Franchising to Grow Your Business

Have you heard of Secret Recipe? Here in Malaysia, when you hear ‘secret recipe’, you don’t think of Colonel Sanders or Coca-Cola, you think of scrumptious cakes and lifestyle cafés.

Secret Recipe started out as a single family-run café in 1997. Now just 13 years later, Secret Recipe has more than 100 outlets in seven countries. Their most recent? Pakistan. Can you imagine that? Secret Recipe cakes available on the streets of Karachi. Without a doubt, Secret Recipe is one of Malaysia’s most successful franchises ever.

Franchising is an excellent model for expanding your business. One of the main reasons why, of course, is because as a franchisor, your capital expenditure is shared by your franchisees, thereby minimizing your expansion costs. Franchisees also take over direct management of their own affairs, thereby giving you more freedom and opportunity to further expand or carry on essential R&D.

Communications and recommendations from your franchisees also help you maintain your product quality and advance product improvement. The larger your franchisee base, the more diverse your input will be, leading you therefore, to better business decisions.

Pooled resources between you and your and franchisees also cut costs on group advertising and group buying. Costs of equipment and materials for your franchisee, as a result, are potentially lower than they would be for an independent entity. This means higher profits for your franchisee and, ultimately more royalties for you.

Caution is necessary before you decide on franchising as your method of growing your business. Just because you have a great business idea and a fool-proof business plan, you have no guarantee of becoming a global franchisor.

This is because operating successfully as a franchisor requires different business skills than those required to run your original business. You can’t, for example, manage a franchising business the same way you manage a family-run cake shop.

Do keep it mind, however, that as a franchisor it’s important that the same values and the same respect for your product always remain in place just as they were when you started your original business. While franchising may be an excellent avenue for expansion, your mission is still to put quality products on the market for people to enjoy and benefit from. Remember, your business foundation is selling your product and not selling more franchises.

To Grow or Not to Grow?

Here’s a scenario for you to picture. Your company has a product that’s in demand. Calls and orders are frequent so you’re getting more business than you can handle. The last thing you want to do is turn new business away to your competitors, but your schedule is almost full with business from your regular customers. Now what? Has the time come to grow your business? Let’s talk about the pros and cons.

We’ll begin on the upside. Three very good reasons for expanding your business are:

First, increased efficiency. As your business grows, business processes are separated, first to individual executives and later to individual departments. Operations, originally in the hands of a few, now go into the hands of many, which means that you are more likely to hire specialists rather than jacks-of-all-trades with miscellaneous job descriptions.

The second reason, increased brand recognition. Customers are drawn to businesses with names they know and trust. Growing your business also better enables you to slip your name brand into niche markets, thereby offering your customers a wider range of your products to choose from.

The third reason to grow is increased potential for landing major contracts. Major customers require suppliers capable of producing high volumes for consistent supply. The larger your production capacity, the more inviting your company looks to the blue-chip customers you want and need.

Expanding sounds like a great idea so far, but now lets look at the downside. Here are three reasons to think twice before expanding:

First, risk. Expanding always costs money. Whether you are hiring new staff, purchasing new equipment, moving into a larger facility or acquiring another business, funding must come from your own capital or from outside loans. In either case, it’s money on the line and money you don‘t want to lose.

The second reason, impact on quality. Growing a business that you have personally nurtured from seed puts operations and processes into the hands of others. Your role, therefore, may become less hands-on and more administrative. Finding people you can trust to ensure the quality of your product may be challenging.

The third reason to reconsider expanding is the potential for overextension. New products that you introduce on the market may siphon off sales from your old ones. In addition, you may be allocating resources to slower-moving products, thereby affecting production and R&D on your cash-cow products.

So, is it time to grow your business? The potential to increase your profits is certainly alluring, but it’s always in your best interest and in your company’s to think twice.

Price Breakdowns to Slice the Cake

Planning your negotiation strategy is critical for a successful outcome. Deploying appropriate tactics along the way, however, is what moves your strategy forward. Simple tactics require little effort to deploy, but can be very effective in getting the concessions you want from your counterpart. The last of the five for you in this series is called slicing the cake.

Whenever you send out a request for proposals to complete a project, the replies you receive from potential contractors will normally give you a list of deliverables and a package price – one figure. Go through your proposals carefully and select the contractor you want to work with, but don’t take their first offer at face value. Chances are it’s been padded for extra profit and to allow room for flexibility when negotiations begin.

To ensure your success in reducing their price, slice the cake. Ask your contractor for a breakdown. Ask for a price list of each deliverable item they’re offering to you. The total value of their breakdown should obviously be equal to their package price.

You gain two advantages in asking for a price breakdown. First, it’s easier for you to gain a sense of the market value of each item in their offer. If, for example, they seem to be asking a high figure for labor, you can challenge it based on market value and evoke the competition, stating that other contractors charge less for labor. On the prices of materials, you may even be able to point out some cost inefficiencies that your counterpart has, thereby lowering costs for both you and them and creating a long-term win-win situation.

The second advantage is, it’s easier to negotiate several smaller figures that it is to negotiate one large figure, although it may take more time. Smaller figures give you a greater sense of what you are negotiating for, and concessions on each item can be easier to achieve. When all is said and done, each concession you receive on each item in the breakdown will add up to a discount greater than you may have achieved negotiating the package price.