A career path in business for franchisees is a real choice. JASON GEHRKE
By Jason Gehrke
For many prospective franchisees, buying a franchise is akin to buying themselves a job. The analogy is not without its flaws, but in the main, this is frequently the approach.
So just like any job where an employee would expect to receive pay increases over time, as well as opportunities for promotion and career development, why shouldn’t franchising be any different?
By treating franchising as a career path, successful franchisees may be able to increase their income and wealth, as well as enjoy a rewarding and fulfilling working life. Such franchisees are intrapreneurs, or inside entrepreneurs, whose innovation and drive can accelerate their business development within a larger organisation by drawing on its resources, rather than striking out on their own. Franchisee intrapreneurs make full use of the framework and concept of the franchise system to build their own entrepreneurial success.
Career paths in franchising will differ between mobile service (such as man-and-a-van businesses) and retail systems based on the different investment required (low for service and high for retail franchises) and the nature of the work itself (primarily activity or labour-based for service franchises, whereas retail franchises are generally transaction-based).
The following are two potential career paths for franchisees of mobile service and fixed location retail systems which illustrate that a franchisee can continue to develop their career as a business person through franchising.
In a growing mobile service franchise, the career progression of a franchisee could look something like this:
Stage 1: Growth
Acquire a unit franchise and build a strong customer base in that territory or market.
Stage 2: Subdivision
Franchisees who have successfully built their territory to a high-performing level but who are aware that there is more demand than they alone can service may split the territory into two areas, selling one to a new franchisee, while rebuilding their income to the previous level from the remaining territory.
The benefit here is that the original franchisee can get a return of their capital by splitting the territory, plus are able to access additional local resources to cater for peaks in demand or singularly large jobs.
Stage 3: Master franchising
Based on the experience of selling the previous territory and supporting the incoming franchisee, the established franchisee may approach the franchisor for regional or master franchise opportunities. (This approach may be initiated by the franchisor who recognises the successful attributes of this franchisee could be valuable in opening the business in new markets.)
Alternatively, the franchisee reaches maturity or “burn-out” in this service, and considers exiting the system altogether, or may exit their franchise but take on an employed or contracted role with the franchisor to provide field or technical support.
Stage 4: Unit divestment
The franchisee sells out of their original unit franchise altogether (unless, in a rare instance for a service franchise, it is able to be operated under management), and acquires a regional or master franchise (often in another state or location from where they are currently based).
Stage 5: New market development
The franchisee establishes a pilot operation in the new territory, and quickly builds a customer base (similar to what they did in Stage 1), thus proving market demand for the services provided. Simultaneously, and usually in conjunction with the franchisor, the franchisee will be mapping the region or state to determine the number of franchise territories required to cover the market.
Stage 6: Recruitment
The master franchisee and/or the franchisor will commence advertising for franchisees in that market and attempt to sell those territories over a period of time.
Stage 7: New unit divestment
The master franchisee may also sell their pilot operation in the region or state as new franchisees come and board, and require the master’s time for set-up, training, field support and so on. Many service franchisees who progress to master franchising find themselves unable to sell their pilot operation if they do not have enough working capital or a large enough royalty stream from franchisees to support themselves until the master franchise area is fully developed, which can actually impede the growth of the network as a whole.
Stage 8: Performance management
Upon reaching saturation in that market, the master franchisee will need to develop good systems to maintain high ongoing performance levels among his or her franchisees, as well as continue to recruit and train new franchisees to replace those who inevitably retire or sell.
Stage 9: The next challenge
Once the master franchisee is confident they have adequate systems in place to maintain their existing region or state, the challenge and excitement of building a business begins to wane. The master franchisee may look to acquire additional regions, states or even international master franchise rights in order to maintain their ongoing interest in the business, and to achieve these, even consider a partial or full sale to free up capital to undertake other projects.
Alternatively a master franchisee may conclude at this point that they have gone about as far as they can in this business without buying out the franchisor, and look to sell out and move on to another business altogether.
In exceptional circumstances, master franchisees may even make an offer to buy the entire system (providing a rare exit opportunity for the franchisor), and not unlike a management buy out in the corporate world.
Opportunities to exit exist at each of these nine stages, and franchisees who follow this career path in service franchising can anticipate increasing capital outlays, as well as increasing levels of risk (though their capacity to manage that risk increases with their experience in the system), and increasing investment returns.
Of course service franchising isn’t for everyone. The labour-intensive, activity-based nature of service franchising makes it less scalable than transaction-based retail or fixed-location service (such as printing) franchises, and this has an impact on the career path available to franchisees. For example, multiple-unit service franchisees (other than fixed location service franchises) are very rare, whereas multi-unit ownership is common among retail franchisees (See stages 3-5 below).
So while a career progression for a retail franchisee may have some similarities to a service franchisee, there will be some significant differences. A retail franchisee career path may include the following:
Stage 1: Growth
Acquire a unit franchise and build a strong customer base in that territory.
Stage 2: Consolidation
Maximise outlet profitability and utilisation of resources.
Stage 3: Sequential growth
Look for opportunities to acquire an additional unit, either through opening a new outlet (the most common method for a growing retail franchise chains), or by buying an existing (and usually underperforming) outlet from an established franchisee of the same chain.
Stage 4: Sequential consolidation
Build up the second unit, and share some resources (particularly staff and back-of-house facilities) with the initial outlet. The performance of both outlets will be carefully monitored by the franchisor, who on the one hand is generally pleased to see fewer franchisees operating more outlets, but on the other hand is potentially concerned that a franchisee operating multiple outlets will spread themselves too thinly and their businesses suffer as a result.
Stage 5: Sequential growth and consolidation
Repeat the above from stage 3-4, usually in nearby locations to maximise the operating efficiencies of running several outlets.
Stage 6: Performance management
Once the franchisee has established enough outlets, the franchisee may (if they haven’t already done so) install a management team to operate the businesses on their behalf, thus reducing their daily operational involvement in the business, and instead spending more time working on the business.
At this point, the franchise has become “corporatised” in that the outlets are answerable to a chain of command under a traditional corporate organisational structure (established by the franchisee) within the framework of a successful franchise system.
The corporatisation of franchising at franchisee level in Australia is limited by our population and market size for any retail concept, compared to the United States (where the population is more than 10 times that of Australia) and where corporatised franchisees own in some cases up to 500 outlets, and are listed on the stock exchange. Currently the largest Australian multiple unit franchisees (not including area development franchisees) own up to about 50 outlets.
Stage 7: The next challenge (internal or external)
After having made themselves largely redundant from the day-to-day operations of their business, and in the absence of enough outlets to warrant a public offering, the franchisee may seek further challenges within the network, such as taking the brand into new markets by regional or national master franchises, or partially or fully buying out the franchisor.
Alternatively, their interests may be directed elsewhere, such as diversification into other businesses, including other franchises, property development, consulting, etc. It is far less common in retail than in service franchising for an ex-franchisee to move into an employed role with the franchisor unless they have taken some equity in the franchisor’s business.
Throughout these stages of development in both service and retail scenarios, franchisees are likely to play active roles in the development and improvement of the franchise system as a whole by participating in marketing initiatives (including testing new products and marketing campaigns), and contributing to the system’s Franchise Advisory Council.
Intrapreneurial franchisees of this nature become role models for their fellow franchisees, and are highly regarded by their peers in the system. By operating their businesses successfully while continuing to expand, they are often recognised by their franchisor’s awards programs (both domestically and internationally) for their achievements in the system.
For both service and retail franchisees, intrapreneurial career path opportunities can exist, providing a much more rewarding outcome than just “buying a job”. Of course there are risks as well, and these should be assessed thoroughly prior to joining a franchise system, and monitored at each step along the career path thereafter.
Jason Gehrke is a director of the Franchise Advisory Centre and has been involved in franchising for 18 years at franchisee, franchisor and advisor level. He provides consulting services to both franchisors and franchisees, and conducts franchise education programs throughout Australia. He has been awarded for his franchise achievements, and publishes Franchise News & Events, Australia’s only fortnightly electronic news bulletin on franchising issues. In his spare time, Jason is a passionate collector of military antiques.
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