As a business leader, your focus over the last few years must have been about weathering through the storm.
You needed to adapt or develop processes to meet new and unanticipated challenges, stabilise your cash flow, take care of your employees, adhere to ever-changing SOPs (standard operating procedures) and so on.
Since we are now (hopefully) at the tail end of the pandemic, the most important question on most CxO’s minds is, ‘So, where do we go from here?’
Surviving the pandemic puts you in a good position to grow. You already know that the business you set up is robust enough to survive further shocks.
As the economy reopens and the surviving businesses scramble to fill in the gaps of those that have fallen, many businesses realise that they now need to look towards growth. You need to go forth quickly and stake your claim in the land.
IS FRANCHISING POPULAR IN MALAYSIA?
Franchising is a popular way of growing a business, especially in Malaysia. There are about 906 registered franchises in Malaysia.
In 2018, these franchises contributed more than RM30 billion ringgit to Malaysia’s GDP.
The franchise industry seen as an important driver of growth and is heavily supported by the Malaysian government.
According to data from the Malaysia External Trade Development Corporation (MATRADE), the franchise industry is expected to recover well. The industry will create over 800,000 new jobs in Southeast Asia, most of which will be in the retail, food and service industries.
WHAT IS FRANCHISING?
In a franchise business model, your company, which will be known as the parent company (or franchisor), establishes your brand trademark and business system.
You then extend that the right to use your mark, trade secrets or other intellectual property to another company (franchisee). The franchisee will typically pay an initial fee and an ongoing royalty for using your name and system to do business.
BENEFITS OF FRANCHISING YOUR BUSINESS
YOU GET EXPANSION CAPITAL
The lack of capital is one of the main reasons most companies are unable to expand.
Turning a business into a franchise is one of the main ways companies address this lack of capital.
This is because most of the expenses needed for expansion will be covered by your franchisees’ fees.
It also eliminates the huge risk of financial leveraging – you no longer need to take on debt at a high interest rate to fuel your ambitious grow.
AVOID EMPLOYEE-RELATED HEADACHES
As you may already know, managing employees is one of the hardest parts of running a business.
When you franchise your business, you no longer need to worry about many labour-related issues such as insurance, ensuring prompt EPF (Employee Provident Fund) and MTD (Monthly Tax Deductions) payments, morale, disciplinary issues and so on.
This is because most of the people needed to run the franchise stores will be hired directly by the franchisees.
MOTIVATED FRANCHISEES
Business owners will invariably work that much harder than employees.
They have a stake in the success of the business and will work hard for it. They are the owners of their own franchise stores, after all.
You no longer need to worry about whether your store managers are working hard enough or are motivated enough.
INCREASED BUYING POWER HELPS REDUCE COSTS
When you are running a standalone store, you know that you are going to be paying more per item ordered because your order size is small.
When you expand quickly with your network of franchisees, you will be able to purchase your supplies with a greater discount because you will be buying in greater bulk.
This increased economy of scale will drive down costs and increase profitability over the long term.
INCREASED BRAND AWARENESS
Another great benefit of franchising is the reduced promotional costs. With co-operative advertising and shared promotion initiatives, you will be able to grow your brand recognition at a much faster pace than normal.
POISED FOR INTERNATIONAL EXPANSION
When you feel that your company is ready to go international, your experience in the franchise business model will help you accelerate that growth.
Your potential franchisees in these overseas markets will already possess that all-important local market knowledge, reducing your risks and time taken to enter the market.
IS FRANCHISING RIGHT FOR YOUR BUSINESS?
A franchising business model allows you to grow your brand, and so you should consider it. However, you should evaluate whether your business can be franchised or not.
Also, your personal and business goals should be aligned with franchising. This is because your organization will take up the role of onboarding, supporting, and training your franchisees.
Here are some of the main things you should consider.
CAN YOU DEFEND YOUR INTELLECTUAL PROPERTY?
Brand protection and security is critical when it comes to franchising. The franchisor should own and control the trade name and trademark as well as other brand assets (such as domain names).
If you have yet to register your trademark or taken other steps to protect your intellectual property, then you need to stop reading this now and get those done!
If you’re a fan of the hit series, Fresh off the Boat, you would know the main character started his own restaurant by pretending to be interested in a competitor’s franchise before running off with their operating manual.
This scenario is not restricted to sitcoms and is more common than you may think.
ARE YOUR STORES ALREADY PROFITABLE?
Before you can sell your franchise to other entrepreneurs, you need to ensure that your current business is profitable and scalable. Franchising is not a cure for a failing business.
This proof-of-concept should be done across your company- owned stores before you take any steps towards franchising.
Trying to pawn off an unproven business as a franchise is a recipe for a deluge of lawsuits.
CAN YOUR CONCEPT SCALE?
Once you have a proven business model, you need to be able to take that expertise and make it easily replicable.
Important knowledge that needs to be shared to make this happen include your branding, business know-how, supplier management, processes, recipes and so on.
You need to be able to document these pillars of success in your operating and training manuals.
You also need to have the capacity to train your franchisees so that they can deliver similar products and experiences that made your brand successful.
CAN YOU AFFORD THE INITIAL INVESTMENT?
We have mentioned that starting a franchise reduces the need for capital. However, there is still an initial investment that needs to be made.
Just like starting a business, starting your franchise is not free. You need to document your operating manuals properly, register your trademark, ensure your franchise agreement is professionally written, register with the relevant authorities and so on.
You will need to spend some time and money to get your franchise off the ground. You may also need to hire the services of a franchise consultant to ensure you get expert advice during this process.
This means that it will take some time for you to recoup that initial investment.
COMMON FRANCHISING MISTAKES TO AVOID
The franchising industry can be confusing when you do not have a qualified franchise consultant to guide you.
Some of the mistakes that entrepreneurs planning to jump into this space make are linked to a lack of knowledge about the franchising industry and failure to make realistic, specific, and attainable goals.
Here are other mistakes that most startup franchisors make and that you should avoid as you prepare to franchise.
PREPARATION OF FRANCHISE DISCLOSURE DOCUMENT
You must have a Franchise Disclosure Document (FDD) when starting a franchise. Your FDD should be unique, not a copy of your competitor’s.
You should also conduct thorough research when hiring an expert to guide you in this franchise development process because an incorrectly prepared one may leave you open to expensive lawsuits.
Any details that may be found to be misleading, untrue or fraudulent may also get you into trouble.
UNDERESTIMATING EXPERT ADVISE
When you first started your business journey, you would have quickly understood the importance of having good mentors and trusted advisors around you.
This will be the same as you start your journey into franchising. You will need solid advice as you step into the great unknown; advice that you can take to the bank.
You will also want to ensure that you do not fall foul of any legal requirements that could destroy your business overnight.
Surround yourself with experts who have done it all before and who want to help you succeed.
THINKING YOU’RE THE ‘BIG BOSS’
While you might be the owner of the franchise, it is important to realise that your franchisees are independent contractors and entrepreneurs who are as much as a ‘boss’ as you are.
A franchisor that does not give their franchisees their due respect will not do well.
After all, you want them to take ownership of their individual franchises and help grow them.
ENSURE THAT YOU’RE READY TO FRANCHISE
Not all successful franchisors win when they get into this business model. This is because it’s the best execution that is important but not the product and service.
Franchisors should identify the strengths and weaknesses of their business, their personal and business goals, and their level of commitment.
Setting up a franchise is just the start of the journey. You will need to prepare the foundations on which your franchisees will build upon.
You will also need to constantly provide operational and marketing support.
This is not a once-and-done affair.
GET EXPERT ADVICE ON FRANCHISING
Franchising is one of the best ways to grow your brand, both in and out of Malaysia. However, a new franchisor would do well to enlist the services of a franchising expert before diving into this space.
The franchise business is highly regulated, and a lot of documentation is needed before getting the franchise registrar’s approval. Therefore, it can be extremely challenging when a new franchisor works alone.