The challenge of Franchising
Franchising a web development business is definitely not for the fait hearted, but I would encourage anyone with strong systems, and a vision for their long-term business growth to seriously consider it. The following are some of the lessons I have learned from franchising my own web development business.Preamble
There are three web development companies in New Zealand that have franchised, Zeald, Datum Connect, Gen-i (their smaller branches) and Go Kiwi Internet. Each has its own unique USP, and target market.Franchising for growth
Franchising is one of three proven ways to build a business. The other two are Growth through Acquisition and Organic Growth.Organic growth is the most common, where a business grows naturally through advertising, word-of-mouth and reputation - taking on staff or subcontractors to enable increased production capability.
Growth through acquisition is also a proven method of growth although not so common in the web development industry. This was however common in the ISP sector from around 2000 when economies of scale forced ISP consolidation. A few hosting companies have also grown through acquisition although this was at a smaller scale than the ISP market. WDANZ has facilitated a handful of web development company sales and provides a brokerage service to assist. It is a tricky business matching a client base with a suitable purchaser and there are always more buyers than sellers.
Franchising as a business system
Franchising is a reputable and popular method of business growth internationally and New Zealand is well known as a strong adopter of the Franchise business model. There are now well over 500 franchised brands active in New Zealand and turnover through these brands is in the multi-billions.While it is common knowledge that McDonalds and Green Acres are franchised operations, many other brands are also franchised. The likes of NZ Post, Guthrie Bowron, Mike Pero, Caltex, Visique, Video Ezy, Stirling Sports, Rent-a-Dent and Rodney Wayne are all franchised operations.
A business that can benefit from strong systemisation can be franchised. Web Development lends itself to franchising well in the sense that any efficient central web development operation can easily service multiple Franchisees. It is however more suitable for Franchisees who have skills in sales or consultancy, however quite a bit more difficult to distribute development expertise.
The concept of a Franchisee selling a website in Christchurch and having it developed in Auckland is perfectly feasible. It is a little harder however to have a website sold in Christchurch, the SEO done in Invercargill, the graphics and content in Hamilton and the hosting in Auckland. It's possible but a little harder to maintain strong systems and standardised quality.
In the web development industry, the normal full-format franchise (typified by the McDonalds turn-key operation) is unlikely to work, given that one would need three years intensive training to gain the extensive experience and skills required to cover the dozen or so skills a modern web development company needs access to:
- Sales
- Graphics & Design
- Macromedia Flash
- HTML/CSS
- JavaScript
- Usability
- Journalism
- Photography
- Video
- E-Mail/Affiliate marketing
- E-Commerce
- Project Management
- Social Media
- Search Engine Marketing
- Search Engine Optimisation
Sales Territories can ensure exclusivity. Centralised development can ensure consistency of output and access to a wide skill set.
My own company Go Kiwi Internet's Franchise model is quite different and distributes the development to various Agencies, each with the various skills required. This collaborative approach between Go Kiwi Internet Agencies takes quite a bit more effort to establish but does avoid expensive head office overheads. While distributed production increases the complexity of development, it also allows for a wider range of Franchisees with any of the fifteen skill sets above able to work effectively in their "own" business.
Some in the industry do this already on a smaller scale where you will find teamwork and collaboration, usually in one geographical centre - a graphics guy may work alongside a PHP geek, and feed work to a nearby marketing guru.
Some in the industry also wholesale their offerings. They may have a strong CMS which is made available to resellers or retailers who refer work to the developer, or sometimes they may be able to develop websites using another more established system.
Developing a Franchise is not a cake-walk. It is a major exercise that requires serious investment in thought, planning and financial at all levels of the business:
- Technical Systems,
- Operational Systems,
- Marketing and Promotional efforts, and usually
- Another level of Management
Costs
Franchising a traditional business is usually estimated to cost somewhere in the order of $50,000.00 to $100,000.00 and may take anything from 6 months to a year to do. An existing web development company with strong systems may be able to work at the lower level of this scale but is still a substantial investment in time and resources.While there are unavoidable direct costs (for example, you will need to write out a big cheque to a specialised Franchise lawyer) the biggest costs are actually indirect costs. Things such as loss of focus on the core business as you develop your new systems; thinking things through on who does what, when, and how, for what; spending hours pouring over legal documentation to grapple with the untold legal "what-ifs"; testing the water and trialing your systems then changing things because they didn't work or other people found them clunky or inefficient; working with people from different cultures or values - these are the hidden costs that add up very quickly.
Management & Strategic
One of the most important, and probably the hardest part of Franchising for most web developers will be to develop a clear vision for where you see your company moving and to develop a viable strategy to achieve those goals.It is often quite hard to be objective and may be a bit like setting goals in a vacuum - unless you have been there you don't really know what it will be like enough to set realistic goals. For this, outside counsel is advised. Speaking with other Franchisors in the same or different industry, listening to their pains, failures, successes and dreams can often help you formulate your own plans and strategy.
Don't be frightened to do this. Ask them for their time and shoot straight. Despite the small thinking Kiwi mindset, most people are generally happy to talk about their business. Of course they will guard their trade secrets but they may be able to help you to some extent. Anyone considering business growth in any form is welcome to contact me directly for ideas, help or feedback.
You will need to be able to handle both the big-picture AND the day-to-day detail to make things work. Delegation and deep pockets are a couple of tips I would give to those considering taking their business to the next level. It's not impossible but it does need decent resourcing and a strong commitment to make it work.
Growth is not necessarily lineal either. In Franchising it can take several years of hard work to push through the pain barrier before you hit the sweet spot. Wise bankers know and will advise that growth can be slow to start with, then growth can be rapid, then plateaus as saturation occurs.
All the best with your business growth plans, whatever your preferred method of growth may be.
Tagwords: franchising
Posted by Dennis A. Smith ~ Saturday 29 August 2009
