Some people have a natural flair for business. These people inherently desire the freedom to make decisions and have high ambitions to earn wealth and status. It goes without saying that they are hard working, risk takers and proactive people. Such persons can never feel happy in a job even if they are earning well and hold a senior position. Every now and then, these individuals toy with the idea of giving up their job for entrepreneurship but establishing one's own business from scratch is not a child's play.
The decision to give up a steady income is eventually made only by those who have few liabilities and more assets. Those who cannot afford to take high risks have the opportunity to buy a relatively safer business. Since the turn of the millennium, lifestyle and mindset of Indians have seen a lot of global influence. Consumers are interested in innovative products and services and the simultaneous increase in disposable income of the vast Indian middle class has created a huge market.
A lot of Indian companies have expanded rapidly in collaboration with flagship Multi-National Companies. The franchise business model gives ease of expansion to these companies and small entrepreneurs can avail of the relatively low-risk business opportunities created by it.
It is a business model developed by a franchisor that is licensed to another entrepreneur for a onetime fee and additional continual royalties on revenues.
The franchisor has standardized the product or service, all back end operations, pricing, training and marketing related to the business. When an individual buys rights, the franchisor transfers knowhow to him and supports him in the business. Usually, supplies, training, marketing are done at a national level by the franchisor.
The option of starting one’s own business is always there and even promoted by government policies towards startups and Small and Medium Enterprises. But, when the option of a startup business is weighed against operating a franchise business, the pros weigh towards the later. One should not think that functioning under a fixed model is only for smaller investments. Today, there are business opportunities that require investment from 10 crores to just 10 lacs.
Established brands in India are doing very well in the food and beverage service, health and wellness and education sectors. These are also sectors where quality and standardization of service and product are important for a consumer. There has been an increase in mobility and communication in India recently due to which many consumers with higher spending capacity are moving all over India for work, study or leisure.
This benefits an enterprise because a customer will easily identify with a brand and trust it for a certain quality of service rather than approaching an unknown name. The fixed format of product, service, pricing provided by outlets in many locations is appealing to the mass market. At the same time, independent business with a better product or service will struggle to reach out and convince consumers.
A few points make the established model more convenient to operate than an independent business model.
Low risk: The best part is that it is a tried and tested way of doing business which has a low rate of failure. When a business is started from scratch, the product and related services are refined over a period of time according to market demand. No doubt, any businessman will have studied his market before launching a product but usually, individual businessmen do not have the resources to invest in testing and market research. Again, the operations have to be perfected by the trial and error method which proves costly and takes time.
Well-known businesses are stronger in these aspects because the products and processes are not entirely new and have been known to succeed in other locations. Local businesses do have the edge over customization which seems to be the future demand in India but models are fast being adapted to meet this upcoming demand. An entrepreneur can take a shot at a particular business without much skill or experience and still be sure to hit the bull’s eye.
Time: It takes a lot of time to conceptualize a product or service, make a business model, ensure backward and forward supply chain, work out finances and accounting, recruit and train manpower and finally to market and sell a product. The timeframe for this is sometimes so long that an entrepreneur finds it difficult to find time for it while still being employed in order to ensure survival. The length of time often gives competitors the fast mover’s edge in business.
Cost of production: A franchisor usually sources raw materials and processes the product at one place and then supplies it to all the retailers or service providers. This is how the units are able to maintain uniform standards in all locations. Due to the large scale of production, the cost of raw materials and infrastructure goes down. A franchisor is also able to source materials that are not easy to access from the open market.
Finance: A franchisor will be able to guide you accurately on the investment, working capital, cash flow cycles, viability of a site based on footfalls and the ROI. It is easier to find a bank loan for a famous business outlet rather than a similar independent business.
Operations: An entrepreneur may have good business acumen but if he is constantly busy with supplies, maintenance or quality control he will not be able to devote enough time to sales and marketing. Operating an outlet becomes much simpler with the scale of operations coming down significantly and thus reducing the need for personal intervention by an entrepreneur. A franchisor usually has extensive and effective training programs for training manpower. In this way, operations become much easier to take care of in a unit within a chain of businesses as compared to independent businesses.
Brand Value: An independent business would have to invest a lot of time and money to build its brand value. Again, this local recognition is not of much use when the business expands to a new territory. Franchisors strategically expand in a larger region with a view to building brand value that applies to a larger geographic region. Customers know that they can expect a certain standard of service with a reputed name, irrespective of the location.
Marketing: Franchisors invest in marketing at a national level due to which they have access to multiple media at a lower cost. Also, they are able to rope in expertise which a small business will not find viable at all. All units in the chain have to pay marketing fees at regular intervals which keep a flow of funds ready for the exclusive purpose of marketing. Service available in multiple locations is always preferred for partnerships by other businesses. For example, large corporate offices have tie-ups for catering or cab services. Extensive marketing and partnerships reflect positively in the revenue growth of a business.
Scaling up: The task of scaling up an independent business is no less than starting a business again. As compared to it, scaling up a famous unit with a fixed business format is like a cakewalk. One who is wishing to scale up can easily buy another unit and run a chain of outlets.
There are a few drawbacks of these models such as fees at an interval of five to twenty years and continual royalty on sales. An Increase in the number of outlets in one area leads to a decrease in market share. There are a few franchisors who do levy hefty marketing fees but the marketing done is not efficient. The negative publicity or poor service standards of one outlet will affect the image of other outlets too. A highly innovative and creative person may feel stifled as he is not able to express his ideas of a product or service through his business.
In recent times, formats of business units have become highly refined with hardly any scope left for errors. If the idea that royalties will reduce profits bothers you then look for a format that has eliminated royalties completely. There are master franchises, unit franchises, those for different categories and for different levels of customer experiences. Make an in-depth study of different opportunities available choose one to match your interests and assets.
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