Challenges in Franchise

Challenges are everywhere in our lives, it is just the magnitude – whether big or small. It does not apply only to human but animals and plants as well. Reflect this, especially on the point on plants. We will face some kind of challenges at every stage of our life. And there is no exception on this for the franchise industry as it involves human.

I will be talking about this topic very much in the Malaysian context and emphasising on few core challenges in the country.

As summarised in the first topic of this series of writings, franchising is a formal act of two separate entities in which one party (franchisor) grants the rights to use its identity that has commercial value, such as brand name, to another party (franchisee) for a period of time and at a specified area. The franchisee will also need to operate the business in a way or under a system that has been determined and/or agreed by the franchisor and pays the franchisor some benefits in return. The definition seems pretty simple and straight forward but how many people really understand it?

The main challenge of all in franchising in Malaysia is understanding franchising itself. People on the street really need to know what it really means. I do not wish to bring out what was mentioned in the first topic but I really have to. The most common understanding of franchise is probably, a business that operates under the same name as the others. Worst still, some people think that by letting other people selling or distributing their products, they are already franchising. If this basic understanding is not there, it will be very hard for the whole industry to move forward. The promotion of franchise will be not be fruitful as the perception of the business model is totally wrong.

The promotion that gives the wrong impression to the industry

One of the challenges is the lack of the spirit of franchising. This happens only to the players of the industry as they are part of it. Though most of the players in the franchise industry know what franchising is all about, the attitude and operation of the franchise business do not really reflect what it is supposed to be. Although this does not apply to all franchisors and franchisees across the industry, the sad part is, it even happens to some consultants as well. I must also say that this usually happens to rookie franchisors, franchisees and consultants. They always see franchise relationship as customer-supplier or boss-staff relationship. Some even look at it as parent-children relationship! This gives a totally different perspective to the whole business.

I would like to quote Harish Babla of Franchise Mind Corporation, as saying franchisees are not your friend, not your customer, and not even your partners. They are your franchisee. Franchisors and franchisees are in an interdependent relationship. They are not totally dependent to each other as without the other party, they basically can still survive. They are not totally independent from each other as they share some common platform especially brand and reputation in the eyes of the customers. They are interdependent because the success and failure of one party can affect the growth of the other party. As Wikipedia puts it, ‘interdependence is a relation between its members such that each is mutually dependent on the others. This concept differs from a simple dependence relation, which implies that one member of the relationship can’t function or survive apart from the other(s).’ I liken it to be colleagues in an organisation. An organisation will still move on without some colleagues. However, everyone cannot be too independent as there will be no organisation then. The interdependence ensures that things go smoothly.

Another challenge in the industry is franchisors, not only in Malaysia but across the world, always try to sell their franchise. Some franchisors might quickly come to a conclusion that I must be crazy to come out with this statement. Let me point out that ‘sales’ and ‘marketing’ might be seen side by side most of the time but both are totally different thing! A franchisor can market its franchise programme but selling, especially hard sell it is a total cheap! For sales to happen, the buyer has to have two things, the money and the want. If a potential franchisee comes into the office and said he or she has the money and want to take up the franchise, should a franchisor say let’s sign the franchise agreement? NO! There must be some evaluations and screenings before the franchisor can take the potential franchisee in as a franchisee. This is what I prefer to call franchisee recruitment, not selling franchise. And how does the potential franchisee get to know about the franchisor’s franchise programme? Well, through the franchisor’s marketing effort for its franchise programme. See the difference now?

Why can’t we sell that franchise programme? When selling takes place, the expectation is totally different between the franchisee and the franchisor. That is when the franchisee will think that they are the customer and franchisors have to remember that there are these concepts of ‘customer is always right’ and ‘customer is the king’. And also, franchisors have to bear in mind that they are merely granting the rights to the franchisee to use the brand and system for a period of time. Franchisees do not own the brand and the system after paying the franchise fee. Take a look at property rental as an example. Most owners do not want to rent their property to any Tom, Dick and Harry. They want to make sure that the tenant is responsible people that can take good care of their property and also pay the rent on time. And at the end of the day, the property is still theirs.

While franchisors had established themselves in their trade and go into the franchise business to grow their business further, some franchisors are simply not ready to franchise. I personally had heard from some franchisors telling me that they are not ready to have franchisees. This is a good admission as they know where they are. But many franchisors don’t know about this. Franchisors can be great and successful in their trade but franchising is totally different if they do not look at it from a different perspective. Franchisors have to do some evaluation on their operation and a post-mortem on why are they successful. If they are doing “firefighting” very often in their business and they are good at it, they have to know that not all franchisees know how to do that especially when the franchisees are new in the trade and probably are also new in running a business. Good “firefighting” skills are normally acquired through years of experience which the franchisor already have and the franchisees don’t.

Ad-hoc decisions are signs of lack of a proper system and system is not only on how a quotation is done, sales order is entered, products and services are delivered and then issuing an invoice. System includes the ‘what ifs’ in the business. If the owner of the franchisor finds himself or herself making too much day-to-day operation decision, then they have to make the most important decision – a flow of decisions. This flow of decisions has to be able to deal with almost all the common day-to-day operation issues. When this is done, franchisees will find that it is valuable to take up the franchise rather than starting their own business from scratch. This will significantly reduce a lot of frustration in the franchise relationship, a challenge a lot of franchisors and franchisees faced especially with new franchise. In this case, franchise consultants play a very important role in accessing the readiness of the potential franchisors.

Well, if you look back, the challenges basically the challenges revolves around the definition of franchise itself – the identity (brand name, product and services), the relationship (the spirit of franchising), the return (selling of franchise) and system (decisions). By knowing these challenges, it is hope that franchisors and potential franchisees can get a better idea on what to do in their own franchisees and franchisor selection.

In the next issue, I shall be touching on moving forward in a franchise. Till then, sayonara!

This article was first published in Business for Sale Magazine Issue No. 26 May/Jun 2012