Entrepreneurs who want to expand rapidly would do well to consider franchising, writes Jon Card. He speaks to three very different businesses about why this was the best model for growth
Franchising has been around for some time, made popular in the 20th century by major US food brands such as McDonald’s and KFC. However, it’s a method of growth to which entrepreneurs return. Also, for those who want to ‘be in charge’, but who lack the start-up idea, it’s a great way to go into business. Franchising is about taking a tried-and-tested business model and transporting it wholesale to another destination, where, in theory, it should operate in precisely the same way.
For Mahesh Raikar, founder of Indian burrito company Wrapchic, franchising was the obvious option to expand his business. He opened his first food outlet in Birmingham city centre in July 2012 and began expanding almost straight away, with a second venue opening the following September. The business now has eight outlets nationwide and Raikar is already thinking internationally. “Usually you need to have at least two years’ history to get someone on board and to have the systems and processes in place to give them confidence that the business is scaleable,” Raikar says. “We have broken the mould and expanded rapidly in our first 18 months.”
Raikar benefitted from his contacts in the food industry where he worked for many years. The initial franchises were purchased by his previous employer, Compass Group. However, his most recent franchisee in Soho, London, was someone who had simply seen the business and wanted a slice of the action. Raikar spent nearly two years perfecting his products and delivery before starting and believes it is key to build a strong launch pad prior to rapid growth. “You have to have processes in place, an idea that is replicable and the business needs to be scaleable,” he says. “People need to have the confidence that the brand they are buying into is strong.”
Food retail isn’t the only area where franchising can be a success. Indeed some businesses that use the model come from the other end of the spectrum entirely. BBOXX is a university technology spin-out from Imperial College, London, which produces solar-powered electricity generators for the developing world. “Electricity is fundamental to quality of life and so we wanted to address the fact that many people in the developing world don’t have access to it,” says CEO Mansoor Hamayun. He and co-founders Christopher Baker-Brian and Laurent Van Houcke, developed ‘plug and play’ solar systems and quickly began to make inroads. Within three years, BBOXX was operating in 15 African and Asian countries, and has brought electricity to more than 40,000 homes. The business has revenues of $3m per year and has recently gained investment from Silicon Valley clean-tech investor Khosla Impact. However, when expanding internationally, finding good partners is always key and this is even more important when working in the developing world.
“Franchising was the way to internationalise our business – there was no other way,” Hamayun explains. Going into places like Congo or Sudan themselves wouldn’t have been an option, meaning they needed an inclusive business model that would help them to get containers into those countries. “So we work with traders and people who have real experience of working in these countries and know how it works,” he says. “Our typical customer has never had electricity before, so we are also selling them TVs and fridges as they don’t have experience of these products.”
As this is new technology, BBOXX provides considerable training, via consultants, to its franchisees. The business starts with a simple distribution agreement and then deepens into a more meaningful arrangement and full franchise as both parties get to know one another. “We like to think it’s a business in a box – that’s where the name came from,” explains Hamayun. “It starts off with a distribution agreement and then builds into a franchise. The franchisees have exclusivity in their country and have to import and sell certain amounts per year. They want to be a part of the bigger family, there’s a lot of pride in this for them and we want to support the local franchisees in driving the business further.”
The operational side of running a franchise is often fairly straightforward and there are manuals explaining what to do for those running the businesses. However, some franchises also recruit very skilled and experienced people, and it’s by no means confined to product-led companies. Therefore, entrepreneurs in the UK’s services sector might also consider using it as a model for growth.
Pink Spaghetti, founded by Vicky Matthews and Caroline Gowing, offers PA services to primarily clients in the SME sector. Both founders wanted to use the skills they had gained during their professional careers, but desired more flexibility in their lives. They began their own office just over three years ago, but after it was successful they decided to expand. “We felt we could have a bigger business, as the model was working for our area and we thought it would work elsewhere. However, we didn’t want to have to employ lots of managers and set up new offices across the country,” says Matthews. “By having franchisees we can find people with the same level of passion and commitment that we have. Also, they can use their local knowledge and contacts in the business.”
Pink Spaghetti sells franchises for £3,000 targeted at women like them who’ve had experience working in the corporate world, possibly have had children, but now wanted to use their skills again. “It has to be the right person and we have to be right for them. We want people who are professional, approachable, and empathetic to the needs of customers. No day is ever the same, we get a wide range of requests from clients. But we offer comprehensive training so they’re ready to start on day one. Also there’s no limit to the support we give people.”
Checklist for franchising
Is your business ready for franchising? Put it to the test with our list
1 Is the business replicable?
Franchises offer the same services wherever they are.
2 Is the business scaleable?
Many franchises are domestic as householders need similar products and services across the country.
3 Could a manual explain how to run your business?
Franchises typically offer training, guidance and support to franchisees.
4 Do you have a strong brand?
Your franchisee will benefit from company-wide advertising, marketing and recognition.
5 How strong are your company values?
Franchisors typically have core values which define their businesses and are upheld by their franchisees.