The golden opportunity for emerging franchise systems

Make no mistake, one of the main reasons people invest in a franchise system is to follow a track record of success.

Joining a recognised and successful brand with training programs, ongoing operational support, marketing assistance and a system that offers guidance around leasing, real estate development and supply chain delivers a prospective business owner a proposition of reduced risk.

The current challenges being faced by the franchise sector – a growing reputation of non-compliance, unethical behaviour and questions over the framework in which franchising operates – equals not just issues for the sector but alternatively massive opportunities for emerging franchise brands to solve some of the problems presented.

Emerging franchisors, or those considering the move to become a franchisor, can offer a proposition to prospective franchisees of higher levels of transparency and differentiation compared to experienced systems in a space that is currently lacking confidence.

The message is: "Don’t disrupt, solve." Emerging franchisors should be selling the benefits of being part of a newer system more than ever.

Closer relationships
Typically, when joining a small brand, franchisees will be dealing with a small team possibly led by a founder – not an executive leading large teams or companies who have competing priorities to shareholders or investors.

Ability to influence
The first franchisees of an emerging brand get direct influence on the director of the company. The should be a big selling point with franchisees as they will have higher levels of access to decision makers where their opinions will be heard and listened to.

Early franchisee success is critical
All franchisors should see their own success as a result as their franchisees' success. However, it is no secret that the first wave of franchisees appointed at a brand typically get more support and attention than brands who are all systems go! The first franchisees will attract the next 50 partners so getting it right is critical.

When setting up franchising for a new brand, you should be looking to solve – not just disrupt the problems being faced by the sector. There are multiple considerations:

1. Motivation
Franchising should sit as an HR (human resources) strategy, not just a capital raising activity. You need to be disciplined with this and make no compromises. Franchising should give you access to talent you would have not had the opportunity to employ and not just be a mechanism for capital.

2. Transparency and differentiation
With larger franchisors, there is a reputation of a general lack of transparency concerning marketing funds, supply chain arrangements and reporting in general. They were the main themes from the inquiry into franchising.

New franchisors need to see this as an opportunity to create more value to prospective business owners. There is an opportunity to solve some of these issues by changing typical process with the format and frequency of marketing fund reporting, how the disclosure of supply arrangements is presented and the commercial policies around supply agreements.

3. The franchise model
Typically, franchisors in Australia charge a franchise royalty and marketing fee by percentage of revenue. This is where new franchisors have a big ability to differentiate themselves in the current environment.

This all depends on what is possible given an individual business model and substantial economic modelling needs to be completed, both on a unit and group level. I recently spoke with a client where we are investigating capping fees or providing incentives to top performing franchisees when looking at financial and non-financial metrics.

Emerging franchisors, or those considering the move to become a franchisor are well-placed to capture the market of prospective franchisees compared to older systems by solving the issues their more experienced counterparts have created.