Article by Sam Christopher Lim, President of U-Franchise Sales and Management
Entrepreneurship has never been more in vogue than in the past few years. With the Department of Trade and Industry (DTI) investing heavily in supporting MSMEs and more and more millennials opting for the entrepreneurship route, people have been investing heavily in starting their own businesses. From e-commerce businesses, traditional brick and mortar shops and joining the gig economy, being your own boss has never been easier.
Through all these different models of entrepreneurship, one model continues to withstand the test of time and continues to grow double digit annually. The modern day franchise industry was first introduced into the Philippines in 1996. Back then, there were only around 50 brands to choose from, fast forward to today, and there are now over 2,000 options to choose from and over 150,000 franchised outlets.
With a diverse range of brands ranging from food (42% of the brands), retail (34%) and service (24%), would-be entrepreneurs have been spoilt for choice. The reason for the great demand for franchises is simple: it’s a proven path to success. A USAID funded global study showed that the success rate of franchising is 90%, while opening a traditional retail outlet from scratch only gives you a 25% rate of success. This wide gap is because franchising allows you to duplicate the success of an already proven business, taking the guesswork out, and minimizing the risk of failure.
However, with so many brands and options out there, how can you start with the franchise journey? Read on. We’ve got you covered.
Step 1: Understand if franchising is for you.
Franchising is not for everyone. Before even finding a franchise, understand whether franchising is for you. The first and most important question is: can you follow systems? If you are a very creative person or an entrepreneur who always wants to change things, franchising may not be for you. Franchising has a 90% success rate because franchisees follow a proven success formula and system, so following the systems and operations manual is critical.
Secondly, find a business you love. So it’s best to make sure you have capital to open the right business for you instead of settling on a business that you just compromised on due to capital constraints. If you don’t have capital yet; you can wait to save more, borrow money, get investors or joint venture with others.
Lastly, do you have the time to run this business? Will it be a main source of income or a side business while you work someplace else? Though some franchises don’t need you there 24/7, you still need to invest the time and effort to oversee and manage the business to ensure success.
Step 2: Spend time finding the right franchise for you.
Start by answering three questions: what industry are you looking into, how much capital do you want to invest in, and what locations are you looking at? By being clear about these three basic questions, you would have already helped narrow down your options to a few dozen.
Next is to join franchise shows, research online, and talk to experts to help find franchise options. Like investing in stocks, don’t just invest in popular brands since those are the only ones you know. Take the time to look at the new brands and rising concepts. Even Jollibee and Potato Corner were once unknown brands. Wouldn’t it be great to have invested in those in their infancy stage?
Step 3: Narrow down your options and decide.
Once you’ve seen the options, narrow down your options to three to five. Set meetings with the franchisor and visit their locations. Gauge how well the stores are run, evaluate their profitability, and understand if your values are aligned with the franchisor. It may also be helpful to interview their existing franchisees or employees in their store to get first hand information about the support they get and their satisfaction with the brand.
Once you’ve done enough investigation, it’s time to decide. Never fall into the trap of analysis paralysis where you spend the next few years still searching for a franchise. When you find the right opportunity, don’t wait too long as the opportunity may pass.
Those who grabbed the opportunity for The Generics Pharmacy over 10 years ago while they were still new were able to scale up to dozens if not hundreds of stores; and those who started getting micro-lending franchises that just started franchising last year, have already locked out competitors in their territory.
Step 4: Find the right location.
Once you’ve decided on a brand you like, spoken to the owner, and understood the business; it’s time to find locations. You can find locations yourselves, use brokers, or even do Internet searches. What’s critical is that you start looking for the locations early (you can even start before you’ve fully decided on the brand) because no matter what brand you decide on, the age-old retail mantra will still apply: location, location, location.
Step 5: Read and sign the franchise agreement.
Once you have the right location and brand, you need to sign the franchise agreement. The franchise agreement helps detail the obligations of franchisee and franchisor, details the fees and penalties, defines your territory, and serves to protect both you and the franchisor. A watch out at this stage is if franchisor does not have a franchise agreement or if the franchise agreement is too short (i.e. below 20 pages).
Once you’ve signed the franchise agreement, you’re on your way to be your own boss. The franchisor will guide you through the permits you need to secure and will then schedule the training for you and your staff. They will support you until you open the store and should continue to be there to guide you as you run the store.
Franchising is a long term win-win partnership and success comes from not only choosing the right brand, but also choosing the right partner. The secret to long-term success is taking the proper steps of finding the right combination of both.
U-Franchise Sales & Management is a free franchise matching service that has helped thousands of Filipinos find the right franchise. To find the right franchise opportunity, visit www.ufranchiseasia.com, email firstname.lastname@example.org or call 09178816999.
Chris Lim is the CMO of Francorp Philippines (francorp.com.ph); President of U-Franchise Sales & Management (www.ufranchiseasia.com); Chairperson and Director for ASEAN of the Philippine Franchise Association.