The Franchise Expo 2009 held at the SMX was an interesting experience. Saw some familiar business, some new ones and a lot of "clone" businesses. It has become very obvious that franchising has hit it really big in the Philippines. My understanding of Franchising is it is an alternative expansion vehicle for businesses who do not have the enough capital or resources to expand their operations on their own. They go into "partnerships" with franchisees who are willing to follow company procedures and protocols in exchange for profitability and a business.
Professor Cruz made an open invitation in our Entrepreneurial Finance (EF) elective to visit this expo and I'm glad I did.
I have a high regard for Franchising and in the past I wanted to open different franchises because one, they already have a system in place and secondly they had an established brand which will help in marketing. My dad has an opposite take on it. He hated the idea of paying large amount of franchise fees for a franchise. He believed that we can do better business if we really wanted to. (We have something in the works, hopefully we can prove that we can really do better)
While walking around I felt like there were a lot of very similar businesses being franchised out. Franchise Clones as I call them were everywhere and how does an ordinary person like you and me going to determine which one is the better one or which franchise is more economically sound when everything seems so similar. What are the stuff we need to look out for?
In this Franchise event where everyone is out to get a franchisee, the first thing I look at is the concept. Good Concepts are very hard to come by but once you see it and it tickles your interest then you can ask more questions. After the concept the next thing I look at is the initial cash outlay (in normal people terms: the cash I need to start the franchise). This sort of determines how much you need (or how much you need to earn before making a profit). Each one of us has different tolerance level for risk and when you put money into the mix then it gives us a totally different perspective.
Next I try to see what they provide as supplementary services to their franchisee like training, equipment, marketing assistance. Are they capable of providing me these services to help me in this business undertaking. I hate it when they see and treat you as a potential "Sale" rather than a prospective Business Partner. There are more and more Franchisers that are after the sale of their franchise, earning from the franchise fee and does not care if their franchisee does well or not. I have observe that this type of franchisers have low brand equity, meaning that they are the type that can destroy a brand and just come up with a new name with the same concept and sell the franchise again. The Franchise Clone Wars is upon us and it is up to the franchisee to determine and discern which is the best franchise for him/her.
The most important thing that I also ask is the 2 ROIs (Return On Investment and Return Of Investment). They can give you numbers and data but we need to understand that they have "beautified" it somehow for presentation sake and we also need to understand that these data are not the standard but only a guideline. We need to manage our expectations especially when we do the actual business already. I found it really funny when I asked a Franchiser (ice cream stall) how many branches they have and she said they were just about to open their 1st one in Starmall. Obviously she can't give me the numbers for her business because their business has not really been tested yet. (Be wary of these kind of Franchisers).
To everyone the Franchise Clone Wars are here to stay and it is up to us to be more vigilant in checking and discerning which franchise is for us. Of course having a franchise is not really a sure thing. Even though you have the system, there are a lot of factors that are still in play in doing business like Location, Operations, Quality etc.
Watch out for future news on our own take on franchise.
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