Rod Young is the founder and Executive Director of DC Strategy, a company which has helped brands such as Australia Post, Aussie Home Loans, Gloria Jeans, OPSM, 7 Eleven, Telstra and ANZ. In this interview he shares his expertise on how to make franchises fly.
Rod Young is recognised as one of the world’s leading franchise and channel strategy experts with over 30 years experience establishing and developing successful networks and brands in Australia, Europe, China, South East Asia, India and the United States.
In this Q&A interview with Alex Pirouz, he talks about franchising, why franchises fail and what is required to build a successful franchise.
Q: Rod, with over 30 years of experience, how have you seen the franchising industry develop and change throughout the years with the introduction of technology?
Technology has been a great influence in franchising because back in the early days paying royalties and manual reporting was the norm but what we are seeing is quite sophisticated information systems nowadays.
It has made reporting, marketing, customer service and various other important aspects of the franchising model a lot more effective and efficient.
Q: What are the biggest mistakes businesses make when looking to franchise?
The biggest mistake most businesses make is that they believe money in franchising is in the franchise fee, not in the royalties attained per franchise agreement. In my experience no-one has ever made money in selling franchises.
Q: What components are required for a franchise to be truly successful?
There is a science to developing a franchise program. Without the right science and development a franchise model will not be successful. There are many key components, it needs to have a point of difference, brand that is relevant to the consumer, great understanding of its customer and it needs to have a system or process to turn its product or service into cash.
Q: What do entrepreneurs need to have prepared before approaching a franchise consultant or company?
The number one thing they need to have figured out before looking to franchise is whether or not their business model is proven through profitability and in multiple locations.
Q: If I am looking to franchise my business, how do I go about calculating the franchise royalty fee?
This to a large extend depends on the profitability of the business, not that it is calculated at the profit of the business, it’s typically calculated on the revenue but it must have a coloration back to the net profit and the gross profit that the franchisee gets. It is a fairly complex and the danger with royalties is that if you get it wrong even just by 1% that could be the difference between you being able to survive or not.
Q: What are the main reasons why franchise chains fail?
Because they have not done their due diligence to figure out whether or not their franchisor has a proven business model and have not had a look at their expectations and their objectives within the business, they fail to follow the franchisors system, distracted from the business, underestimate the commitment and work required to make the business successful and very little involvement within the local community.
Q: If I am looking to hire a franchise consultant, what questions do I need toask to make sure I have the right person for the job?
There is only one question and that is: What is your track record? Anyone can get advice on how to be a millionaire from the drunk at the end of the bar, but a good advisor clearly stands out based on his track record.
Q: What are the risks associated in buying a new franchise compared to a well-established franchise?
The risk of buying a new franchise is that the model has not been proven and consolidated to a large degree. The advantage to this is that you buy at a much lower rate then buying one that is proven and well established.
Q: What would be one piece of advice you would give to someone who is looking to franchise their business?
The first thing they need to do is to get their business proven and profitable. Don’t franchise your business or think of franchising your business until you can show you can produce a profit in your business and also think of your business with a global perspective rather then a local perspective.
Alex Pirouz is the founder of RIDC Advisory Pty Ltd. A Business and Sales Advisory firm partnering with Australia’s largest and fastest growing companies to further increase their revenue. Visit www.ridcadvisory.com.au for more details.