India is probably one of the most frustrating places in the world for starting a new business. At the same time, more professionals have the urge to strike out on their own. A quick and easy solution to this paradox is the route of franchised ventures. Taking a franchise of a reputed establishment offers many advantages.
Almost always, it is a large, recognised and branded concern which expands through franchising. Therefore the franchise outlet is perceived to be a surrogate of the “organised, corporate sector”. Potential employees, customers, vendors, all view you as a dependable establishment and are keen to join hands with you. Established vendors and lenders like banks give you easy access to their services. The customers are willing to give you the benefit of doubt from day one. You can form your team and attract competent employees. Try hiring a computer trainer or store-incharge without the NIIT or Allen Solly brand name on your signboard, and you’ll know the difference.
A franchised business reduces the number of unknowns to grapple with, especially in the initial days. The entrepreneur benefits from the franchising company’s well-established processes and systems. For a start, the transactions are mostly clean and above board, an important factor in India where business usually means entering a murky world of dealings. Then, many important aspects of running a business are already in place, and there are fewer surprises and unpleasant discoveries. Most crucially, the customers already know the brand and the attributes associated with it, so you can look forward to having customers walking in on the very first day. With these critical issues taken care of, you can turn your attention to matters like obtaining funding, accounting and team building, and developing an understanding of the customers locally.
For instance, my own experience as a franchisee of a well-known supermarket retail brand was extremely positive. I could capitalise on the brand to quickly discover the nuances of the “winning model” in supermarket retail. The suppliers treated me with respect from the first day since I was not an unknown entity in their eyes.
On the flip side, being a franchisee means one is dependent on the parent company for growth, and this will always be restricted. All the goodwill and loyalty in the market accrues to the brand and not to you. Also, you cannot hope to gain extraordinary profits. The franchising company will always find a way of sucking out more than normal returns in a profitable year, under various heads like “business upgradation charges”.
It is a fact that all franchising models are loaded in favour of the franchising company, and not the individual businessperson. Considering that one of the most important reasons why a professional gets into business is to become the next Narayana Murthy or Sabeer Bhatia, this is a fundamental limitation. Franchising will never provide such an opportunity.
All said and done, when we remember that even Sam Walton, founder of Wal-Mart, started as a franchisee before striking out on his own.
Damodar Mall is CEO, Innovation and Incubation, Future Group
