Business Franchise

I was not writing here for a long time as I was too busy with my new hobby – FOREX trading.

But studying Forex I found that there are not only traders but also special forex franchise companies that try to combine the benefits of both businesses – franchising and currency trading. It’s rather interesting and worth of deeper study as I think

http://de.betheboss.com/franchise.cfm?s_booth=899437 - - the link to the German company that says that they managed to do it!

By the way GLOBAL FOREX TRADING characterizes itself as FOREX franchise. But when I tried to find the word “franchise” using the search option on their site they said “Your search did not return any results.”

While searching the Internet for interesting information about franchising to share with the readers of my blog I found an outstanding idea that had been realized by the company called Entrepreneur’s Source. They managed to create their franchise business helping others to start-up and operate franchise businesses. I understood that I had to write about it.

The business system created by Entrepreneur’s Source can be divided into 2 parts (as I understood from the information in their web site). On the one hand they work with the companies that already have their business systems. The company offers its clients to expand their operations through creating a franchise system for their business. I really liked the way they present the idea. They explain that they are not consultants but coachers for their clients. They say that every person tries to decrease or avoid risk. It’s natural. And they promise their clients to help to decrease a business risk. Based on their experience the Entrepreneur’s Source is going to train their customers how to swim in a seethed and sudden water of business-sea. They use the idea of coaching comparing their service with the process of teaching to read. On their web site they ask a question: Did You Teach Yourself to Read?
As a sports coach develops an individual training program for each sportsman, Entrepreneur’s Source develop a franchise program for the clients taking into consideration all individual peculiarities. Their package of services includes:
1. Feasibility assessment. Analytics of Entrepreneur’s Source determine if business is franchisable in general.
2. Business plan. They create a document answering marketing, production, and organizational and financial questions concerning prospective franchise business.
3. Raising capital. They help in creation documents and calculations necessary to obtain an external financing.
4. Regulatory compliance. They check if the franchise system and all documents (including disclosure and agreements) meet all the legislative requirements.
5. Marketing & advertising. Well-developed promotion program is a key feature of any franchise system.
6. Lead generation and candidate qualification.
7. Expansion plans
8. And much more …

On the other hand Entrepreneur’s Source deals with those thinking to start-up their business. And they attract prospective franchisees not only for the franchisors mentioned above but also for themselves. Yes, before they decided to earn money while helping others to start-up franchise business (as franchisor or franchisee) they created such system for their own company. And it gave them the experience on how to qualify candidates in order to choose appropriate ones. Now they use the following scheme: they don’t use contract employees to run their satellite offices, but open each new office as a franchised business. The royalty payment is 25%, and Entrepreneur’s Source franchisees pay it from every placement fee – the money received from franchisor when the company places a candidate.

As for me I really liked this idea. The only negative thing in this business is concerned the money that prospective or existing franchisor has to pay to this consulting company. I haven’t found the exact information on the company’s web site, but the other sources say that your franchisor pays them a commission, typically 30% to 75% of the franchise fee. Certainly it is a trade-off. You can set-up your business system yourself or turn to professionals. In the latter case it will cost you and your potential franchisees, as you’ll have to increase the initial fee to cover the consulting costs.

Just a few days ago one of the most famous German business magazines – Impulse have conducted a survey. The main idea of this survey was to make an analysis of franchises in Germany and to rank them.
The survey was based on the information of the magazine and according to some experts. The experts are working in franchise sphere as consultants and/or as researchers. The experts were suggested to rank the companies by twelve criteria that were organized in three directions.
They were:

• sustainability of the franchise concept
  
• sustainability of the business idea
  
• dynamics of the franchise idea.
  

The first direction described general characteristics of the franchiser. It was connected with the age of the franchiser organization, the number of business partners of the franchiser, and overall franchiser’s profit and sales.
Under the terms of the second direction the expert were supposed to look the same business from franchisees’ position. Those criteria covered the market position of franchise system, market competition density, the benefits of the idea to potential franchisee and the potential revenue of the franchisee.
And the criteria of the third direction had to estimate the growth of the franchise system in the past and its future plans. The criteria were the past growth of the system, the planned growth to 2008 and the expansion potential for partners.
I bet you know who is the winner. McDonald’s for sure. Who could doubt about it? They really have fantastic system that is almost perfect for the moment…
But the most interesting question is whose system is the second?
You might think it’s Burger King, Tchibo or Obi… But you will be wrong. The second rank has
Fressnapf.
Have you ever heard about this company? No? There’s nothing unusual in it. The company is not widely known outside European Union. It’s not even mentioned in Wikipedia (at least in it English part. Of course there’s an article about it in German ).
But still it’s the largest European specialized retail chain for petfood and pet accessories.
Its founder and managing partner Torsten Toeller had used the idea of pets supermarkets that were rather common in the USA and Canada. The mission and the vision of the company was to sell specialized pet products on a large scale, while keeping prices low. The economy on scale principle has contributed to his tremendous growth in this niche. Fressnapf had become the right company in the right place.
The rapid development of the company should be given company franchisees the credit. They really managed to uphold Torsten Toeller initiatives.
“We’re like a pack of hungry wolves with one pack leader - that’s the idea behind Fressnapf. We all fight it out and everyone gets their fill!” says Torsten Toeller. The market couldn’t defend itself against that troop…
For the moment the system includes almost 270 franchise partners, and the 4000 or so staff employed at over 750 sites not only in Germany but in Austria, Denmark, France, Luxemburg, Belgium, Switzerland, the Netherlands and Italy. The company is working to start in Ireland and Spain.
The main principles that were originally used by Torsten Toeller are the main incentive for company’s success. They are fast growth, standardized processes, effective value added chains,
and the development of own brands.
These principles allowed the company to proceed from a store in Erkelenz, selling petfood and pet accessories to Europe’s leading supplier of pet food and accessories and number 2 German franchise system in just 15 years.
I wish every franchise company could boast of its development that way.

While thinking about modern trends in global economy I came to rather logical to my mind idea. Business needs to combine popular ideas or try to satisfy different wants together. I don’t say that I’m the first person who thinks about this. I only want someone with a creative power (not me as I’m too fond of exact sciences) to invent something that will improve our lives.
 

For example, one person invented a “sports-bar”. He combined the food (eating) with entertainment (ability to watch football or baseball matches, to talk to other fans – like at the stadium but in your town).
When I was writing this another thought came to my mind. Under the same title “sports-bar” we can see an extremely different idea. The businessman can combine the food with a sports training or fitness. Just at one place… I haven’t seen this before. And you? Just imagine: you cycle and eat pizza at the same time (certainly if you wish)…
 

Another good to my opinion combination of ideas is audio books. It takes together two different needs – education (as it’s important for career growth or example of entertainment) and free time (as it’s the thing of the greatest value in the modern society).
 

Healthful eating consulting plus retail selling also provides good opportunities for earning money. When someone explains you the benefits of healthful eating it’s almost impossible not to buy something fresh or full of vitamins and microelements!
 

I promise to think more about this synergy and add more ideas to this post (or will start a new one…). Any suggestions are highly appreciated too .

It seems for me that I spent enough time to express my opinion that it’s necessary to evaluate an idea before investing money. This statement completely refers to franchise business. Success of other franchisees doesn’t guarantee your success because as I mentioned before it depends on a particular region and particular conditions of that region.

Now I think it’s time to say a few words about conditions that make business idea practically acceptable.
1. Technological practicability. If to speak about business ideas in general there can be a lot of reasons for inability to realize them. Sometimes it’s too expensive, sometimes there is not enough space to build the plant and locate all the necessary equipment and so on. Even one of the most outstanding producers George Lucas faced the technological problem while realizing his creative ideas. He had to start his Star Wars from Episode IV and only after many years he found a good technological decision to shoot Episodes I, II and III.

Going back to franchise ideas I think that this problem is not so important as franchisor has already created the technological system and tested it. But still potential franchisee has to check the local situation. There can be some legal restrictions for particular region or ecological situation can influence technological practicability or inability to hire personnel of proper qualification can create barriers for the success.

2. Long-run future viability of new business. Starting your business you need to be aware that it will exist for some period of time. It’s important to see the difference between a project and a business. Project can last for several days (like organizing a show or a party) or for several years (like house construction). But when you plan your business it’s a good idea to create it for years and to foresee the conditions for its growth. Maybe one day you’ll sell it and get more money than invested or hand down to your kids.

3. Acceptable economic efficiency and payback period. One survey said that only 30% of all the small businesses were started in order to earn money. The other 70% of new-born entrepreneurs presented the following reasons:
-want to be “my own boss”;
-want to realize my personal ideas;
-want to achieve something in my life and to make a business career, and to help other people… and many other “bombastic” reasons.
As I think it’s possible that people really think that way and do not consider money and profit as important factors of small business. But my experience (not so big but enough to have an opinion) says that most of them will change their minds during the first year of business operations. As the owner of a small company you’ll deal with money everywhere – paying salary, rent, public utilities, and interest for the credit, administrative costs and Internet, advertising and promotion expenditures and many others. You’ll charge prices, calculate revenue and taxes, and so on. Of course, it’ll take some time. I even insist that it takes a lot of time. And every reasonable person wants to get something for the time spent. His family also wants to see the pecuniary results not only self-realization or happiness of other people.
That’s why I suggest everybody to think about economic part of any idea even if you really believe that money is the last thing in the world you want to speak about.

4. Acceptable idea from public or community point of view. Take it seriously! Today people as never before feel very lonely. As a result they try to solve this problem participating in different public organization and community projects. I do not recommend you to start any business that may conflict with public interests. You will loose in 99% of cases…

My conclusion:
Some of these factors are limitations; the others (like economic efficiency) can be used as the main criteria for a franchise idea evaluation. Want to add something? If so, I will highly appreciate your comments.

Ok… Few more words about declining a business idea. I’ve already mentioned very important factors: demand for good or service, possibility to win the competition, capital requirements and economic results, and risks. The last I want to speak about are the following:
A) problems with raw materials;
B) ecological problems;
c) public opinion.

For most industries and businesses raw materials play a big role. They represent costs and influence price of a product. Of course, for services they are not so important but still you need to think about them:
-where you plan to buy them;
-who are your main and alternative suppliers;
-is the price for each item stable or it fluctuates;
-is there a deficit material and is it easy to find a substitute and so on.
The main thing about materials is that your customers are not interested in your problems with them. Buyers want cheap products and that’s all… And if you can’t satisfy them you’ll loose your business.

Ecological movement is growing in strength. You need to evaluate your business idea from the following conditions:
-will my business pollute the air, water, and so on;
-is there any risk of accident that can do harm to the ecological situation in the town or city, or region.
While evaluating a business idea it’s necessary to remember that ecologists and environmentalists live among your prospective buyers. They can either improve or worsen your reputation.

Public opinion is the last but not the least in that list . It’s clean that it influences demand greatly. I’m not going to explain such an easy thing but will give only and example. In early 90s the market economy came to the former communist countries. At the same time most people had not enough education and business way of thinking. But everybody wanted to live better and to earn money. Many people were involved in network marketing and….. many of them lost money. Why? There were many reasons and I don’t want to discuss them in this article. The main thing I want to bring to notice that till today many famous network companies (already successful in US or UK) face the problems to overcome the public opinion that states: “Network business is not a business but a skullduggery”.

I hope I proved that it’s necessary to evaluate your business ideas before even thinking about investment. And thank you for your patience while reading all of my thoughts!

So, in the previous post I expressed my opinion about necessity to evaluate the idea before starting a business even if you were buying a franchise. Many people forget about it. They think that if the franchise chain has many franchisees and they operate with profit the new business also will be a success. But as there no identical children there are no identical markets and businesses. Information from other franchisees is useful but not sufficient to make such an important decision.

Last post was dedicated to market demand as a factor influencing franchise idea. Now I want to speak about the others.

The second thing to evaluate is competitiveness of goods and services your business is going to sell. You need to study the market competition as serious as possible. Visit the shops or restaurants of competitors – both franchise and non-franchise. Listen to what people are saying about their products. As a result of your survey you need to become sure that you product has real advantages over theirs. If not - I suggest you not to buy this franchise for this market. Think about other idea or maybe other region.
What advantages can be considered as real and competitive? Certainly, there are a lot of them. Here I’ve listed the main:
-price;
-discounts and possibility to get them;
-quality;
-technical and economic operation factors;
-prestige of a trademark;
-convenience of packing;

-guarantee period and conditions;
-post-sale support and services;
-reliability;
-payment terms;
-credit conditions;
-advertising and other promotion activities;
-delivery services and so on.

The next factors require some economic calculations. I mean that you need to decline an idea if capital investment is too high and/or economic efficiency is too low. I plan to dedicate a special article to economic efficiency in future. Here I’ll only say that you need to be sure that future profit will cover initial investment in not more than 5 years (in general) and your personal income has to be greater than interest you could get for your personal savings.

Also the idea must be considered as unfavorable because of high risk factors. Thinking about risks you need to take all of them together and consider their probability.

Ooh! Only three more factors remained… I need to have a break… and will continue in the next post.

Today I was a witness of the dialogue between two students. They are 14 or 15 and were discussing how they would start their future businesses. I hope they will not have objections if I present a part of this dialogue here.

“I’m thinking about IT business. It’s the easiest… and the sphere is growing”
“Do you have an exact idea? E-commerce?… ”
“I don’t know. I think to take the list of franchises and will choose the one with the best program or the least investment…”

I wanted to interfere but decided to stay away and to express my opinion here.
I’m absolutely sure that it’s necessary to study a franchise program before investing your personal or borrowed money. But I think that studying the idea itself is more important. If you choose a franchise with an attractive program but the idea is not OK for your region or your country the result will never satisfy you. And it’s not necessary to be a prophet to say that to avoid bankruptcy you’ll have to invest more, to work harder and so on.

What factors can make an idea having no prospects? I found some and want to express my opinion with the potential readers of my blog.

At first I need to mention the demand for the product. You need to take into consideration as many as possible factors that influence the willingness and ability of people of the concerned territory or country to buy these goods and services. It’s not too hard if you live in this region yourself. You can spend some time listening to people’s complaints. You can ask your friends and neighbors. It’s not necessary to carry out a marketing research if you are planning to start a small business company. (Certainly if the matter concerns a big investment and large company it’s better to order a marketing research from professionals).
The factors you have to think over vary for different ideas and different markets. I’ll say some words about the most important ones as I think.

So, the first one is geographical, historical, religious and cultural traditions that prevail on the concerned market. I’ve read a story about McDonalds’ franchise in France (unfortunately it was some years ago and I can’t recall the source). It was a sad story. The idea almost collapsed because of cultural food traditions in the country. The author of the article explained that historically the French were in earnest about food. And the idea of fast-food itself was offensive for them. But if to add that the French have no special liking of American life style we’ll get the complete picture of extremely bad idea.
But at the same time the same franchise idea (I mean McDonalds’) became enough profitable in Japan. Why? Because it was absolutely uncommon for Japanese and was taken by them as something interesting, and unusual, and modern.

The next factor that influences demand is size and growth of the target market. It includes the number of potential buyers. Thinking about buyers you have to study their tastes and preferences on the one hand. Also you need to study buyers themselves: age, income, sex, life style and so on. You need to study their attitude to your idea before you start your business. By the way it will help in future while planning advertising and promotion activities.

Also it’s necessary to think about seasonality of demand. If sales change greatly during the year it means that your personal income will change too. Sometimes you’ll get nothing at all. Usually you’ll have to invest more money in inventory when demand goes down. Are you ready for this?

OK. That’s enough for demand factors for the first time. Read my next post to answer what other factors can make a franchise idea having no prospects.

The idea of combining franchising and e-auctions is divided into to possible businesses, as I think.
 On the one hand, the company can provide services of Internet auctions bidding. I wrote about it a bit earlier when I told about eBay franchises. Really, not many people are enough familiar with the procedures of selling and buying goods through the Net. They can overcharge or sell for too low price. Ordinary people usually don’t have many good references and this can decrease the possibility to get all possible advantages of e-auction…
So, this kind of franchise business is developing now and it concerns not only eBay auction but any other – cars (like Copart),  web-design and software development services (like Elance) and so on.
 

On the other hand, big e-auctions start selling franchises themselves. Here we are not speaking about consulting or assistance services. Usually, the system works the following way. Franchisee gets the necessary software to start the auction himself. Why people will use this small one instead of the main? The main reason is territory or specialization on particular kind of products. But territory is the main reason. Franchisee has the opportunity to meet the needs (and legislation) of particular state or country. And if to speak about different countries the main advantage will be using of native language.
 So, I think that franchising + e-auction = good business opportunity.

In my previous article I discussed only consulting in the Internet sphere. But at the same time some companies sell franchises to provide general consulting or training using the Internet technologies and special systems of distance learning. It may cover all spheres of consulting: medical, psychological, economic, legal and any other. Some companies specialize on one direction, the others try to combine many. But in general the main idea remains the same – they teach and consult people through the Net.
 Why should you buy their business? In most cases the main reason to become a franchisee is the software provided by franchisor. Usually it’s much cheaper to get it from the main company than to develop yourself because the development costs are divided between many franchisees. Also franchisor provides the already tested system. So, you can start consulting or training immediately.
 

Also I want to say few words about one more hidden benefit. As you understand franchise package includes compulsory training. Training in some professional sphere! Usually in also includes ongoing training too. So, it seems that you can get professional knowledge and business at the same time (as if you attend the college for free….)
  As for me it’s one of the business ideas or opportunities when you exactly understand what you get.
 And what about weaknesses? To my mind they are the same as I mentioned in the pervious article.