November 2018
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THE FUTURE OF FRANCHISING? STELLAROSSA CAFE AND IT’S BOLD CO-OWNERSHIP APPROACH.
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Inside this Edition of Nov. 2018 05 News Bites 14 Real technology your business can implement today to drive efficiency By Robert Marsden
STELLAROSSA CAFE
and it’s bold co-ownership approach.
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19 Australia’s Lending Landscape By James Scurr 22 Buying a business today is not easy. Finding the right business to buy is even harder… By Rob Semmel 24 Not all franchises are created equal How to spot franchises that shouldn’t be franchising… By Glenn Walford
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w w w . f r a n c h i s e b u y e r . c o m . a u Published by
FRANCHISE MEDIA GROUP PTY LTD Editor GLENN WALFORD glenn@franchisebuyer.com.au
Digital & Technology Strategy ROBB SNELL
Writer PAUL ROBINSON
Art Director KATHERINE BERCASIO
Contributors ROBERT MARSDEN JAMES SCURR ROB SEMMEL GLENN WALFORD
Published by Published by Franchise Media Group Pty Ltd Opinions expressed in Franchise Buyer are not necessarily those of Franchise Buyer or the Publisher. Persons entering into a franchise agreement are strongly urged to seek their own independent advice. All material is copyright and reproduction in whole or in part is not allowable unless specific permission from the Editor is provided.
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News Bites
Sunshine Coast based Raw Energy expanding nationally
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aw Energy, based on the Sunshine Coast, and already with 13 locations and growing, is undertaking a significant expansion drive. With fresh, wholesome food most certainly on-trend, the company has recently identified a number of locations available now as part of its growth plans. According to the company, they are seeking ‘motivated personalities with an appreciation of healthy food, an ambitious vision, great leadership skills and a drive to be successful in financial targets to become cafe owners!’ Menu options include burgers, bowls, smoothies, juices and salads, that are fresh and nutritious, and all in an ergonomic store design in premium sites to help build a strong foundation of customers as described by the company. Franchisees also receive intensive initial training and
ongoing training and support from the marketing and operations Raw Energy Head Office teams. “The proven business model is built on decades of experience. Our franchisees love our model, which gives them all the knowledge and support they need to kick off and continue to drive healthy growth in their cafe,” according to Phill Tucker, Raw Energy Business Developer Manager. “The low initial investment and a network of driven, likeminded franchisees, also helps our new cafe owners to ease into their role within the Raw Energy family.” Currently, opportunities are available at several sites in the Sunshine Coast QLD, Brisbane QLD, Gold Coast QLD, Capricorn Coast QLD, Far North QLD, Melbourne VIC and Regional Victoria. The company is also looking to expand across the
country into all states, and is open to working closely with applicants to find the best location to suit. “It’s an exciting time for Raw Energy cafes with the significant growth in health-conscious consumers continuing through Australia.”. Also, Ben Sheppard, Raw Energy General Manager, touched on the companies sustainability ethos and focus. “We’re excited to be working vigorously behind the scenes to also set a sustainability standard across our cafes. Offering our customers better alternatives to plastic straws, takeaway containers, coffee cups and plastic bags means we can appeal to this growing worldwide trend and also do our bit for the environment - this is an area many of our franchisees are very passionate about” n www.rawenergy.com.au
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News Bites
PACK & SEND Filling award trophy cabinets
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ecently, PACK & SEND took out two significant awards. ProductReview.com.au just announced it as the winner of the 2019 ‘Couriers’ category. The site is a comprehensive customer opinion site for many services, including the courier sector. It provides a platform for people to rate and review the services of over 100 different courier companies. With well over 20,000+ courier rating reviews listed on the site, PACK & SEND received a
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rating of 4.5 out of 5. https://www.productreview. com.au/p/pack-send.html In addition to this award, PACK & SEND has also recently been awarded by another leading rating platform, TrustPilot, as the ‘Best Courier and Delivery Service in Australia.’ https:// au.trustpilot.com/categories/ parcelservice Based off approaching 6,000 reviews, PACK & SEND received a ‘Trust Score’ of 8.5 out of 10, leading the competition. “It’s very gratifying to all
PACK & SEND franchise owners to know that their dedication to customer service has resulted in the brand being rated as the best,” said CEO and founder of PACK & SEND Michael Paul. “There is really nothing like our business model in the world, and we are continuing to innovate with the launch of a suite of new retail and technology solutions, the likes of which the logistics industry has never seen,” he said. n
COVER STORY
CO-OWNERSHIP: is this the future of FRANCHISING? Stellarossa co-founder Darren Schultz talks about the company’s exciting new franchise model. BY PAUL ROBINSON
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arren Schultz, founder of the Stellarossa café brand isn’t ashamed to admit that he loves franchising, but that’s precisely why he’s seen it’s time to rethink the business model. Currently, the group operates some 23 franchised stores in South East Queensland, but some pretty big changes are on the horizon. With his long-time business partner Phil Cronin, Darren co-founded Stellarossa back in 2009, opening two stores in the Brisbane CBD. They started franchising the brand in 2010,
selling the first two cafes as their first franchised stores. Over the next two years, the duo opened another seven stores in the CBD, including their first cafe/bar model at Eagle Street Pier in 2011. “When we started, the model we were targeting was good, quick coffee and easy food items to grab and go,” says Darren. “Our goal was always to franchise Stellarossa and we did pretty well with that city-based model. The franchise partner could operate Monday to Friday with weekends off. It was fairly straightforward. But we soon realised we were running out of sites.”
COVER STORY
With CBD opportunities diminishing, Stellarossa ventured into their first shopping centre café model at Westfield Chermside in 2012, quickly followed by their first regional-based store in Mackay. Darren and Phil soon discovered they were onto a winner. “It was all new to us, we were thinking on our feet,” says Darren. “We had to get into a larger format — breakfast, lunch and dinner — and licensed as well.” After the initial transition period to the model, Darren realised they’d found their solution to the dwindling supply of CBD sites, in fact, he says Stellarossa
When we started, the model we were targeting was good, quick coffee and easy food items to grab and go,” says Darren. “Our goal was always to franchise Stellarossa and we did pretty well with that city-based model.
will probably never do another CBD store again, so successful has the change of focus been. “In the city, you’ve got to make a lot of hay in five days,” he says. “Then during school and public holidays, your business falls off a cliff. But in those outer suburbs and regional areas, our business actually gets busier during the holidays.” Things were looking up, but the boys knew they’d really hit the jackpot when they opened Stellarossa Mango Hill in 2013. This was their first store in a smaller centre, home to a large-format Coles and about 20 specialty stores. franchisebuyer.com.au
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One of the big challenges to get right is to stay current from a menu perspective and to this end Stellarossa has hired another corporate chef (they now have two) to up the ante in the food space.
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This has become the strongest growth sector and focus for the brand. It was a frontier we had never really considered, those outer suburbs of Brisbane,” says Darren. “The franchisee loved the format, and actually came to us with the site. It really opened the floodgates and blew us away how successful that business was and our business model really changed from that point on. We decided to concentrate on the outer extremities of Brisbane and regional areas — that would be our target market.” After a few years of solid expansion, Darren has signaled another shift in the business model, intentionally curbing growth to adjust Stellarossa’s fit in the marketplace. This year has seen a rebrand with a new look and new menu. “Over the past 12 months there’s been quite a shift in our focus,” says Darren. “We haven’t extended the leases on some of our smaller espresso
bars and closed a few of them. It’s been done on purpose so we can re-evaluate our business model, the feel of our sites, and hit the ground running in 2019.” One of the big challenges to get right is to stay current from a menu perspective and to this end Stellarossa has hired another corporate chef (they now have two) to up the ante in the food space. “We’re constantly trying to keep ahead without getting too obscure to the point where people don’t get it. We’ve got to remember our market probably isn’t interested in deconstructed eggs benedict,” Darren laughs. “They want the real deal — quality, fast and at a reasonable price. People will pay that little bit extra for quality and that’s what we’ve got to deliver.” These are exciting times for Stellarossa. Planning for 2019 features 10 new cafes including a foray into
COVER STORY
the drive-through market at three of those sites. Best described as the “new frontier” in café businesses, with both seated and drive-through customers, extended hours and high-volume trade, drive-through cafes, operated well, are a potential goldmine for smart investors. The big challenge is finding the right site, but Darren is adamant that Stellarossa has done its homework. “We’re sitting in a real sweet spot at the moment, with some great opportunities coming up,” says Darren. “And we’ve put a lot of work into finding the best sites, employed specialists in the field to perfect our procedures, work flow and space, and we’re ready to smash that out next year.” The first Stellarossa drivethrough will be in Sippy Downs on the Sunshine Coast. “That’s going to be predominantly drive-through grab and go with a small café and a little bit of seating,” says Darren. “The
“ There will be an extensive agreement associated with each partnership and if someone finds it’s not for them, they will be able to get out. However, he stresses that the selection process for prospective partners should mean that an escape clause won’t be necessary.” development is mainly a service station, KFC and McDonald’s — all very drivethrough.” Darren emphasises that Stellarossa will carefully evaluate each site on its merits, hammering the market research to find out exactly what the target market wants and needs, adding that the likes of Caltex, Subway and KFC, to
name a few of the businesses that will share upcoming sites with Stellarossa, “don’t move into an area if they don’t think it’s going to work”. The second drive-through Stellarossa project, due to open at Beenleigh in April-May 2019, is a very different beast. It will be a full sit-down cafe model, possibly licensed, as well as a full drive through — two cafes in one. Even more exciting for Darren, it’s on track to be the first Stellarossa ‘co-ownership’ model, which will play a big part in the company’s franchise investment plans going forward. Stellarossa and the franchise owner will be partners, sharing risk and reward according to the proportion of their individual investment. This will also drastically lower the initial investment cost for the new business owner, who also gets an experienced, capable and dedicated partner as a bonus – Stellarossa HQ. franchisebuyer.com.au
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COVER STORY
“We’re just in the early stages as yet, but we’re going to be partnering up with franchisees on a case-bycase basis,” Darren says. “A partner will be able to come in, whether they purchase 20 per cent, 40 per cent, whatever the percentage may be in their circumstance. But we’ll be holding the lease — putting our money where our mouth is.” The Beenleigh operation will be an equal partnership. “With Beenleigh, our partner will hold 50 per cent. I’m working with a husband and wife team at the moment and their goal is to eventually have several stores in the drive-through group. We’re really excited because at the end of the day, it will be our business as well, and we can be a lot more proactive.” This is quite a different approach to the ‘traditional’ franchise model. And Darren says there will be nothing to stop an enthusiastic partner increasing their percentage stake in the 12
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operation. “There will be no barrier to a partner increasing their percentage. And we’re also looking at a model where a partner can come in with little or no stake and just sweat equity with maybe 10 per cent. Then, over time, they can buy into the business. Because there are a lot of young people out there who haven’t got the bucks, but they’ve got that twinkle in their eye.” There will be an extensive agreement associated with each partnership and Darren says if someone finds it’s not for them, they will be able to get out. However, he stresses that the selection process for prospective partners should mean that an escape clause won’t be necessary. “We’re drilling right down so they know that while they can do very well in the
industry, it will be hard work.” Darren even envisages the Beenleigh site becoming an ongoing training centre for future Stellarossa partners or franchisees. “We’ll put our future franchise owners or partners through their paces in the store.” Looking ahead, Darren says there’s the potential for Stellarossa to implement this partnership model at every new site and move away from the “us and them” mindset that can occur in a franchisor-franchisee relationship. “This is a mindset that I feel is weighing franchising down significantly at the moment. I’ve always had partners and a partnership can be extremely powerful if it’s handled properly.” n More about Stellarossa
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TECHNOLOGY IN YOUR BUSINESS
REAL TECHNOLOGY YOUR BUSINESS CAN IMPLEMENT TODAY TO DRIVE EFFICIENCY By Robert Marsden
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eeping up with small business technology is overwhelming. Today there is an ‘app’ for everything or a Software Subscription as a Service (Saas) platform for anything else. I make it my job to keep up with these fast-paced changes so I can offer some real technology tips that business can implement today that can generate real operational efficiencies or cost savings that are easy to;
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n understand, n implement, n use and adopt. These technologies are just a small subset of useful tech, but form the broadest sense of a typical minimum level of useful technology that exists today, that many businesses may not have adopted yet and should consider. Business Continuity and Disaster Recovery Probably one of the main things I’d recommend to any business, and an area where I find most are incredibly
weak, is in protecting themselves from operational downtime and protecting what they have built from disaster. Downtime can come in many forms including, human error, server/computer failures, natural disasters and the much more common form of Ransomware (malicious software). Ransomware can be easily laying dormant on your company network after one simple email click from an employee. This type of infection then raises its ugly head to encrypt all of your companies files after a few hours, days or weeks with the intention
TECHNOLOGY IN YOUR BUSINESS cases are not even able to buy the technology direct. Business should look to outsource this to a Managed Services Provider to handle this process. ‘Of course’ I hear you say! Yes, my Addictive Technology Solutions business does all this and more, but there are also any number of providers in our space. Quite often business owners and operators are under the misunderstanding that their files and systems are protected because they are cloud based or SaaS applications, and therefore someone else is backing them up. This couldn’t be further from the truth as those files and systems are still subject to human error and ransomware and you need to be aware of their data recovery policies to your business. Moving your core business files to cloud storage is a great idea and does offer significant operational efficiencies. Just make sure you are selecting the right product to suit your business, and not just the solution that you happen to have been given 1TB of free storage for. Modern Video Surveillance What’s the real purpose of Video Surveillance for your business? Is it to document in poor image quality, what ‘sort of’ happened when the property was damaged or stolen,
Moving your core business files to cloud storage is a great idea and does offer significant operational efficiencies. Just make sure you are selecting the right product to suit your business. or is it something you feel is just something you need to have, like a water cooler in the corner of the office? Modern Video Surveillance technology has changed dramatically in the past decade and below are a few qualities you should start to expect as standard from your investment. One example of the technology is Video Analytics. Video Analytics enabled systems have the ability to rapidly reduce the time it takes to review security footage. For example, in a matter of seconds, we can now find all people wearing red clothes across dozens of cameras or all blue vehicles. It is the ability to intelligently detect objects and movements such as
of extorting money in the form of cryptocurrency such as bitcoin, in return for your files back. In some of the latest strains of ransomware, you have the option of paying to unlock your files or infecting two other people to get yours unlocked. Even viruses are implementing viral marketing now! To protect your business, you need a multi-layered technology approach to battle this using well-maintained antivirus, and antimalware protection policies, and the right backup and business continuity tools. Small business cannot afford to implement the required levels of protection themselves and in most franchisebuyer.com.au
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TECHNOLOGY IN YOUR BUSINESS
detecting someone walking the wrong way rather than simply recording all motion. This has significant costs savings on storage and performance also. Customer Insights with your Security System Modern surveillance systems can also offer your business more customer insights such as heat-mapping to identify where people are moving around in your premises, or counting the number of people walking down a particular isle. This makes your initial investment work harder for you, and gives you a far greater ROI by having this dual application to the operation of your business. With a wide range of alerting capabilities, a modern CCTV system should be able to pro-actively alert you or authorities to the presence of an imminent threat such as a group of people loitering, or the presence of a vehicle or person in a controlled area, before an event takes place. Communication Mobility Put simply, this is the ability to stay connected seamlessly across multiple channels and devices and to communicate effortlessly across these mediums such as chat, voice, SMS, presence and mobile. 16
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Basically, it’s the ability to take your smartphone down to the beach and pretend you’re in the office. If you are still on a digital phone system, you’re way behind. The costs and operational savings you can gain from reduced call tariffs with VoIP (Voice over Internet Protocol) calling channels and smart features like being able to take and re-route calls or retrieve voicemail from wherever you are are pretty standard features now. Phone system aside, for team communications and crossdepartmental communications, we are living in a golden age. There are a plethora of smart tools for enhancing your productivity and reducing death by email inbox. A couple of my personal favourite tools to check out are Slack and Microsoft Teams, highly recommended!
Run a Global Small Business Every business outsources many parts of their operations, whether it be finance to an accounting team or tech support to a managed IT services provider. However, how many businesses have a process in place for taking the mundane, culture killing jobs or jobs your just not good at? Enter the Global Small Business. Services like upwork.com allow you to hire the services of an expert who can do a job for you normally at a fraction of the cost and time it would have taken you to delegate a certain staff member to spend 3 days mind-numbingly slaving over the same task. Put a policy in place to empower your staff to not sit on work items for days that they could be outsourcing and your productivity will soar. n
Robert Marsden is the founder of Addictive Technology Solutions,a one-stop-shop for business technology solutions. Addictive works with businesses (franchises) from start-up, all the way through to enterprise level, on a broad range of technology uses, implementation and ongoing IT management support. “Stopping the finger pointing by multiple suppliers in technology in business” is the reason Addictive exists.
NOVEMBER 2018 EDITION
Do you need insight or assistance in your franchise with? 1. BUSINESS IT 2. COMMERCIAL SECURITY 3. RETAIL TECHNOLOGY 4. DIGITAL TRANSFORMATION
Click here to read more franchisebuyer.com.au
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FINANCE
AUSTRALIA’S LENDING LANDSCAPE James Scurr, founder of Cashflow It ® who specialise in only funding franchise businesses, takes a look at the current shape of lending in the country – an outlook of special importance if you’re looking to fund a business!
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ustralia’s financial landscape has seen significant disruption over the past decade. With funding sources such as crowdfunding, micro loans and peer-to-peer lending becoming more
By James Scurr commonplace, we take a look at how alternative finance options have helped shaped Australia’s lending landscape and what we can expect next. The diversification of lending options available to SMEs in Australia has been
driven out of demand. There are two main drivers creating this demand, the first being a desire for funding alternatives to the bank, and the second being a movement away from traditional business models. A range of factors come into play when considering the reason behind franchisebuyer.com.au
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As young entrepreneurs become more active in the economy, and Australian consumers’ shopping habits evolve, we are seeing a wealth of new and unique models forming. As a result, many young businesses don’t fit into the traditional funding requirements that our financial providers are accustomed too.
increased adoption of alternative finance providers, and SMEs account for a large percentage of businesses driving this change. SMEs differentiate from other businesses in that their funding requirements are often unique, and require a high level of flexibility. In addition to this, the ability to access small value loans is important and quick turnaround times are key. Unfortunately, these characteristics are often not found in the finance solutions available from traditional lenders. For many years SMEs have been too
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reliant on bank credit, with limited access to other finance options in the past. However, as banks continue to tighten lending conditions and even restrict funding to whole industries that are deemed risky, small business owners are forced to look elsewhere for finance. This sentiment is particularly relevant to the franchise industry, who in the past 12 months have seen barriers to finance heighten as a result of the enquiry into the industry. The franchise industry has, like many other small business owners,
turned to alternative finance providers to meet their funding needs. A Banjo Small Business Finance Survey showed that 25% of SMEs missed out on an opportunity due to an inability to access finance. An outstanding 98.8% of enquiries into alternative finance come from SMEs, compared to only 89.4 of demand for traditional finance. This difference suggests that alternative lenders are filling a gap in the SME market left by traditional lenders. Looking now at the second driver, a notable increase in new start up models
FINANCE
funding sources including crowdfunding and peer-to-peer lending, as options that are able to meet the new needs of such ventures. It isn’t just these new businesses that are benefiting from the increased range of funding options available. In 2017 there was a 69% overall increase in commercial demand for alternative finance, with the retail trade industry leading the way with the largest volume of alternative finance enquiries at 21%, compared to just 12% to traditional lenders. This wasn’t the only commercial sector that showed an increase in adoption rates, with well-established industries including construction, accommodation and food and manufacturing exploring alternative options as well. It is clear that Australia’s lending landscape is in the midst of significant change. As both consumers and commercial entities seek out and embrace finance options outside of the big four banks, the diversification of the industry will continue in order to meet this demand. The alternative finance industry is thriving, and continues to offer more flexible, transparent and varied options to fit the unique circumstances of Australia’s new and existing business owners.n
and ventures that don’t necessarily fit the funding curve of a traditional business. As young entrepreneurs become more active in the economy, and Australian consumers’ shopping habits evolve, we are seeing a wealth of new and unique models forming. As a result, many young businesses don’t fit into the traditional funding requirements that our financial providers are accustomed too. This is reflected by the fact that 62% of alternative finance enquiries come from Millennials and has led to the boom of
James Scurr is the Founder and Managing Director of Cashflow It, a specialist equipment finance company and the only equipmentfunder focused solely on the Australian franchise industry. He has almost 20 years’ experience in the franchise industry having spent time as a successful multi-unit franchisee for campanies, including Boost Juice Bars. James has extensive franchising and small business experience and has an acute understanding of franchisees’ requirements. Phone: 1300 659 676 Email: james@cashflowit.com.au Web: www.cashflowit.com.au
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BUYER HELP
BUYING A BUSINESS TODAY IS NOT EASY.
FINDING THE RIGHT BUSINESS TO BUY
IS EVEN HARDER… If you have been searching for a business to buy, then you have entered the baffling ‘business search maze’. Not everything appears to be what it seems and businesses can come and go as if they never existed… By Rob Semmel
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elcome to the search for a business to buy! It’s a time that should be exciting and rewarding, but unfortunately can also be a costly and time wasting exercise. Buying a business today is not easy, and even finding a business or franchise to buy is hard when you do find it, getting that business on the right terms, and at the right price is a significant challenge.
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The traditional business search We are fortunate today that the process of searching for a business to buy is right at our finger tips. There are numerous websites available with all types of businesses for sale, from all types of brokers. These websites have been designed to be user friendly. Simply fill in various criteria of the business you would like to buy and commence your search. You should be presented with businesses that match your selection in terms of industry, price and location.
There are thousands of businesses to choose, from all types of industries. You can also choose businesses that are not yet trading. Business brokers from around Australia pay to have their listings submitted, so they appear in your search. The more times the business appears, the better for the broker.
Why the traditional system is flawed Like many things in life, what should be a simple process, can be exploited. Whilst the websites are an excellent tool to match businesses
BUYER HELP for sale with interested buyers, unfortunately a few business brokers have contaminated the information, and instead of buyers finding a perfect matching business, they have entered into a maze, having to guess to determine the fact from fiction. As business buyers advocates we continually meet buyers that have wasted so much time and money to find a business. They have invested hour upon hour looking for a business to buy to set themselves up for the future, but to no avail.
The 6 reasons why this system is flawed
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Old listings never die Some brokers never remove their old listings from the website. Contacting a broker and asking about a listing and then be told “it’s under contract” or “it’s just been sold” can be frustrating. This may be true, or possibly the broker may have had the listing for sale twelve months ago and claim to have forgotten to remove it from the website. Many websites have old listings that have been withdrawn from the market or have already been sold. Some brokers use this ploy as they have few listings or alternatively they hope to redirect buyers to other listings they have in their books.
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The one business in numerous locations It’s not uncommon for a business broker to have the one business advertised numerous times in various locations. The one business is doubled up over and over across locations. Whilst most brokers will
use the same content, others will change a few words to make it appear to be a different business.
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The ghost listing The business never existed or was never for sale. Some brokers will make up listings that never actually existed. Little information will be available or the listing will be vague.
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Two for the price of one Some listings are advertised by two different brokers. This is typically where a general authority is held by both brokers. Either broker can sell the business but in many situations the information differs or even on occasions the asking price varies.
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Lack of Information The greatest time waster is the lack of information available on the website. Some brokers will suggest that the information is confidential and that unless they are contacted directly or have a meeting arranged in their office, they cannot provide any further business data. The hidden agenda here is possibly they don’t have any further information, they have listed the business too early or ultimately that the business does not “stack
up” Don’t be surprised if the broker will only discuss the nature of the business in a private meeting, particularly if it is a cash business.
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Where’s the broker gone? The brokers gone missing. You have tried to contact the broker as per their request and there is no feedback or call back. The website has given their details but it is strange that when contacted they provide little feedback or assistance. The buyer is left wondering whether the business actually existed. Whilst “Business for Sale” websites have thousands of businesses for sale throughout Australia, not one has all the listings. Some brokers advertise on the majority of well-known websites and others only on a few and therefore rely on their own branded website. It’s a huge task to cover all websites and all business opportunities to find the right business. From our perspective as Business Buyers Advocates, finding the right business, on the right terms, and at the right price is paramount. I hope the detail above helps you to cut straight through to the detail that matters on some of the information you’re seeing out there! n
Rob Semmel is General Manager of Business Buyers Advocacy Australia. An agency exclusively representing the business buyer to find the right business on the right terms at the right price. As a CPA, licensed agent and Business Buyers Advocate, Rob and his team can help buyers navigate the murky waters of the business search. To contact Rob email; rob@ businessbuyersadvocacy.com.au or visit www. businessbuyersadvocacy.com.au
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OPINION
NOT ALL FRANCHISES ARE CREATED EQUAL HOW TO SPOT FRANCHISES THAT SHOULDN’T BE FRANCHISING…
The old saying ‘buyer beware’ rings true in every purchase, and a franchise is no exception. Not all franchisors are created equal. Many are really good and are genuine believers in their system. A few are totally unrealistic, and unsuitable to operate a franchise network… By Glenn Walford
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his is not a negative story. This is a story about the importance of being a realist, and calling someone out, or at least querying details surrounding claims when they sound more wow than detail. This is especially important if you are being pitched to invest in a business, on the basis that it is in a period of 24
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significant growth momentum. Growth is not about talking. Growth is evidenced by actual results. I’m going to give you some behind the scenes insights into how some franchisors are operating while they are presenting their business to you for sale. The good thing is, I’ve not come across many like this, but the bad news is, they are out there, and for the uninitiated, they can be hard
to spot. This is especially the case for a person that is highly motivated in seeking their dream of business ownership. You could be so motivated, that you miss the signs that growth claims for the future are not based on realistic assumptions. This in-turn, can directly impact on the viability of your business. As a marketing professional and
OPINION publisher focused exclusively on the franchise space, I’ve spoken to a lot of franchise brands over the years looking for assistance and or advice on growth. There are a handful of ‘absolutely dreaming’ franchisors out there. I say that to very deliberately sound harsh and condescending, because their unrealistic goals and expectations puts everyone they do business with at risk.
Scenario 1 – “Pie in the sky growth targets” I recently saw a major Mexican food chain announce to the market that they are going go from 100 locations to 500 across Australia in the next few years. That’s right, 500 Mexican restaurants in the Australian market alone. I love Mexican food as much as the next person, but that’s a lot of Mexican restaurants competing for a relatively small population. Now, I haven’t come across a franchise professional who tells me
they think that is in any way viable to have 500 Mexican food outlets for a single brand in Australia. This doesn’t mean they shouldn’t be franchising, as on the surface, they look to be going pretty well. But, imagining the practicality of 500 stores, it’s also reasonable to surmise on the face of it, that too many stores into not enough population, and for a Mexican concept, will likely turn into many stores cannibalising each-others sales. What do you think?
Scenario 2 – “You should not be franchising” I had been speaking for a time with a franchisor with only a couple of locations in the mobile automotive niche. They were after assistance and advice to grow their franchise. In the first part of our conversation they were lamenting one of their franchisees was having trouble because they had not been marketing their services well in their local area.
The franchisor obviously wants more units on the ground with scale and revenue growth that comes from that. Yet they were not doing any notable marketing / advertising anywhere to achieve this. On pressing them for some form of commitment in growing their brand, they confessed they did not even have $1,000 to invest in marketing their franchise. They should not be franchising. I recommended as such, and that they would be best focusing on helping their franchisee. As expected, no response from that sort of advice! People being ‘sold’ into that business will have no idea at the lack of stability and competence behind the running of that brand, yet they quite likely will put all the available money they have into it.
Stick to a few stores closeby first, and don’t let consultants tell you that expanding inter-state is a good thing, before you’ve even expanded beyond a single store in your own location!
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Scenario 3 – “Your expansion plan is setting everyone up for failure” I very recently had another franchisor in the beauty niche with just one location make contact. In several urgent follow ups from asking for help to grow and sell a location ‘before christmas’, I did some research. Well, all that’s needed is some Google searches and that will tell you most of what you need to know. I came across an article written only 4 months prior where that young and inexperienced wannabe franchisor, made the claim that they were opening stores in Sydney, Melbourne and Perth before the end of the year. In fact, they said they had a store opening that month in a particular Westfield in Sydney. Clearly, none of that happened. There are a couple things that stood out to me about this; That type of expansion into operating from 1 store, and having multiple stores in three different states, separated by 2,000km+ - is nuts as far as your ability to properly 26
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support the franchise owner – you can’t from a system that small. This franchisor is so inexperienced, and basically ‘winging it’ that they actually thought they were opening a store that never happened only a couple of weeks from when they made the claim. Can you trust a person who makes loose statements about the performance and demand of their business like that? I wouldn’t. I advised in writing exactly that. Stick to a few stores close-by first, and don’t let consultants tell you that expanding inter-state is a good thing, before you’ve even expanded beyond a single store in your own location! Again, as expected – no response from that wannabe franchisor either!
My best advice As I said at the start, this is not a negative story. This is about helping you to spot claims that are designed to be outlandish that are made to make you think a franchise is really going places for your benefit. The funny thing is, for franchisors
making such claims, in some cases it can be put down to inexperience and naivety, as they truly don’t realise how challenging their growth is in reality. For others, they should know better. The hard thing is, that if you are not in business and ‘in-the-know’ about how things work, it can be hard to know what’s outlandish and what isn’t. People need to be called on their claims. We’re all subject to our claims being open for scrutiny, so make sure you ask questions around anything that doesn’t seem quite right. Assume nothing, and ask for justification or evidence to demonstrate exactly how any claims about network growth are going to be achieved. For example, ‘what was there growth targets each year for the last 2 or 3 years?’. Did they achieve them, why or why not? Not hitting targets is not a deal breaker, but in my view, you need to understand the how and why, in order to put your investment risk into a better perspective…n
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