Having just reviewed the piece I wrote two years, I notice I opened with the thought that I might have to dismiss myself – questioning whether I, as CEO, had the intellect and passion to stay at the crease and score a double century.
I think I had only partly accepted that with 100 franchises on board, the future of PoolWerx franchise was no longer going to rest on me. Rather, it was going to ride on the business model, support team, franchise system structure, and quality of franchisees established to that point. Two years later, I am going into crystal ball mode again.
I anticipate it will take another two to three years for PoolWerx to reach territorial saturation in Australia and New Zealand. In Australia, that’s a bit over 300 occupied territories. That might sound conservative given that we have grown from 100 to 200 in 18 months; however as available territories dry up, there will be relocation involved for intending franchisees, so the process would usually slow somewhat at the tail.
When we reach saturation in Australia, we will have more than 300 hubs, many with clusters of smaller satellites, and at least 1,000 service vans operating, giving us around 40 percent share of the $1 billion swimming pool and spa aftermarket (currently growing at 20 percent per annum). We will by far be the biggest player.
I believe other systems in ‘underdone’ industry sectors will follow the PoolWerx ‘career path in franchising’ business development model. I am astonished that we are still largely alone in this. There are loads of seriously talented and cashed-up intending franchisees out there looking for a substantial business. Forget the pool and spa aftermarket for a moment. What they’re looking for is a ‘winner on the rise’ and opportunity to drive that business hard towards a substantial return on investment. They are not interested in saturated markets, dead-end streets or buying themselves a job.
I anticipate the emergence of ‘wall-less’ marketing in Australia. Many franchise systems currently at the mercy of shopping mall ‘gulags’ – where they have no control over rental, positioning of competitive businesses, tenure etc – will say ‘enough’, relocate to visible, accessible sites and add a mobile element. Personally, I would not be interested in 50 square feet of space controlled by a tyrant when I can have an operation where the ‘floor area’ typically covers four to five square kilometres.
There will be an increasing franchisee focus on exit strategies. This is a poser because while it’s understandable that someone building a business wants to be sure that the term of their agreement will be renewed without fuss, the franchisor must also be able to cull non-performers for the good of the network. The way we handle it now is that if there’s say, three years left in the term when the franchisee chooses to sell out, we add another full term as part of the deal, but this is reflected in a higher price. We take out what we need to help find a suitable buyer, training and so on and the outgoing franchisee keeps the balance. This works, but there will be other solutions.
The way things are going I feel some concern at a tendency for franchisors to become bureaucracies rather than entrepreneurial in spirit. Innovation is the heart and soul of franchising and bureaucracies are the scourge of innovation. I think this tends to happen more when successful retail businesses choose to franchise and suddenly find themselves in control of an empire they don’t have the experience (or attitude) to handle – or for that matter, willingness to learn. At PoolWerx, we chose a disorganised industry that franchising, as a business system, could bring to heel, and created the franchise platform first. This has spared us enormous pain, particularly in the area of potential franchisee dissatisfaction.
I think there will be strong polarisation of franchise fee structures. There will still be flat fee systems that amount to not much more than ‘brand rental’, but these will mostly be of the ‘buy yourself a job’, low capital entry variety. The increasing sophistication of intending franchisees looking for a business they can build will point them to a royalty-based operation, because they understand that there lies the incentive for the franchisor to help grow their businesses fast, and keep them in the system for as long as possible.
I would not be surprised by a trend towards progressive reduction in royalty percentages as certain turnover benchmarks are attained by successful franchisees. I am amazed that to date, PoolWerx has not been widely copied on this front.
I would expect PoolWerx and other mature, successful Australian systems to find ‘export’ becoming easier. We had all sorts of plans for penetrating the United States and Europe but in the end, have found the US, Europe and other countries landing on our doorstep because we’re the best in the world at what we do. So, rather than throw resources specifically at export, we’re happy to wait until the right partners come along.
Women will play a much stronger, more visible, more important role in the franchising sector during the next few years. They’re good at it. They’re not frightened to ask for the sale, they compromise, they speak their minds openly, they communicate well with other women – and more. I expect 60 percent or more of our franchisees to be led by women within 18 months to two years. More than half our National Support Office positions are currently held by women.
The next ‘big thing’
The impending big thing for us is territorial saturation in Australia. Call it 18 months and then the snippets, and put export aside for the moment. So how do we continue to grow revenue? The only way is for us to continue to make franchisees’ tills ring faster, louder and longer. As a royalty-based system, that’s our only route.
No more greenfield franchises to sell, eagerness for those up for resale – so our attention becomes totally devoted to increasing existing franchisee turnover via our tiered business development system. This would be impossible if the network consisted solely of men with vans.
Are we in a position to increase franchisee turnover and profitability? Think about the supply arrangements associated with a network controlling 40 percent of sales within a massive industry. Think about the collective marketing resources. Think of being at every viable point of profit in a $1 billion market growing at 20 percent per annum. Think about the calibre of franchisees actively encouraged to contribute their experience and ideas.
Only a franchise system could pull this off in our industry sector, which is why PoolWerx was built the way it is. Despite its disorganisation and fragmentation, the pool aftermarket even three to five years ago was nigh impossible to break into, so we used a flanking strategy to build the mobile service category, where we were not seen as a threat, from two to 14 percent of Australian pool owners, pronto. In California it’s 80 percent, so we have a wealth of opportunity yet to exploit. This gave us clout with suppliers, which enabled us to expand the business model, at a time when intending franchisees were growing more sophisticated.
We have also employed guerrilla marketing strategies; for example, spending years developing (a very real) ‘expert’ platform that would enable us to very suddenly move into and dominate the commercial market. This is interesting – a marketing strategy driving product development, rather than having a relatively static product you have to work out how to market.
Upshot
The lifeblood of franchising is innovation. Whatever business you are in the market is dynamic, and franchising gives you a commercial advantage in enhanced feedback and flexibility to move with it. Feedback from franchisees, national support office staff and consultants – if you look hard enough, there’s a wealth of ideas out there. My experience is that where an obstacle to growth exists, franchising will find a way around it, while in the main, bureaucracies do not. And I also think it’s the same with opportunity. After two years of high growth, my recommendation to fellow franchisors, franchisees and the sector as a whole is ‘guard the integrity of the brand and system jealously, but keep your spirit entrepreneurial and your mind open to ideas’. Me – I’m staying in. I wouldn’t miss the next few years for the world.
Read more about buying a franchise and running a franchise.
22-May-2006