“The boss drives people; the leader coaches them.
The boss depends on authority; the leader on good will.
The boss inspires fear; the leader inspires enthusiasm.
The boss says I; the leader says WE.
The boss fixes the blame for the breakdown; the leader fixes the breakdown.
The boss knows how it is done; the leader shows how.
The boss says, GO; the leader says Lets GO!“

I did some searches on the web for the meaning of ‘boss’ and ‘leader’ and I feel that these two have spot-on definition:

Boss: a person who exercises control or authority; specifically: one who directs or supervises workers (Merriam-Webster.com);
Leader: a person who rules, guides, or inspires others; head (TheFreeDictionary.com)

Generally, the keyword that is attached to ‘boss’, in many online dictionaries, is authority and the keyword for the word ‘leader’, is simply lead.

This writing will be very much in the context of SME franchisor. From my observations, many SME has a ‘boss’ – the principal business owner. In another word, the organisation is controlled by a ‘boss’. The principal business owner will most of the time act in a very authoritarian way. You can’t blame them as this is the way they do things since the very beginning when they first started the business and for them, they know the best in the organisation and everyone must listen to them.

But this is where things go wrong when it comes to franchising. In franchise, the ‘boss’ attitude does not work most of the time. You cannot afford a bossy franchisor business owner in the franchise relationship because the franchisees are also business owners as well, “standing head and shoulder on par” with the franchisor business owner. Both parties are business owners.

Coach

Why do some people go into a franchise and become a franchisee? Basically, one of the reasons why some people become a franchisee of another party is due to the system. They expect that the system from the franchisor works for them. They probably have the drive to do the business but do not want to spend the time doing the trial and error. All they need is guidance and someone to coach them to do things the right way and more effectively and efficiently. And for that, they are willing to spend on the franchise fee and pay the royalty. So, the franchisor’s role is not to push the franchisees further but to lead them to develop further.

Good Will

There is no doubt that almost all if not all, franchise agreements will give the franchisor a lot of protection and benefits. This, at times are called, a one-sided sided agreement. This is a fact that one cannot run away in a franchise relationship. And this in fact has given the franchisor a lot of authority or power over the franchisees. However, if the franchisor needs to use the franchise agreement to exercise its authority every now and then to settle issues in the franchise relationship, then it is bad. A franchisor should build a good will that is respected by the franchisees so that the franchisees look at them as a role model that do the right thing and not a police officer that has the power to summon the people when people break the rule.

Enthusiasm

As mentioned above, the franchise agreement has given the franchisor a lot of power in the franchise relationship. However, a good franchisor will not instil fear upon the franchisees to impose penalty or terminate the franchise agreement should there be a default even though this is provided in the franchise agreement. A good franchisor will on the other hand make the franchisees excited and enthusiastic in executing what is required. Franchisor need not be an iron fist dictator that rules the network but rather a charismatic leader that get the franchisees rally behind them.

We

Many franchisor business owners are very proud of their achievements that most of the words they use to refer to their success is ‘I’. In franchising, one has to remember that the future success or failure depends very much on both parties – franchisor and franchisee. Therefore, if the franchisor emphasises so much on the ‘I’, then the perception is that the franchisor should also take as much blame for the failure as it takes the credit for the success. A leader will say, ‘we’ achieve the success together and when times are difficult, more likely than ever the franchisee will say ‘we’ are into this together and we will face it as one. This is where the togetherness in network shows the unity and solidarity of the brand.

Fix the Breakdown

It is the nature of many people that when something goes wrong, they will look for excuses and put the blame onto the others. An act that irritates many other people as well. A ‘boss’ character will normally look for a scapegoat to take the blame because they believe that, the boss knows it all and could not have done any mistakes. A true leader will not be waste time on these but instead will quickly get the act together and focus on fixing the breakdown. There is no point crying over spilled milk. What needs to be done is to fix the problem, learn from the mistake, move forward and not to repeat the same mistake again. And this is the characteristic that is required to build a good and sustainable franchise system.

Shows How

A franchisor normally knows how things are done. This is because they are in the trade for long and had ample knowledge and experience to face the situations. A franchisor with good leadership quality has the ability to take it further. Not only do they know what and how things are done, but they can also show how things are done and guide the franchisees. This is what franchising is all about – duplication.

Let’s Go

A bossy franchisor will tell the franchisees to ‘go’. Franchisees should do this and should do that, and should not do this and should not do that. This is regardless of whether they do it themselves or did not do it themselves. They give instructions and order to do things that sometimes these instructions and orders are not implemented at all at their own backyard. A good franchisor says ‘let’s go’. They will walk the path together with the franchisees. What the franchisees experience, the franchisor will have full understanding of it.

Solution

A franchisor has to be a leader. If the principal business owner does not have that quality, it does not mean that he or she cannot be a franchisor. Hire a manager, a director, a vice president, or even a chief executive officer who has that quality. The franchisor needs someone who can lead not someone who can only instruct. Many people with the position and title can give instruction easily but how many times those instructions are adhere to with the sense of ownership? How many times instructions are followed wholeheartedly? How many times people complaint while still following instructions? Franchisors need leaders who can lead the franchisees, who know how to handle them without much conflict and provocation. Who can get things done even without the need to use the authority? Who can inspire franchisees. Who is visionary. Who is a human.

All the leader characteristics mentioned above when apply in the franchise relationship are interrelated. They form a chain of qualities that make a strong and sustainable franchisor. And to summarise all the above, a good leader is the one that shows leadership by example.

Happy Deepavali, Merry Christmas & Happy New Year!

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This article was first published in Business for Sale Magazine Issue No. 29 Dec/Jan 2013

The Olympic has ended recently and we have seen and heard of many world champions, record breakers and medallists celebrate their achievements and victories. Their route to success was never an easy one and a lot of efforts had been put in. These not only apply to the winners but also those who made it to London 2012. To be there, it is not only the athletes’ own efforts but also other people behind them, especially their coaches. The coaches are the one that train, guide and monitor them. The coaches are not the one in the arena, court, field or track during the competition but they can see a bigger picture from the outside. The coaches might not be a world champion themselves but they can produce world champions. In franchising, the consultant plays the roles of a coach.

This topic is written for those interested in becoming a franchisor and thinking of engaging a consultant to take them there. There’s always a joke about consultants among my friends – a consultant is a person who con and insult another party. No, that is not entirely true and I know of many good and dedicated consultants out there.

I have written about franchisor selection by franchisee, franchisee selection by franchisor and talked about franchisor selection by consultant. Now, this is probably something out of norm – consultant selection by franchisor. Why is consultant selection important? Taking the first right step is always important. Like what I mentioned in the previous issue, a franchise does not start with a franchisee but rather it starts with a franchisor and it is important to start a franchise with a good franchisor. However, even if the potential franchisor has the right mind-set and ready operationally, it does not mean that they will be able to become an effective franchisor. Most franchisors engage consultant to go into franchising. And in this case, consultants are the one taking the potential franchisors into the first step of franchising. So, consultants play a very important role in shaping the potential franchisor not only as a franchisor but an effective franchisor. Their roles are like the coaches to the athletes. They need to see a bigger picture from various perspectives and provide a good guidance to the franchisor. This explains why selecting a good consultant is important for the potential franchisor.

Many business people who plan to go into franchising by engaging consultant will enquire on a few consultants, get quotations, ask for the scope of work, etc. Well, this sound like any normal procurement procedures and those steps are necessary. However, these are the normal quantitative evaluation. There are also other factors to consider when evaluating and selecting a consultant.

The first general question to be posed to a consultant is probably what business can be franchised? If the answer is that all businesses can be franchised, then be careful with the consultant. This type of consultant is probably more of a conman than a consultant. They are more than likely interested in getting the “consultant fee” only than doing the job right. Most probably all that they will do is to rush out a Franchise Agreement, a Disclosure Document and an Operation Manual from a template and tell the franchisor that the work is done. Here, I would like to emphasize that it is not entirely wrong to use template, but only for some basic and common things. Every industry and business has its own uniqueness here and there and a template does not fit them all entirely. At end of the day, if a consultant does that for a franchisor, it will put the franchisor in a bad shape when real franchising starts. It’s a time bomb. Whether a business can be franchised or not, depends very much on the business model and concept. If the business model and concept is not easily duplicable, then the answer is simple – the business is not franchisable unless the business owners are willing to change them.

Ask the consultant how involved will they be in the creation of the operation manual. Some consultants will tell you that this is your business and you know your business best. That is very true – you know your business best. And this is also a way for them to tell you that, no, they are not going to be very involved in the creation of the operation manual and their job is mainly compiling your business process and put it nicely into a document. A good consultant will want to understand your industry, business concept and operation model. From there, they can add in more value with their third-party point of view, thus enhancing your business process especially at the franchisee’s operation level. It is just like the coach who gets to see things at a bigger picture and provides the guidance and advice.

Try to get to know the consultant better. The consultant is going to take your overall business to the next level, and they should have at least some basic knowledge in certain fields besides franchising. Two important aspects to evaluate are legal and finance. They should be aware of certain basic requirements in the law. They should also possess some basic understanding of the accounts. Check if they can give some views in these two areas. One thing of course is that you cannot expect them to explain things like a lawyer or an accountant because most of the time they are not from these professional background. However, like I said earlier, they should have some basic knowledge and if they are not able to go deep into the topic, they should be truthful about it. No humans are perfect anyway. If they do not have the slightest idea about these two areas, ask if they have a team of people with them who is knowledgeable on these.

One interesting thing to observe is to see if the consultant themselves are the compliant type of people. You see, you need your franchisees to be compliant to your standard operating procedures, guidelines and rules. So, you will need to be compliant to these yourself. It is called leadership by example – something that we heard of very often. However, are the people taking you into franchising have such a character? If they are telling you that you do not need to follow the laws and the rules and regulations, ask for the reason. Is the reason acceptable? Think of the implications should your franchisees get to know about this in the future.

Check with the consultant if they have any business process for you as a franchisor in the newly found business venture – franchising. If the franchisees are getting an Operation Manual for the business they are going to run, I don’t think it will be too much that there should be an Operation Manual for the franchisor to manage their franchisees. Frankly speaking, this is actually pretty important when you grow bigger and need to appoint master franchisee. The master franchisee will need this type of Operation Manual to manage the sub-franchisee and you will need to support them on this especially in providing guidance. A lot of the time, management of the franchisees is done without much proper system.

Reference check! In large corporations, many of a time reference checks are done on potential employee, potential supplier and even potential customer. These are done either officially or unofficially. So, why not do some reference checks with the other clients or affiliates of the consultant. After all, you are about to put your new business venture into the hand of the consultant. Ask about the working style of the consultant. Ask about the good and the bad points of the consultant. A good point to another party does not necessarily means a good point for you. Vice versa, a bad point by another client does not necessarily means a bad point for you also. It is about what suits your need and what you can accept and expect from the consultant.

At the end of the day, business has to be done truthfully. We do not want to do onto others what we do not want others to do upon us. Franchising is about win-win situation. When businesses of both parties are going smoothly, then it will be a harmonious situation and everyone can focus on growth and taking the business to a higher level. Consultants have a part to play in moulding this up on a franchisor. So, franchisor needs a good consultant that they can work with. It is like looking for a good master to learn and become good at a martial art.

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This article was first published in Business for Sale Magazine Issue No. 28 Oct/Nov 2012

So what do you expect from me in this issue? After reading the past five issues, you might have expected some solutions from me but I must say I do not have all the answers for I am only a human learning day after day and striving for perfection. I do know one thing, that things will never be perfect but it is the effort to strive for perfection that keeps us improving day after day. And this is how we move forward. And again, I prefer to put this discussion more in the Malaysian context – moving the Malaysian franchise industry forward.

Understanding of Franchise & Embracing the Spirit of Franchising

One thing which I highlighted quite obviously in the previous issue is the understanding of franchise itself. The improvement of the understanding is vital. The stakeholder in the industry should have a consolidated effort to educate the public on the true meaning of franchise. This is probably one subject all business administration students should be exposed to in their tertiary education. Not only that, the players in the franchise industry should internalise the spirit of franchising. Instilling the true spirit of franchising in every players of the industry is not an easy task but is very important to get the industry to move forward in the right direction and build a better image and reputation.

The public must not only be made known that taking up a franchise is becoming their own boss. Sometimes the question is, are they really their own boss after taking a franchise? Public must not only be sold on the benefits of going into a franchise be it as a franchisor or a franchisee. They should be educated and exposed on the negative sides of going into franchising as well. It is not a secret that no human is perfect and therefore, no system is perfect either. It is only after knowing the pros and cons that one can make a better evaluation and decision on whether to go into the franchise or not. It is always those that were oversold to go into something that creates the most trouble and problems when things do not turn up well. You cannot really blame them as they felt they have been cheated (or sometimes really been cheated!).

Farsightedness

One sad thing I found out is that many people go into franchising to make fast bucks. This applies to both sides – franchisor and franchisee. Farsightedness should be in the mind-set of the franchise players. Whoever that comes into the franchise arena should look at it as a long-term venture. After all, the Malaysian Franchise Act 1998 requires all franchise term to be at least 5 years. Being farsighted is not only about the franchisor’s vision or target of having how many franchisees in certain years. It is also not only about when the franchisee can get their return of investment. It should include the possible challenges and problems that the franchisees will face operationally in the future and also possible franchisor-franchisee relationship challenges.

This brings us to the operation manuals and trainings provided by the franchisor. Sad to say, a lot of franchisors assume that by having a good franchise agreement, they are good enough to go into franchising. And with that assumption, they are looking for every possible way to protect their interest in the franchise relationship with the franchisees and every possible method to ensure that franchisees pay them the money. The emphasis is way too much on the ‘return’ element of the franchise. This is where they forget about the other two elements – ‘system’ and ‘identity’. It will be a useless franchise, if the operation manuals and trainings are done just for the sack of having them.

In fact, operation manuals and trainings are some of the most important things in ensuring the survivability of “green” franchisees and also the consistency in the brand’s delivery to its customers. Both of these are vital in long term survival and growth of the franchisor and its brand. This poses the question of how many times does the franchisor review its franchise agreement and how many times does the franchisor review its operation manual? Or probably a critical question of does the franchisor knows what is inside their operation manual? Franchise consultants play a very important role here in ensuring their clients (the franchisors) have this covered and are in order.

Developing Good Franchisors

A franchise does not start with a franchisee but rather it starts with a franchisor. So, it is important to start a franchise with a good franchisor. In the earlier writings, I mentioned about franchisor selection by the franchisee and franchisee selection by the franchisor. In the selection process, some criteria have to be evaluated. To do the industry a favour, franchise consultants and the approving authority should also consider prospective franchisor evaluation. Though I know that some consultants do evaluate the potential franchisors which are also their potential clients for the readiness to go into franchising, but I do believe that most of these evaluations are on the operational readiness of the potential franchisor. In developing a good franchisor, sometimes it is more than just operational readiness. It is also about mind-set readiness.

Mind-set readiness is especially important when dealing with small and medium enterprises (SMEs). Why do I say that? This is because in SMEs, there is a tendency that the individual owner makes all the decision and gives all the directions and order. We can liken this to an “authoritarian organisation”. So, it is important to evaluate the characteristic of the owner. Some business owners go into franchising with their “own world” claiming that they have the best system and brand and aim to make lots of money from franchise fee, royalty, products they supply and other facility and services they provide to the franchisees. Well, there is nothing wrong with that since business is about making money anyway. But, if this is the only purpose, then the likelihood of these franchisors causing the failure to their franchise system is very high. Why? Because they have forgotten that their franchisees need support apart from buying product and engaging services from them.

When a business owner goes into franchising, they should have the mind-set of expanding their business coverage. This will bring them to enjoy what other franchisees would enjoy as well – better visibility, better buying power etc. This, at the end of the day will also bring them more profit in return, both from the company-owned operation and also royalty from the franchisee. For that, franchisors need to invest in their system and promotion as well. And bear in mind, the investment is not only for the development of the franchise programme or the franchise consultant’s fee. Franchising should be look at from a win-win perspective and not one party milking the other party till the last drop of the blood.

Malaysia as Regional Franchise Hub

Malaysia’s aim of becoming the regional franchise hub is a noble move. In becoming the regional franchise hub, Malaysia has already had a Franchise Act in place, in which very few countries in the world have that. Moving forward, the government ought to create a more encouraging environment to attract foreign brands to come and establish their regional headquarter here. Some incentive such as tax exemption can be considered for these foreign brands to come in.

In the local front, the government will have to look into bringing the standard of local franchisor to a higher level. To set a reputation as a regional franchise hub, I truly believe that quality is the outmost important compared to quantity, in the local front. Good local franchisors should be given some assistance to bring their brands to a higher level and penetrate the global market.

Bringing the Malaysian franchise industry to the next level is not an overnight job. It needs a lot of efforts and sweat. The players in the industry have to have a common goal – to make the franchise industry a respected industry. And this will definitely benefit everyone.

I would like to take this opportunity to wish all readers Selamat Hari Raya and Happy Merdeka!

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This article was first published in Business for Sale Magazine Issue No. 27 Jul/Sep 2012

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.

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!

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

I know that many franchisors go into franchising to make more money. This is not wrong because after all business is all about making more money. However, if the franchisor accept franchisees just because they can pay the franchise fee, then this is very wrong. Allow me to use this metaphor, if all the men in this world is only looking for beautiful girls and women to be their girlfriend and wife, wouldn’t this world be a sad place? Reason being, not all men can live with beautiful girls and women just because of their beauty. Vice-versa is also true. There has to be some other understanding as well. Otherwise arguments and conflicts will be day-to-day affairs and there will not be a peaceful place in this world. Please don’t get me wrong here, I am not saying that beautiful girls and women are not girlfriend and wife material but I am merely stating that there are more than just the looks. To cruelly put, businessman who accept all franchisees only because they can pay the franchise fee is just like prostituting their business.

It is beyond the money. Of course the potential franchisee has to have the money to invest in the franchisee business or at least know how and where to get the money to invest in the franchise business. One of the most important things to look for in a new franchisee is always compliance. You as a franchisor, have built up the business and the brand and have now go into franchising to allow other people to use your system and brand. If the franchisee is not compliance, the franchisee can turn all your efforts upside down in no time. For example, if you have established your brand as one that serves healthy food, all of a sudden comes a new franchisee that does not follow the system and serves the fastest but not well cook food in town, what will happen to the whole image of your brand and your business?

The attitude as a team player cannot be discounted at all in the franchise network. All franchisees maybe independent business owners who is accountable for their own profit and loss but they will also have to know that preserving the interest of the franchise network is important. A franchisee cannot put other fellow franchisees in a difficult and risky situation just for the sake of them earning a little bit more for themselves. Franchisees should be able to contribute constructively for the benefit of all members in the network. The most common human nature of selfish and greed has to be minimised in a franchise network.

A franchisor should also ensure the selected franchisees are self-motivated in the running of the business. Franchisor should know that practically they cannot be there for the franchisees all the time in facing every situation. A self-motivated franchisee will have a positive attitude and will be less likely to blame others if things do not go well. This is at times the thing that keeps the business going especially when things do not turn out as expected or as planned. Regardless of knowledge and experience, motivation and willingness to learn is very important and can overcome many other obstacles.

While franchisees must have the mentality of a business person, they should also have the heart of a sales person. Franchisor do not need a super sales person as a franchisee but a franchisee that is able to sell and enthusiastic about the business and its sales. This is important to both the franchisee and franchisor. For the franchisee, sales will determine the survivor of the business. Without the revenue, the company will be affected and soon the franchisee will not be able to cover its overhead and will have to go burst. This will reflect badly on the franchisor as well. For the franchisor, this can be an opportunity cost. Many franchisors practise the awarding of territory rights to the franchisees. If the franchisee is not performing well, it deprives the franchisor from maximising the loyalty earning and the franchisor cannot appoint a new franchisee or open a new outlet in the same area for at least in the near future.

Hardcore salesmen are not welcome here. This statement might sound contradicting with the above but a franchisor cannot accept a potential franchisee that is trying to hard sell themselves to get into the network. Accepting a potential franchisee that is overselling themselves will turn out to be disastrous for the franchisor. The potential franchisee might praise the standard operating procedure and promise full adherence to it but they might not be truthful enough and just want to get in to take advantage of the brand recognition. So, franchisors have to be careful with this type of applicants and this sometimes requires the “sixth sense” to tell if the applicant is truthful or not.

Setting expectations prior to approving a franchisee is an important task. While this does not sound like a criterion in selecting a franchisee, it is in fact, part of the evaluation on whether the franchisee can accept the culture and the value of the network or not. It is also an evaluation of what are the values a potential franchisee holds. Even before the first engagement for discussion on the potential franchise relationship, both franchisor and potential franchisee have their own expectations on the franchise system. The expectations from the franchisor normally cannot be changed all the time in the interest of all other existing franchisee but it is whether the potential franchisee can adjust their expectations to fit into the network or not. A good communication of the expectations are vital can ensure that there will be lesser problem in the future.

What is important in the franchisee selection is actually to maintain the harmonious environment in the network. The selected franchisee should be able to work together with the franchisor and also with other franchisee and understand the spirit of franchising. This is so that the franchisor and other franchisee can concentrate in growing the business rather than spending too much time arguing minor matters which is unproductive. Petty issues can sometimes take a lot of time and effort to resolve.

Till the next issue on ‘Challenges in Franchise’, I’m signing off for now from the side of the pool in Port Dickson.

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This article was first published in Business for Sale Magazine Issue No. 25 Mar/Apr 2012

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The point I am trying to make here is, people have choices in life and choices also exist in franchise. You can choose who you want to partner with but once you have made your choice, you will have to live with it. Therefore, before deciding on whom you want to go with, and in this case which franchise or franchisor, you have to make careful evaluations.

Of course the first thing to do is to decide on whether you want to go into a business through franchise or just starting your own business from scratch. This is will not be discussed here as you can refer to my writing in the previous issue on the benefits of franchising. I will also not touch on most of the technical aspect of franchisor selection, as there are a lot of articles and guidelines out there in the market that discuss this. What I am touching here is something on the qualitative or “spiritual” part of the selection. Something that is at times very hard to quantify unlike things such as total investment, potential return, market size, etc.

Let us start. First and foremost when looking at which franchise to take up is to look at your own interest. See if there is any franchise business that is related to your interest. You will need a lot of passion to keep you going especially when times are bad. This is a reminder that like any other business, franchise business is not a guaranteed smooth sailing ride. If your passion is just about making money, then it is very easy. All you need to look at is the franchise with good potential profit. However, some people have passion in food, some with children, some on retailing, cars, electronics, etc. Try to shortlist a couple of industries or businesses that are related to your interest before you start your franchise shopping. Do consider also businesses that can complement your existing business if you are already in business.

Next, you will need to see whether the business has any potential growth or not. Remember, nursery or early childhood education was not very popular here in the 70s and 80s. However, due to the growing numbers of working parents, it has become kind of a “necessity” starting in the 90s. Do take note also that some businesses might seems to have a lot of demand with customers queue up to buy their product but it could be that the products are very much in line with the current trend. If this is the case, it is quite dangerous especially when the franchisor has no record of innovations. This is because when the trend goes outdated, your business will definitely see the sunset if no new products or services are introduced.

Brand is also an important factor in your consideration for selecting a franchisor. A long-established company does not mean that the brand is well known. A well-known brand will give you an advantage as a franchisee to close more sales. But make sure that the brand is well known for a good reason. On the other hand, a lesser known brand does not mean that it should be totally out of your list. Check if the franchisor has a good brand promotion plan or not. Some new brands can shoot up very fast if the brand owners have a good brand positioning roadmap. This usually comes with strong unique selling proposition to differentiate it from its competitors. As a tip, a good brand is also usually short, simple and sweet so that it is easier to promote. That is why if you notice, most of the car model names do not exceed three syllables.

System is another important factor. The reasons many people select a franchise besides the brand is also due to the system that the franchisor employed. In fact, in an established business, the brand takes care of the top line while the system takes care of the bottom line. The system is meant to ensure efficiency of the business so that resources are optimised. Systems evolved over time and will always change for improvement to keep up with the changing business environment. Make sure you have at least visited the franchisor’s office or outlet and had seen how the business operates. Franchise agreements are never meant to be signed like how an insurance policy is signed… if you know what I mean. You don’t sign an insurance policy after you are dead!

Ask. Asking is very important. Seek clarifications from the franchisor if there is anything that you have doubts on or do not understand, as the saying goes, “Ask and it will be given to you, seek and you will find”. When the answers are given, don’t just listen, but see and feel them as well. Feel if the answers given are honest and truthful or the franchisor is simply trying to “sell something” to you. If you have any suggestions, voice it out politely but remember that this is not an avenue for you to push through your ideas. See how the franchisor responds to your suggestions. Does the franchisor just brush them off? Does the franchisor have a strong reason why you suggestions were not implemented? Does the franchisor already have that in their pipeline for implementation? Or, does the franchisor thank you for the new ideas and will study and look into it? Remember that no one is perfect and honest communication is the key to a successful franchise relationship. And communication is always a two-way traffic.

Look at the franchisor’s vision and mission both written and unwritten, spoken and unspoken. Are they consistent with your beliefs and principals? If they are different, can you accept them and adapt to them? Can you live with them? Look and feel the franchisor’s working environment. Understand their working culture. Try to imaging that you are working there. Do you feel comfortable in such a working environment? You should feel comfortable with your potential franchisor before you sign anything with them.

An important note when evaluating a franchise or a franchisor is always look at things from a bigger perspective. A lot of franchisors will have terms and conditions or impose rules that do not seem to be favourable to franchisees. However, bear in mind that franchising is about consistency and this is what the market expect from a franchise outlet. Therefore, someone will have to do the policing job and in this case it is definitely the franchisor. You might feel restrictive as a franchisee but imaging all franchisees have the ultimate freedom of doing what they want. If only one franchisee spoils the reputation of the brand whether intentionally or unintentionally, it will affect all other franchisees directly or indirectly as well. And that includes you when you are in the franchise system.

So much for the franchisees. As for the franchisors, in the next issue, I will be touching on franchisees selection.

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This article was first published in Business for Sale Magazine Issue No. 24 Jan/Feb 2012

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In the last issue I talked about the general definition of franchise and the 3 elements that has to be in for it to be called a franchise – identity, system, and return. The franchisor allows another party (franchisee) to use its identity (brand name), and have access to its system (trade secret). The franchisee will have to pay something in return (franchise fee and royalty) to the franchisor. In this issue, we will discuss why these two important parties – franchisor and franchisee, want to be in such an arrangement?

Human, generally have the nature of wanting to have the control over his or her own destiny. There lie the questions of the 3 elements for people to go into a franchise relationship.

For an existing business owner, allowing another party to use your brand name is a risk, for you have put in so much effort to build it and probably have a very high goodwill value, and that other party might just spoil all you hard work in a blink of an eye. And share trade secrets? That sounds crazy right? It’s already called a secret and why do you want to allow other people to have access to it? What if the other party reveal it to other people or even sell it?

For potential business owner, why do you want to take instructions and follow the system of another party? What if the system doesn’t work for you and you have limitation to change it? Some new business owners also question the high total investment in a franchise when they can start a similar business at a much lesser cost. And why should you share the profit of your business with the franchisor and in most cases, the franchisor will take the royalty of your gross sales regardless whether you make a profit or not.

The above are obviously some of the many questions and concerns both existing and potential business owners have in mind with regards to franchise. And this is also the very reason why a document called Franchise Agreement exists. This document basically layout the rights and obligations of both the franchisors and franchisees in the franchise relationship. But we are not going to talk about the Franchise Agreement here. We will be discussing on why franchise is an option and probably a good option for established business owners and potential business owners in moving forward.

As a Franchisor

We’ll start off with the existing business owners in which we shall call here franchisor, assuming they buy the idea and want to go into franchising :). Ask any franchise consultant and they are the best people to tell you why you should go into franchising. Some even tell you that all businesses should go into franchising. If they say so, please don’t trust them 100%! What I will be talking here is the benefits as a franchisor when you franchise your business and it does not mean that you should because at the end of the day, it depends very much on your business model and your overall company’s direction. You will have to evaluate pros and cons yourself.

The first and probably the most significant benefit for a franchisor is savings on the resources. Franchisor does not need to look for additional resources in opening every new outlet. Capital for opening new outlets will be provided by the franchisees and the same thing goes to other resources such as manpower. Franchisor can save on interest (financial cost) of loan from financial institutions or save from diluting its share in the business in getting new shareholders.

This will also allow faster growth of the business and the brand. Instead of waiting for the profit from one outlet to be channelled to open another outlet as capital, capitals are now provided by franchisees to open each outlet. Franchise fees paid by franchisees can also be used for other investments such as research and development (R&D) and marketing in which the franchisor can put more focus on. This can further enhance the product or services offered to capture more market.

Franchisor will also get more committed workforce comparatively to employed personnel in the outlets as the franchisees had invested their monies into the business and would not want to see their investment go down the drain. Monitoring of the operations of each outlet will be closer than ever before. Owners of the outlets will have more time to check on the outlets compared to franchisors doing it themselves. And of course, unlike employed personnel, franchisee cannot quit their job freely.

As a Franchisee

For franchisee, taking up an established brand franchise will definitely help the business in terms of recognition and “visibility”. Imaging you start a fast food outlet by the name of XYZ Quick Food Sdn Bhd. Nobody will know who you are on the first day of your business. You will need time to gain the reputation and goodwill from the people around the area you operate. People from elsewhere are still clueless about your business. But if XYZ Quick Food Sdn Bhd operates a McDonald’s, immediately people from everywhere that come to your area will instantly recognise the brand and know that they can expect efficient service with certain level of standard.

A franchise will also help you jumpstart your business. If you are operating your business independently and going into the business for the first time, you will probably have to go through some trial and error to get your business running smoothly. That is if your capital is enough to sustain those trials and errors to keep you going. By using the proven system and business model, you can concentrate on what is the most important thing especially for new start-ups – sales. You can focus on how to “fly” rather than just learning to “walk”.

During the course of business, anyone will encounter problems here and there. Under the roof of a franchisor, franchisees are not alone. Franchisor and even fellow franchisees can provide marketing, management, technical advice or assistance. And if you are lucky, some franchisors might even provide financial assistance. These supports are not available when you are operating alone. At the end of the day, franchise business offers potential business owners a better chance of success with much of the risk reduced.

Franchisor and Franchisee

Many people do not actually highlight the points below as mutual benefit for both franchisor and franchisee.

When coming into the franchise relationship, franchisor and franchisee actually benefit from the increased purchasing power. The total quantity of materials ordered will be greater and this allows for better bargaining power with the supplier. Cost can be reduced and because of the significance in quantity, the suppliers will normally put special attention to franchise group.

And of course, when it comes to cracking heads, more heads are always better than one. When people with common commitment and goals come together for brainstorming, great ideas can be achieved. Franchisor and franchisees can give different views from different perspectives thus providing a more thorough decision. If you are operating your own independent business, how many people will be willing to give you free good advice?

And that’s the power of franchise! I would like the end this with the quote from the book of Patricia Sowell Harris, McDonald’s Global Chief Diversity Officer, ‘None of Us is as Good as All of Us’.

If you buy the idea of going into franchising or taking up a franchise business, the next important step is to know how to do a good selection. In the next issue, I will be talking about franchisor selection for the franchisee and in the following one after that, will be on franchisee selection by franchisor.

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This article was first published in Business for Sale Magazine Issue No. 23 Nov/Dec 2011

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I will start off this series by examining at the definition of a franchise. The fact is, “franchise” is an oft abused business term in Malaysia.

Caveat Emptor!!!!!

The popular case on point is one that involves a cafe investment scheme that used the term “franchise” in a very misleading way – to promote its business venture and to invite investments. Unknown to many until discovery, the promising business venture turned out to be a cleverly crafted ‘syndicate scam’ – and many innocent parties were deceived by the antics of these unscrupulous “scammers”. It was reported in the media that the scammers collected franchise fees illegally and court action has been initiated against them by the Suruhanjaya Syarikat Malaysia. Sad but true, the scammers have taken advantage of the public’s ignorance and in some ways, leveraged on their greed for making the fast ringgit.

More Cases….

A few months ago, a particular hawker stall in a food court triggered my curiosity – well, I was drawn to the words “Franchise Available” on the stall’s glass counters.

Written in blue marker ink on a piece of white A4 paper, the words were clearly visible to all passer bys.

Finally, before I wrote this article, I remember some years back, there was a direct selling company calling its business model a franchise but the fact is, it is a multi-level marketing company that are attracting recruits.

The rapid growth of franchise industry has in recent years made the word “franchise” very popular. So, what is a franchise? The most common lay-man understanding is probably, a business that operates under the same name as the others. Yes, a franchise is about businesses operating under the same brand name. But it is far more than that.

In the local context, at least something that I am very familiar with, when people talk about franchise, the first thing that comes into their mind will be that ever popular fast food chain, McDonald’s.

Indeed, McDonald’s or commonly known as McD nowadays, is one of the biggest and oldest franchise organisations in the world today. But how many people really know or understand what franchise or franchising is about in the real business world?

The famous free online encyclopaedia, Wikipedia, puts franchising as ‘the practice of using another firm’s successful business model’. Oxford Dictionaries Online by Oxford University Press defines franchise as ‘an authorisation granted by a government or company to an individual or group enabling them to carry out specified commercial activities, for example acting as an agent for a company’s products’.

Oxford Dictionary of Business and Management also by Oxford University Press further defines franchise as ‘a licence given to a manufacturer, distributor, trader, etc., to enable them to manufacture or sell a named product or service in a particular area for a stated period. The holder of the licence (franchisee) usually pays the grantor of the licence (franchisor) a royalty on sales, often with a lump sum as an advance against royalties. The franchisor may also supply the franchisee with a brand identity as well as finance and technical expertise.’

Enough of academic definitions! To put things in a more practical manner, one has to look if the franchise business model is covered in the law for the day-to-day application. In Malaysia, there is this Franchise Act 1998 (Act 590) which regulates the industry. So, for any activities to be considered as franchise in Malaysia, at least from the legal perspective, one has to understand its interpretation.

The Malaysian Franchise Act 1998, refers franchise as a contract or an agreement, either expressed or implied, whether oral or written, between two or more persons by which—

1. the franchisor grants to the franchisee the right to operate a business according to the franchise system as determined by the franchisor during a term to be determined by the franchisor;
2. the franchisor grants to the franchisee the right to use a mark, or a trade secret, or any confidential information or intellectual property, owned by the franchisor or relating to the franchisor, and includes a situation where the franchisor, who is the registered user of, or is licensed by another person to use, any intellectual property, grants such right that he possesses to permit the franchisee to use the intellectual property;
3. the franchisor possesses the right to administer continuous control during the franchise term over the franchisee’s business operations in accordance with the franchise system;
4. the franchisor has the responsibility to provide assistance to the franchisee to operate his business including such assistance as the provision or supply of materials and services, training, marketing, and business or technical assistance;
5. in return for the grant of rights, the franchisee may be required to pay a fee or other form of consideration; and
6. the franchisee operates the business separately from the franchisor, and the relationship of the franchisee with the franchisor shall not at anytime be regarded as a partnership, service contract or agency.

One thing that I would also like to emphasis here is that, the Franchise Act 1998 interprets “franchise agreement” as a contract or an agreement made between a franchisor and a franchisee in respect of a franchise in return for any form of consideration but does not include any contract or agreement made for the purpose of direct selling as provided by the Direct Sales Act 1993 (Act 500). This might make it illegal for the direct selling company I mentioned earlier to call its business model a franchise.

Well, so much of legal language. To round it up in a layman term, I would put franchising as 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 three components that have to exist here are:

• Identity
• System
• Return, usually in monetary form.

You may ask, why would these people want to get involved in such an arrangement? Well, that will be answered in the next issue!!!

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This article was first published in Business for Sale Magazine Issue No. 22 Sep/Oct 2011

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