Why franchising is more than just a job

A career path in business for franchisees? Jason Gehrke, Director of the Franchise Advisory Centre , takes a look at the possibilities.

For many prospective franchisees, buying a franchise is akin to buying themselves a job. The analogy is not without its flaws but in the main this is the approach. So just like any job where an employee would expect to receive pay increases over time, as well as opportunities for promotion and career development, why shouldn't franchising be any different?

By treating franchising as a career path, successful franchisees may be able to increase their income and wealth, as well as enjoy a rewarding and fulfilling working life. Such franchisees are 'intrapreneurs', or inside entrepreneurs, whose innovation and drive can accelerate their business development within a larger organisation by drawing on its resources, rather than striking out on their own. Franchisee 'intrapreneurs' make full use of the framework and concept of the franchise system to build their own entrepreneurial success.

Career paths in franchising will differ between mobile service (a man and a van businesses) and retail systems based on the different investment required (low for service and high for retail franchises) and the nature of the work itself (primarily activity or labour-based for service franchises, whereas retail franchises are generally transaction-based).

The following are two potential career paths for franchisees of mobile service and fixed location retail systems and illustrate that a franchisee can continue to develop his or her career as a businessperson through franchising.

In service

In a growing mobile service franchise, the career progression of a franchisee could look something like this:

Stage 1: Growth

Acquire a unit franchise and build a strong customer base in that territory or market.

Stage 2: Subdivision

Franchisees who have successfully built their territory to a high-performing level but who are aware that there is more demand than they alone can service may split the territory into two areas, selling one to a new franchisee, while rebuilding their income to the previous level from the remaining territory. The benefit here is that the original franchisee can get a return on the capital by splitting the territory, and is able to access additional local resources to cater for peaks in demand or singularly large jobs.

Stage 3: Master franchising

Based on the experience of selling the previous territory and supporting the incoming franchisee, the established franchisee may approach the franchisor for regional or master franchise opportunities. Equally this approach may be initiated by the franchisor who recognises the successful attributes of this franchisee could be valuable in opening the business in new markets. Alternatively, the franchisee reaches maturity or burn-out and considers leaving the system altogether or may exit the franchise but take on an employed or contracted role with the franchisor to provide field or technical support.

Stage 4: Unit divestment

The franchisee sells the original unit franchise altogether (unless, in a rare instance for a service franchise, it is able to be operated under management), and acquires a regional or master franchise, often in another state or location.

Stage 5: New market development

The franchisee establishes a pilot operation in the new territory, and quickly builds a customer base, repeating the earlier steps, thus proving market demand for the services provided. Simultaneously, and usually in conjunction with the franchisor, the franchisee will be mapping the region or state to determine the number of franchise territories required to cover the market.

Stage 6: Recruitment

The master franchisee and/or the franchisor will begin advertising for franchisees in that market and attempt to sell those territories over a period of time.

Stage 7: New unit divestment

The master franchisee may also sell his or her pilot operation in the region or state as new franchisees come on board and require the master's time for set-up, training, field support and so on. Many service franchisees who progress to master franchising find themselves unable to sell their pilot operation if they do not have enough working capital or a large enough royalty stream from franchisees to support themselves until the master franchise area is fully developed, and this can actually impede the growth of the network as a whole.

Stage 8: Performance management

Upon reaching saturation in that market, the master franchisee will need to develop good systems to maintain high ongoing performance levels among his or her franchisees, as well as continue to recruit and train new franchisees replace those who inevitably retire or sell.

Stage 9: The next challenge

Once the master franchisee is confident they have adequate systems in place to maintain their existing region or state, the challenge and excitement of building a business begins to wane. The master franchisee may look to acquire additional regions, states or even international master franchise rights in order to maintain an ongoing interest in the business, and to achieve these, even consider a partial or full sale to free up capital to undertake other projects.

Alternatively, a master franchisee may conclude at this point that he or she has gone about as far as they can in this business without buying out the franchisor, and look to sell out and move on to another business altogether.

In exceptional circumstances, master franchisees may even make an offer to buy the entire system (providing a rare exit opportunity for the franchisor), not unlike a management buy-out in the corporate world.

At each of these nine stages there are opportunities to sell and leave the system. Franchisees who follow this career path in service franchising can anticipate increasing capital outlays, as well as increasing levels of risk, though their capacity to manage that risk increases with their experience in the system, and increasing investment returns.

Retail detail

Of course, service franchising isn't for everyone. The labour-intensive, activity-based nature of service franchising makes it less scalable than transaction-based retail or fixed-location service such as printing franchises, and this has an impact on the career path available to franchisees. For example, multiple-unit service franchisees (other than fixed location service franchises) are very rare, whereas multi-unit ownership is common among retail franchisees (see below). So while a career progression for a retail franchisee may have some similarities to a service franchisee, there will be some significant differences. A retail franchisee career path may include the following:

Stage 1: Growth

Acquire a unit franchise and build a strong customer base in that territory.

Stage 2: Consolidation

Maximise outlet profitability and utilisation of resources.

Stage 3: Sequential growth

Look for opportunities to acquire an additional unit, either by opening a new outlet - the most common method for a growing retail franchise chains - or through buying an existing, and usually underperforming, outlet from an established franchisee of the same chain.

Stage 4: Sequential consolidation

Build up the second unit, and share some resources such as staff and back-of-house facilities with the initial outlet. The performance of both outlets will be carefully monitored by the franchisor, on the one hand generally pleased to see fewer franchisees operating more outlets but on the other hand potentially concerned that a franchisee operating multiple outlets will spread the workload too thinly and the businesses suffer as a result.

Stage 5: Sequential growth and consolidation

Stages three and four are repeated, usually in nearby locations to maximise the operating efficiencies of running multiple outlets.

Stage 6: Performance management

Once the franchisee has established enough outlets, the franchisee may (if they haven't already done so) install a management team to operate the businesses on their behalf, thus reducing their daily operational involvement in the business, and giving them more time to spend working on the business. At this point the franchise has become corporatised in that the outlets are answerable to a chain of command under a traditional corporate organisational structure, established by the franchisee, within the framework of a successful franchise system.

The corporatisation of franchising at franchisee level in Australia is limited by our population and market size for any retail concept, compared to the US (where the population is more than 10 times that of Australia) and where corporatised franchisees own in some cases up to 500 outlets, and are listed on the stock exchange

Currently the largest Australian multiple unit franchisees (not including area development franchisees) own up to about 50 outlets.

Stage 7: The next challenge

After having made themselves largely redundant from the day-to-day operations of their business, and in the absence of enough outlets to warrant a public offering, the franchisee may seek further challenges within the network, such as taking the brand into new markets by regional or national master franchises, or partially or fully buying out the franchisor.

Alternatively, their interests may be directed elsewhere, such as diversification into other businesses, including other franchises, property development or consulting. It is far less common in retail than in service franchising for an ex-franchisee to move into an employed role with the franchisor unless they have taken some equity in the franchisor's business.

Throughout these stages of development in both service and retail scenarios, franchisees are likely to play active roles in the development and improvement of the franchise system as a whole by participating in marketing initiatives (including testing new products and marketing campaigns), and contributing to the system's Franchise Advisory Council.

'Intrapreneurial' franchisees of this nature become role models for their fellow franchisees, and are highly regarded by their peers in the system. By operating their businesses successfully while continuing to expand, they are often recognised by their franchisor's awards programs for their achievements in the system.

For both service and retail franchisees, 'intrapreneurial' career path opportunities can exist, providing a much more rewarding outcome than just buying a job. Of course, there are risks as well, and these should be assessed thoroughly prior to joining a franchise system, and monitored at each step along the career path thereafter.

This article appears courtesy of Franchising Magazine