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					St. Francis Xavier University

                                      BSAD 456
                                Small Business Management

St. Francis Xavier University

                                Small Business Feature
                                 Galloping Cows Fine
                                      Port Hood, Cape Breton
                                       producer of preserves, jellies,
                                       sauces, jams
                                      16 years in business
                                      Started selling at farmers‟
                                      Now distributed through
                                       Sobeys in the specialty
                                       cheese section
                                      Toronto International Film
                                       Festival, Golden Globes and
                                       the 2011 Oscar awards
                                          Displayed in the stars‟
                                           gifting suite presenting
                                           attendees a gift box of
                                           Galloping Cows Pepper
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                                Course Framework
                                 “Every small business owner or manager faces a
                                  multitude of questions each day.”

                                      Finding Markets by being opportunity-driven, niche-
                                       oriented, innovative and customer-driven with effective
                                       use of I.T. so you can grow your firm with the best
                                      Pursuing various Growth options such as
                                       product/market growth, buying a business, and
                                      Managing Growth with careful attention to resources
                                       and the role of the founder/owner, and family business
                                      Harvesting the firm
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                                                    Existing                  New

                                                      Market              New Product
                                                    Penetration           Development

                                                                PMM growth,

                                                               export and FDI,

                                                    Development          Diversification
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                                Introduction to Franchising
                                 Objectives
                                      To introduce an important growth option for some small firms
                                      To overview the opportunities and challenges of this
                                       approach to business
                                      To take the perspective of the franchisor

                                 General Themes
                                  1.   Why Franchise?
                                  2.   Franchisability
                                  3.   Issues
                                  4.   Marketing issues
                                  5.   Growth considerations
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                                   Franchising – a way of doing business in which the
                                    franchisor gives the franchisee the right to use
                                    trade-marks, know-how and business systems to
                                    sell or distribute goods or services

                                       Franchisor – the company or individual that owns or
                                        controls trade-marks, know-how and/or a business system
                                        and grants the right to use these to a franchisee
                                       Franchisee – the company or individual who contracts with
                                        a franchisor for the right to operate a franchise in return for
                                        payment of an initial fee and/or an ongoing royalty
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                                The Franchising Relationship
                                       Contractual relationship which governs the way
                                        business is completed
                                         Trade-marks, know-how and systems owned by franchisor and leased
                                          to franchisee
                                         Systems, procedures, and standards
                                         Terms of agreement set in franchise agreement

                                       Inter-dependent relationship
                                         Franchisor provides systems and support and enforces controls
                                         Franchisee markets and works the system
St. Francis Xavier University

                                Canadian Franchise Association
                                 Fast Franchise Facts
                                     Franchised businesses account for 40% of all retail sales
                                     There are over 78,000 franchise units across Canada
                                     Franchising directly employs over 1,000,000 people
                                     Franchising accounts for 10% of Canada‟s Gross Domestic
                                      Product (GDP)
                                     Franchising has been reported to account for one out of
                                      every five consumer dollars spent in Canada in goods and
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                                Introduction to Franchising
                                 General Themes
                                  1.   Why Franchise?
                                  2.   Franchisability
                                  3.   Issues
                                  4.   Marketing issues
                                  5.   Growth considerations
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                                1. Benefits
                                 Why Franchise?
                                   Growth
                                          Rapid expansion in selected markets
                                              Motivated, entrepreneurial franchisees
                                              Franchisees capitalize growth for which the franchisor may lack resources
                                              Standardization of construction, systems, promotion, etc
                                          Many administrative functions “downloaded”
                                     Advantages of Scale
                                          Buying power with suppliers
                                          Advertising buying power, Brand building
                                          Develop specialized operational knowledge and efficiencies
                                     Cash flow
                                          Up front initial fee, ongoing royalties, advertising levies, exclusive
                                           product purchasing
                                     Less risk?
                                          Franchisees finance (much) of their operations and leverage a proven
                                          Separate legal entities
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                                The Value of Franchising

                                    Why is franchising such a powerful economic engine?
                                      “Because it is a sophisticated entrepreneurial
                                       alliance through which thousands of individuals
                                       create vast wealth” Spinelli, Rosenberg and Birley
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                                2. Franchisability
                                 Is the business franchisable?
                                    Successful prototype
                                    Standardizeable
                                    Market must accept a franchised product
                                    Franchisor must be able to continuously serve
                                    Not too technical
                                    Adequate source of supply

                                 Rock Camp USA:
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                                3. Issues
                                 What issues does the franchisor face?
                                      Impact on your business

                                      Relationships with franchisees
                                           Strain from increasing number of franchisees
                                           Independent/interdependent dynamics
                                           Perceived value of franchisors
                                           Overselling
                                           Misunderstandings regarding the franchise agreement

                                      Decentralization of controls/reputation => risk

                                      Financial and administrative (see next slide)

                                      Video interview:
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                                Issues (con’t)
                                 Financial
                                          Up front development expenses ($100+K)
                                              Adapt idea to franchising / create operations “formula”
                                              Create
                                                   Marketing brochures
                                                   Application forms
                                                   Financial pro formas
                                                   Legal documents – the Franchise agreement
                                                   Training programs
                                                   Distribution system
                                              Initial losses, delays, “deals”

                                          Ongoing expenses like R+D, communication
                                          Expenses shared with franchisees
                                                Advertising, with levies required from franchisees
                                                Site selection
                                                Lease negotiation
                                                Construction
                                                Opening assistance
                                                Training
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                                 Franchise Contract Clauses

                                •Term and renewal            •Franchisor right to inspect
                                •Site selection              •Standard of cleanliness
                                •Approval of lease           •Standard of operations
                                •Exclusive territory         •Right to audit
                                •Trademark registration      •Noncompetition
                                •Training by franchisor      •Confidential information
                                •Help with operations        •Permitted incorporation
                                •Operations manual           •Termination by franchisor
                                •Control of advertising      •Termination by franchisee
                                •Advertising by franchisor   •Right of first refusal
                                •Advertising by franchisee   •Sale approval by franchisor
                                •Royalty                     •Sale of equipment to franchisor
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                                4. Marketing Franchises
                                 What marketing issues does the franchisor face?
                                   Marketing to (Prospective) Franchisees
                                          Personal marketing
                                          Profile ideal franchisee
                                          Ongoing “convincing”
                                          Solicitation of input
                                          Marketing opportunities:
                                          Sampling of existing franchises/availability at
                                  (franchisee perspective; franchisor
                                     Marketing to consumer
                                          Market research
                                          Group advertising
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                                5. Growth Considerations
                                1. Expansion Plan
                                     Successful prototype, expand once or twice
                                     Establish a good franchise agreement
                                     Growth via concentric circles
                                2. Find the right franchisees
                                     Motivated, capitalized
                                     Develop a process that establishes realistic expectations
                                      about and a good exchange between the franchise and
                                3. Provide ongoing Value
                                     As franchisees abilities increase their perception of
                                      franchisor value will decrease
                                     Advertising economies, purchasing power, R+D,
                                      operations improvements, training, “management”
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                                Concluding Remarks
                                 Franchise resources
                                    Suggested readings and resources

                                         Franchise section of

                                         Canadian Franchise Association:
                                             www.

                                         SBTV
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                                 Wednesday‟s class: Buying a Business
                                     Blunden, R. (1992). Industrial Equipment Inc. Halifax, NS: Atlantic
                                      Entrepreneurial Institute.
                                     Walton, E. Roberts, M. “Purchasing a Business: The Search
                                      Process” in Sahlman, W. Stevenson, H. Roberts, M. Bhide,
                                      A. (Eds) (1992). Entrepreneurial Venture (pp 189-208).
                                     Questions for class and write-up:
                                        How well are the two companies doing financially?

                                        Is Jim „serious‟ about the acquisition (refer to the Walton and

                                          Roberts reading)
                                        Should Jim Costello try to purchase Hines Equipment (again)?

                                        What are the advantages and disadvantages of making an

St. Francis Xavier University

                                 Canada Franchise Association
                                 Franchise Canada Magazine
                                 Spinelli, S. Rosenberg, R. Birley, S. (2004). Franchising:
                                  Pathway to Wealth Creation.
                                 Levitt, E. (1989). Selected articles and papers on Franchising
                                 Small Business TV

                                 Supplementary Franchising video: The       Midas Touch?