘for themselves but not by themselves' Paul Golden spoke to some experienced industry observers.

According to John Green, CEO ChemDry and chairman of the Irish Franchise Association, the interest in franchising in Ireland has never been higher and that there is still a great deal of untapped potential compared to the more established markets of the US and UK.

Numerous studies over the past few years have shown that Irish people are becoming more and more entrepreneurial with as much as 40% of the population expressing a desire to work for themselves. Because the economy is a small and opened planned economy, Irish people are a lot more receptive to new ideas particularly when it comes to business. This has been helped by the fact that the Irish economy has been firing on all cylinders which in turn had led to a greater confidence and a desire to create additional wealth.

While the vast majority of start-ups in Ireland are in areas like traditional services, manufacturing and IT, the franchising industry has witnessed a proliferation in the amount of people seeking information about new franchise opportunities.

 "Not everyone is suited to being self employed, but some people look at franchising as helping them be their own boss without being totally on their own," says John Green. "They are investing in a proven method of doing business, where all the problems associated with a start-up business are already ironed out before they begin trading."

Green says the much lower attrition rate for franchise operations compared with regular start-up businesses (about 90% which fail) is a major attraction, but he also pointed out that to succeed, franchisees need all the same positive attributes displayed by successful independent businesses.

A recent book on franchising described the franchise cycle as ‘glee, fee, me, free, see and we'. Glee refers to the honeymoon period when the franchisee is excited about starting their own business. Fee covers the period when levies and other fees eat into their income and the franchisor has to remind them of the benefits they receive. The ‘me' stage occurs when the franchisee becomes well versed with the running of the business to such an extent that he or she may wish to become independent from the franchisor. The ‘free' stage is marked by increased questioning of the franchisor's operational methods and procedures. The ‘see' stage is when the franchisee understands the reasons for having to comply with the franchisor's operational procedures. Finally, the ‘we' stage is when the level of maturity of the franchise is at its highest, making it possible to achieve the businesses' goals.

"A strong entrepreneurial spirit and a willingness to work long hours is essential," said Green. "Franchisees need to have an affinity for the business they have chosen and a feel for the product or service. Also, you need to do your own research."

The chairman of the Irish Franchise Association says many franchisors are equally thorough when assessing potential new licence holders. "Any well run franchise holder is selective when it comes to allocating franchises. One badly run outlet can ruin a brand, particularly in such a small country."

A lot of people have developed franchises in different areas of business. Another attraction is that if someone decides to change career after a period of time, they have an asset that can be sold to raise finance for a new venture.

"Most licence holders feel they have made the right decision for their business or personal needs," says Green, who outlined the type of interaction that takes place. "There is regular contact between franchisees in different areas of business through our association and other business organizations such as chambers of commerce. In addition, each franchisor holds an annual convention where goals are set, objectives for marketing and advertising are outlined and people have an opportunity to talk to each other."

"Individuals have a lot of influence on the overall direction of a franchise by helping to identify the key issues facing the business," he adds. "Feedback from franchise holders is vital."

As an example of a product that has mirrored the growth of franchising in Ireland over the last 20 years, wine for home consumption is hard to beat. Managing director Michael McDonnell is well placed to comment on both trends, having opened the first Wine Buff in Limerick in 2000.

"Irish people are drinking more wine than ever and are seeking better, more interesting labels," he said. "Having opened our first shop two years earlier, by 2002 we had the option of either opening more stores and managing them ourselves, or going down the franchising route to find the right type of people to help us continue our growth."

The latter route was chosen and McDonnell described the typical franchisee as being in their late 20s or 30s and looking for career change having worked in business sector. "They want a combination of working on their own and having a team around them," he said. "The major reason why people tell us they want a franchise is ‘reduced risk', although they still need to make a major commitment to the business. On the plus side there is no need for them to worry about factors that would otherwise take up time and money - for example, we can use economies of scale to get better deals on marketing materials, shopfitting and design etc."

There are now eight Wine Buff shops around the country with several more planned by the end of this year. In the long term McDonnell sees the potential for up to 50 shops across the country and confirmed that the company is looking at a possible move into the UK in spring 2006. "The first Wine Buff franchisees came on board three years ago and we encourage new applicants to talk to existing licence holders," he added.

Given the relative immaturity of the franchise industry in Ireland, it is hard to believe that there are many franchisees who are still with the same brand more than 20 years later. Brian Goff is one of the handful who fall into this category.

He first came across La Croissanterie in the early 1980s while reading a magazine article on the concept of baking in front of the customer. Having worked in the catering industry in the US during his student days, he saw an opening in Ireland for something better than conventional fast food and La Croissanterie offered a lower cost of entry than the international burger chains.

"The format is very adaptable and this is important," he said. "We have changed our products as market demand has changed. No one should assume that a franchise business cannot fail - if you have a strong, sustainable offering and are willing to work hard, any business (franchise or stand alone) will succeed, but business never stands still." He also strongly advised potential franchisees to do plenty of research and not to be afraid to ask the hard questions.

"There are times when you think ‘Why should I pay someone a slice of my takings' but the franchisors who develop and refine their offerings are those whose franchisees succeed. "You are working with a trusted brand and any problem you encounter has probably already been encountered. In a lot of cases the increased buying power of the franchise will pay for itself, leaving the business almost self financing straight away."

It sounds trite to describe Ed Murphy as a franchise veteran, but his credentials with Snap Printing, Contours Express and his latest venture, Home Instead Senior Care leave him well placed to explain why people are attracted to the concept.

"One of the main reasons why people look for franchises is the desire to work for themselves but not by themselves," he said. "It can be very lonely starting up a business on your own - the help available may not be relevant to what you want to do. Having someone to help you with all the ‘little' things (such as employment application forms, for example) is most valuable."

This level of support is one of the reasons why Snap Printing has never experienced a failure according to Murphy. "We don't let them fail and we tell them if they are continuing to do the wrong thing that they should sell out while they have something to sell. This is the mark of a good franchisor and an issue that is rarely discussed."

"A good franchisor needs a very wide view of their business," he added. "Sometimes a franchisee can tire of the business for different reasons, which are related to whether it not working or whether it is working too well. There are those who find it hard to delegate, which can cause problems - the biggest single difficulty with entrepreneurs is their inability to delegate and bring in the right people."

First Published in Franchise Options Magazine© to order back issues please call 01 6611660