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The opportunity to take a business overseas to exotic and lucrative global markets can be intoxicating. Almost all franchisors will recall the lure of receiving their first franchise inquiry from an international prospect. When you receive promises that they can be a great partner for you in their country, it’s a lure that can be hard to say no to.
As a concept, master franchising feels like it carries so much less risk. The upfront fee will cover costs, the master franchisee will bring on board all of the new franchisees, and you only have to support one new person. It’s all good, right? Maybe, but if you thought franchise selection for your domestic network was important; it’s only amplified when picking a master.
Master franchising remains for many franchisors the preferred approach for international expansion. As a concept, it’s been around for what feels like forever and seems to tick so many boxes. Appoint a local representative that then grows your business on your behalf, and also takes on the responsibility for both recruiting and supporting all of the new cohort of franchisees. For the privilege, they must pay you a chunky upfront fee. What’s not to like?
The cautionary tale lies in the catalog of franchise brands that have signed master deals, only to see development schedules missed, brand guidelines flaunted, and partnerships ended to the detriment of both sides.
This can be greatly mitigated for the franchisor, by taking the time, in the beginning, to ensure that your master franchise partners have the requisite background and traits that you know that they will need to succeed. What lessons did you learn, and what skills did you wish that you had in-house when you started?
With that in mind, perhaps the first interested party, who has the cash but no experience and questionable motives, is not the best you can get.
Mastering the concept
For the right business or individual that is considering a master franchise, it represents an exciting opportunity. It’s the chance to take a concept that has cut its teeth overseas, and to introduce it to your home market. The risk is significantly reduced compared to setting up alone, and the opportunity to build something really substantial with a strong hand in your own destiny is that much greater than buying a single franchise.
It’s a shame that – depending on the concept – many people and businesses that would make great franchisees have not considered doing so as they have felt the financial return not to be significant enough. Or the rules around being a franchisee too constricting. Being part of a thriving franchise network does bring many benefits such as the enhanced brand awareness, joint marketing, and promotional activities, and not least the degree of comfort that comes from knowing that this franchise is working, and working well. The downside is that most mature brands will have already granted rights to the most lucrative territories.
Franchising by its very nature attracts people that have trod a corporate path, and are now looking to do something for themselves. When done well, franchising is an unrivaled way for those people to work for themselves, yet within a cocoon and following the rules of a proven system. Despite this, I still see many franchisees who would like to consider themselves entrepreneurs. The two are not mutually exclusive, but as a rule of thumb, the entrepreneurial spirit usually lies on the franchisor side.
For some, this makes franchising an uncomfortable fit.
Many great franchisees have succeeded precisely because they make no claim to be entrepreneurial, they understand they have bought a system for a reason, and in following it to the tee have achieved their goals. Other highly successful franchisees have done so by pushing boundaries. While always challenging for franchisors to have the model stretched, every franchise business I’ve ever worked in have had amazing franchisees that have improved the whole concept by pushing it to be better, more innovative, and more agile. No franchisor wants a maverick that insists that their logo design is better, that they want to “stick to the old marketing materials”, or starts selling their own ideas within the concept. However, many of the best ideas in franchising have come from those at the coal face. Indeed, the Big Mac was invented in a franchisee’s kitchen.
If you fit into that latter category, then you would be the exact sort of master franchisee I would want to recruit. You need to be someone that respects the brand and understands the boundaries, of course, but without entrepreneurial thinking, taking a master franchise into a new country is unlikely to succeed. It may be that the majority of a franchise system fits the new market – or indeed much that doesn’t – either way, without some degree of local insight, creativity and adaptation it will never hit its potential.
“If you thought franchise selection for your domestic network was important; it’s only amplified when picking a master”
With every master franchise opening comes the inevitable legal fees to get a high-quality franchise agreement drawn up that adheres to local law. Add to that the need to provide franchise disclosure, and to protect your trademark and IP, and the costs quickly accelerate. In return, you get peace of mind and protection, should the worst happen.
The reality is that these are essentials, but yet your ability to stay on top of your brand, to legally challenge franchise breaches, and to ensure your concept is not duplicated, is markedly reduced the second that you start franchising overseas. Particularly in more emerging markets.
To that end, finding the right master franchise that you know will both meet targets, but also will be a loyal and trustworthy partner, is absolutely fundamental. In some respects, they become you in their country, and I promise you that you want someone that you trust implicitly and who will defend your brand to the hilt in the way that you would.
A broad background
For most franchisors, it’s possible to expand by finding individuals or businesses with backgrounds in the right industry to take your concept. Whether that is fast food, education or kids concept franchising, there will be prospects with the right level of experience and network to run your franchise and run it well.
This is where a master franchise is different. You cannot just be good at running the franchise, you must also be outstanding at recruiting new franchisees, and training and supporting them with as much care and skill as the original franchisor does. A background in franchising is ideal, but many of the skills needed are transferable from other industries.
A great master franchise has a hunger to get the first location set up and successful, with the primary purpose of proving a concept in country. That flagship is the key to hitting the ambitious development targets that have no doubt been set.
“Many of the best ideas in franchising have come from those at the coal face. The Big Mac was invented in a franchisee’s kitchen”
An opportunity to rebadge your portfolio
We often think of franchisees as individuals, but many of the best master franchises are existing businesses to whom a franchise brand may make an excellent addition to their portfolio.
What is sometimes overlooked is existing partners with an infrastructure already in place, that can be rebadged under the franchisor’s banner. Particularly in the developing world where such a high premium is placed on British, American or other western brands, there can often be a major incentive to apply your brand to their offering as a way to expand and increase their pricing. For franchisors, this can give you an immediate footprint in a market, and accelerate your market growth at a pace not possible through greenfield sites.
As a franchisor, these sorts of master franchises are easier to identify ahead of time. So be proactive, and approach them rather than waiting for that dream inquiry to hit your inbox.
One of the key fundamentals in franchising is that you are taking a concept that is proven and using that system to build your own future. Except that’s not quite the case with master franchising. It may well be tried and tested, but it’s not in a new country, so there’s a leap of faith required.
For some, it will be taking a concept that is well accepted in the market but introducing a tweak on that, or it may be a new brand to an already established space. That will likely be the case when entering mature franchised markets such as North America. In other markets, it might be an entirely new concept that needs to be introduced. Bigger risk, but potentially much bigger rewards in being first to market.
A great master franchise takes that risk, not blindly, but in a well-researched, educated, and planned manner. What is needed is vision to see the gap in the market, to understand the local fundamentals that need to be addressed, and to grasp it with both hands. A risk-taker, or a visionary? Probably a bit of both.
Andrew Walters is the founder of Kindling Franchise Consultants, a boutique firm with 17 years of international franchise experience offering specialist advice to franchisors looking to expand globally kindlingfranchise.com
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