Franchise your way to wealth

Franchising is one way to give your entrepreneurial self a chance. The challenge is huge, but the rules are simple. Grab the opportunity

Courtesy: Outlook India

Rajat Mathur, 36, had always wanted to strike out on his own. So, when he left the i-flex Solutions office in Mumbai as its senior banking analyst for the last time on 30 April 2006, he did not regret it. An alumnus of the IIT-Mumbai and IIM-Lucknow, he had worked at Times Bank and ICICI Bank before i-flex.

You would walk into Orbit Mall on the Malad-Goregaon Road in Mumbai to the aroma of freshly baked cookies. The bouquet will lead you past the Good Earth store on your left, and round the corner to the Cookie Man shop. And there, presiding over chocolate and honey-almond cookies, you would meet Mathur again. Counting the cash, checking the cookies, and serving them straight out of the oven at the back to the crowds thronging the counter. “I always wanted to do something on my own as I think that’s where the real fun is. You can never get that in a nine-to-five job.” Mathur’s entrepreneurial spirit is alive and well.

 

Jaya Patodia 34, Lakme Beauty Salon, Delhi

She invested Rs 25 lakh initially and now has a monthly income of Rs 50,000-60,000. Her average monthly turnover is Rs 3.5 lakh

“I have a Swiss watch store in Khan Market, but that was not giving me good returns. The turnaround happened when a friend, who owned a Lakme franchise, told me about it.”Franchisee Checklist While Mathur cut loose, a lot of others wanting to do so have not. With responsibilities and dependents, they don’t dare to leave the warmth of a regular income and plunge into the financial turbulence a new business could bring. But today, the ‘fresher’ can go in with the safety tube of franchising. That’s what Mathur did. T.K.S. Kumar, a franchisee of Whirlpool Service Centre in Chennai for a decade now, says: “I wanted to realise my long-cherished dream of becoming an employment giver from an employment seeker.” But P. Ramarao, president, Australian Foods, which owns Cookie Man, warns: “It’s not for people who aren’t passionate.”

WHAT IS A FRANCHISE?

During the Great Depression, Colonel Harland Sanders started selling fried chicken in the little town of Corbin, Kentucky, on the road to Florida. He is said to have used 11 herbs and spices in a secret recipe that gave the chicken its distinctive taste. Sanders’ fare gained fame and Corbin was a routine stop en route to Florida till a new highway bypassed it. That’s when the colonel shut shop and tried selling his chicken to restaurant owners. In 1952, Pete Harman of South Salt Lake, Utah, signed an agreement to sell Sanders’ chicken and pay him five cents for each piece sold. The eatery was called Kentucky Fried Chicken. It was the world’s first franchise. While Sanders was sharing proprietory knowledge and reputation with Harman for a fee, the latter was running the business on Sanders’ behalf. And that is the essence of a franchise even today.

WHY A FRANCHISE?

The simple answer is to mitigate risk. “The franchiser can expand its reach by investing almost no money and capital, while the franchisee is almost sure of success as he is working in a tested area,” says C.Y. Pal, president, Franchising Association of India, an industry body. A US Department of Commerce study conducted during 1971 to 1997 showed that less than five per cent of franchises closed down each year. In contrast, a study by the US Small Business Administration found that from 1978 to 1998, 62 per cent of non-franchised businesses could not make it past the sixth year. But remember that a franchise will never give the returns that a successful own business will. For example, Biocon CEO Kiran Mazumdar-Shaw, who started her business with Rs 10,000 in 1978, is now the richest woman in India with a net worth of about Rs 2,000 crore. Some franchises could give you annual returns of 70 per cent, but most will be in the 20-40 per cent range. Good franchisers will help you get your business rolling and to keep it that way. Vivek Kaicker, 44, runs a U$ Dollar Store franchise in Delhi. “I had a retail business, but I liked this concept and thought it would increase footfall,” he says.

On 27 November 2006, retail giant Wal-Mart, with a turnover of $316 billion, announced that it would franchise its Indian operations to Sunil Mittal’s Bharti Enterprises. The latter would own and run Wal-Mart retail stores in India. Wal-Mart would also set up a joint venture with Bharti for the supply chain. Thus, systems honed over 46 years would be Bharti’s from Day One. Overnight, Bharti, whose retail plans had earlier been dwarfed by the Rs 3,200-crore investment announced by Mukesh Ambani’s Reliance Retail, was being billed as the company that would battle for supremacy in organised Indian retail. That’s the kind of fillip the right franchise can give. The model is versatile enough to work for Mittal, as well as Mathur. And it can work for you.

WHY IS THIS A GOOD TIME?

As a share of GDP, franchising accounts for 12 per cent in the US, but not even one per cent in India. The comparison gives an idea of where it could go. Industry estimates indicate franchising has grown to a Rs 8,000-crore sector now, from Rs 4,578 in 2004. Pal says there are over 750 franchisers in India today. Throw in the foreign franchisers, and the opportunity grows even bigger. It is attracting local talent in sectors such as food, lifestyle, retail, business services, healthcare, communication, education, entertainment and travel, among others. India is now the world’s largest franchise market after North America and is growing at  about 30 per cent a year, says Tony White, managing director, White Connections, which advises franchise companies.

WHICH FRANCHISE?

While buying a franchise, you have to consider several issues.

Abilities. This is the time for brutal self-assessment. Rule of thumb: stay off what does not interest you. If you are indifferent to food, stay off restaurants. If kids exasperate you, avoid play schools. But don’t lose heart. Your passion for travelling may make you one of the best equipped to plan holidays. Go for that. “I had already done a few beauty courses,” says Jaya Patodia, 34, who runs a Lakme Beauty Salon in Delhi.

More likely than not, a good franchiser will check out whether you fit the bill. Shahnaz Hussain, for instance, looks for people who are “passionate about beauty care”. Most franchisers will look for specific skills apart from “entrepreneurial attitude and open mind”. Institute of Computer & Finance Executives asks for no less then a chartered accountant, and Spykar Jeans wants a year’s experience in franchising.

Since this will be a new business, it will need a lot of hard work to get it running. “The initial one year is very important as this is when you build up a customer base,” says Hema Malini, 36, who, along with Ambika Viswanath, 24, run a Ferns ‘N’ Petals franchise in Chennai. Most franchisers want the franchisee to be involved personally. Ratan Jalan, CEO, The Apollo Clinic, says: “We need a person who is himself going to run the franchise.” But some may let you hire a manager and work at the franchise part-time. Remember, the monthly expense estimate franchisers give you assume that you will work full time.

Costs & finances. The big question is: how much can you invest in a franchise? Some service franchises could cost as little as Rs 2 lakh. You would need just a room, a table, a couple of chairs and a telephone connection. At the other end are beauty parlours, fine dining restaurants, or retail jewellery outlets. Here, investments could go to a crore or higher.

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