or not to franchise?
Franchising a fitness business offers the possibility of increased business success to both franchisor and franchisee. But before considering this business model, you should ask yourself some serious questions, says Andrew Simmons.
Franchising in the fitness industry has exploded in recent years, largely due to the emergence of the low-cost gym model. As the founder of Vision Personal Training, Australia’s largest personal training studio franchise, and a member of the Franchise Council of Australia, I have witnessed the growth of franchising not only in fitness, but in business in general.
Australia is now the most franchised nation in the world, according to peak body, the Franchise Council of Australia (FCA). There were about 1,025 business format franchises in Australia in 2010, and sales turnover of the franchising sector was estimated at $128 billion in 2009. The retail trade industry continues to dominate franchising, with 26 per cent of franchisors and 24 per cent of franchise units involved in retail.
What is a franchise?
A franchise is an agreement or license between two parties. The first party, the franchisee, (which can be a person or group) is given the rights to market a product or service using the operating methods and trademark of the other party, the franchisor. Under this arrangement, the franchisee is obliged to pay the franchisor certain fees and royalties. In return, the franchisor provides these rights and generally supports the franchisee.
Franchising is not an industry per se – it is simply a method used by businesses for the marketing and distribution of products or services, where both the franchisor and franchisee have a strong vested interest in the success of the brand.
So, is the franchising model all that it is cracked up to be? When looking at the pros and cons of franchising, it may be viewed from two perspectives. Firstly, from the view of expanding your own established business (franchisor), and secondly from starting your own business (franchisee).
1. Expanding your own established brand
Many business owners who establish a successful business set their sights on duplicating their concept into new markets or territories. Franchising is one way of achieving this, but it is important to consider both the pros and cons before pursuing this path. Further, you must be very clear about your reason for expanding your business.
Pros of franchising your business
There are many benefits of using the franchise model to expand your business. Firstly, it enables you to expand quickly because each franchisee has a financial stake in the business. This means they are generally more motivated to work hard and grow the business. This ability for rapid brand expansion therefore enables more people to benefit from your services. Franchising also enables you to leverage your time, as you generally don’t need to micromanage business owners if you have sufficient policies and procedures in place. As there is generally a term of between five and 10 years on franchise agreements, it also means that you don’t have the constant worrying about staff turnover that can be an issue when employing people. Further, franchising enables you to build a community of like-minded people who share common goals. This generally contributes very positively to the overall growth of the business, as franchisees often present the best ideas for driving the business forward.
In my case, franchising has been the perfect model to use, as it has enabled me to fulfil two passions that would not have been possible if I had opened and owned multiple studios by myself. Firstly, I want to give overweight people the opportunity to benefit from the systems that we have created to help them transform their lives. Secondly, I want to enable passionate health and fitness professionals to enjoy long-term careers in the industry that are both personally and financially rewarding.
Cons of franchising your business
While there are a large number of benefits to franchising your business, there are a number of disadvantages or costs associated. Firstly, your control can become diminished as you are now no longer dealing with employees. Instead you are dealing with passionate entrepreneurs who often wish to challenge the direction of the business. This can make quality control quite challenging. Therefore, it is vital that you spend considerable time either creating robust systems, policies and procedures manuals, or outsource this to professionals in this area, which can be extremely expensive.
While there are a number of legal requirements that need to be adhered to when establishing a franchise system, implementing them is relatively simple compared to the requirements of developing a business model and associated systems that potential franchisees would be interested in buying into. The legal aspect simply requires you to find a legal firm specialising in franchising – and to pay it lots of money. Creating the business model, however, requires the creation of personal training manuals, management manuals, sales manuals, OH&S manuals, head office operational manuals, operation and reporting software systems …and the manuals for those too! Systems then needed to be created to train people how to understand and implement each of them.
The franchisor/franchisee relationship is one of collaboration rather than dictatorship. Owners of independent businesses can often make quick decisions and implement them at will. As each franchisee has a vested interest in the business, all of their opinions need to be considered. While this can give rise to great ideas and initiatives, it also means that change can occur slowly. As they say, a little speed boat has the ability to change course far more easily than a big cruise liner.
As a franchisor, you also need to consider what you wish to spend your time doing. The role that I now play is far different to the one I had when I first set up Vision. I no longer have the time to train clients and develop a small group of trainers: my role is far more removed. I now lead a team of business development managers, marketing, training and admin personnel who take care of the individual studio owners. While I enjoy this role, I have seen many other franchisors adopt roles that they are not passionate about as a result of growing their business. I have also witnessed this in franchise owners who have purchased a studio and busied themselves pursuing their love of changing the lives of their clients and trainers. Their decision to then open another studio has led to them taking on more of a managerial/financial controller role, which they are not as passionate about. While they may be financially better off, their job satisfaction is compromised. It is important, therefore, to consider what your role will be once you grow your business, and to ask yourself whether it is what you really want to be doing.
2. Starting your own business
While some people get to the stage of considering franchising their successful business model to others, far more people are at the stage of considering whether to build their own business from scratch, or to open an established franchise model. Again, it’s important to weigh up the positives and negatives.
Pros of buying a franchise
The biggest advantage of buying into a franchise is that you are buying into a proven business model. In franchising you will have the right to use an established trade name, marks, logo and style. These benefits can give you an instant advantage in the marketplace and save you time and money reinventing the wheel. I have seen many people with the passion and ability to achieve great results with their clients, but who are unable to keep the business afloat because their business model is so flawed. It took me many years to create a formula for success in this area. The analogy I regularly use is that of a Formula One racing team: imagine if Mark Webber or Michael Schumacher were required to not only race the car, but also put it together before and on race day, and change the fuel and tyres during the race. They would come last in every race. Small business owners make this mistake every day. They try to do everything themselves while competing against businesses that use systems to delegate tasks.
In service franchises such as fitness, it is generally those who are driven, fun-loving and great with people who are most successful. These individuals generally don’t like to create systems themselves, preferring to adopt a solid framework that holds them accountable to a proven business model. Interestingly, it is the cautious, detail-orientated, quiet and/or introverted people who don’t benefit from the systems as much, as they naturally want to reinvent the systems and stay out of the public eye. In franchising, the systems rely on people to just get out there are put them into practice.
Group buying and marketing is also a major advantage if the franchisor has exclusive arrangements with suppliers. There is power in numbers.
The issue of isolation is often talked about among small business owners, but is generally not experienced by franchisees due to the ongoing help and support at their fingertips. Regular training, site visits, group meetings and regular phone and email support are generally provided by the franchisor to ensure the best opportunity for success.
An area that is not often talked about in franchising – and one that I never really considered beneficial until recently – is the greater potential to sell your business for a higher price when you are part of a franchise network. Having facilitated a number of sales within our network over the past few years, I now know that the power of our brand and model has been largely responsible for owners being able to sell their businesses at a premium price. We also have prospective buyers lined up to purchase existing studios, which is seldom the case with independently owned businesses.
Most importantly, in our case, those who have purchased a franchise have been given the opportunity to provide their trainers with a real career path. Before I started franchising, my first studio in Caringbah really struggled to reach its potential. We constantly lost trainers as they could not see, and were not given, an opportunity to grow beyond the role of trainer. Consequently, many of them left to pursue interests in other areas or to become sole traders, most of them struggling to establish a long-term career. Interestingly, after we started franchising, and that first studio lost more than 15 trainers as a result of them opening Vision franchises, the Caringbah studio was at its strongest. Why? Because it provided a career path for trainers. The most successful studios in our network are those that have already developed – or are in the process of developing – their trainers to open their own Vision studios.
I believe my first studio would have continued to struggle, and maybe closed down, if I hadn’t franchised the business. Our franchise now gives trainers throughout our entire network the opportunity to have their own successful business in the future.
Cons of buying a franchise
Although franchising is one of the safest ways to run your own business, there are some factors that may be perceived as disadvantages. Firstly, a lack of independence and flexibility. Every aspect of how to run your franchise business is outlined in your franchise manual, right down to who to use as suppliers. Sticking to the manual allows little freedom to do your own thing. Though initially you will welcome the support you receive from head office, including regular visits from the support team, after time you may come to resent the ‘interference’ and view it as a hindrance. You may want to take charge and do your own troubleshooting.
|Two great books for anyone who is considering being involved in franchising on any level are Profitable Partnerships and The Franchise E-Factor, by respected franchising consultant Greg Nathan from the Franchise Relationships Institute. The Franchise Council of Australia also has a great range of resources available at www.franchise.org.au|
If the franchisor wishes to introduce a change, such as new pricing, new branding or new systems, you are obliged to follow suit whether you want to or not. Also, if there are changes in your local market, such as State laws or new competition that require you to change how you do business, your ability to quickly respond to changing conditions may be hampered by having to wait for the permission of the franchisor.
Franchisees also pay franchise fees for the support received from head office, and again, while this may be extremely useful at the start when you need help promoting your new venture, as your business develops and starts to do well, you may question having to pay the fees. In franchising, you are in business for yourself, but not by yourself – and though this has its benefits, it can also have its perceived downsides.
Franchising provides a wonderful opportunity for business success. Before diving in head first, however, it is strongly recommended that a great deal of due diligence is carried out.
Andrew is the founder of Vision Personal Training, Australia’s largest personal training studio franchise with 47 studios throughout the Eastern Sea Board. Vision was voted Emerging Franchise System of the Year in NSW by the Franchise Council of Australia in 2008 and Voted National Personal Training Business of the Year in 2003 and 2010. Vision has franchise opportunities available now for people who are passionate about building communities that transform people’s lives. For more information go to www.visionpt.com.au/franchise.