2009 and beyond: a contrary view


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Many of the people we have talked to during the past few weeks are convinced that 2009 was the worst year ever and the media seem to agree. After all, the number of reports with a negative slant outweighs good news stories by a wide margin. This prompted us to pose a question: If things are really as bad as they are made out to be, how come that some people continue to do very well? They live in the same country during the same period, so why aren’t they affected? As no meaningful answers were forthcoming, we decided to investigate.

We started by interviewing a bunch of people who managed to keep their order books full and their cash flows ticking over nicely throughout the downturn. We found that they ignore the negative hype and did what they have always done best: provide service excellence with a smile. They are also convinced that 2010 will offer untold opportunities to them.

We are convinced that this is where the difference lies. Those who offered their customers less than optimal service got hurt during the downturn. They have now lost confidence in their coping ability and are convinced that things can only get worse. Not even FIFA 2010 can cheer them up. By contrast, those who maintain a positive outlook move forward with confidence and guess what? The world around them responds positively!

What happened?

We believe that any attempt to rebuild trust in the future must start with an understanding of what got us into the current mess in the first place. Without wishing to go into unnecessary details, consensus exists that the global economic downturn started in the US and spread around the globe like wildfire. South Africa was less affected than many other countries but because we are a player in the world economy, we couldn’t expect to remain unscathed.

Although the impact of the global financial crisis on the South African economy was relatively minor at first, it caused some businesses to fold. Closer examination of these early failures showed that these were either:

  • Businesses that had been established a long time ago but had failed to adjust to the changing times;

or

  • Businesses that were established during the boom years around the turn of the millennium. Their owners, typically disgruntled senior managers who were about to lose their cushy jobs, resolved ÔÇ£to show them by starting their own businesses, often in direct competition to their former employers. Unfortunately for them, they lacked the ability to operate a small business. They were moderately successful at first because the going was easy but as soon as the economy turned, they faltered.

One could argue that such individuals had no business to be in business. They certainly shouldnÔÇÖt have started to franchise but some did anyway, with predictable results.

The real status quo

Times are tough, no question about it. Although economists tell us that the downturn has bottomed out, the economy will need some time to recover. This is to be expected; even if a guy who had lost his job a year ago secures new employment for January 2009, he will have a lot of catching up to do. It is clear that bringing the bond up to date and paying off overdue credit card debt will take precedence over a new car and a family holiday on the beach. Sellers of luxury goods will have to wait longer for business to return back to normal than those selling essentials or offering repair services.

On the positive side, franchisees of reputable brands have weathered the storm better than their independent peers. This is not surprising because when times get tough, the inherent strength of a solid brand and the franchisor’s support structure really come into their own.

The big question

Which brings us back to you, dear reader, and the question you will probably want us to answer, namely: ÔÇ£What’s in it for me?

 

  • New (prospective) franchisees

 

If you have lost your job during the past year or the writing is on the wall, you are likely to feel devastated. And even if you are ensconced in a seemingly crisis-proof job, recent developments have shown that this can change quite rapidly. Let’s face it: the job for life does no longer exist.

Once you have accepted this reality, you need to ask yourself: Is this the way in which I want to spend the rest of my life, unappreciated and forever at the mercy of others?

If the answer is no then the time has come to take charge of your future by going into business for yourself. Investing in a franchise means that you start a business for yourself but not by yourself. This may sound tempting but not so fast. Becoming a franchisee is a major step and should not to be taken lightly. The website www.whichfranchise.co.za offers lots of useful information that should help you to make up your mind, including a rough and ready suitability test.

Our website also contains a listing of bona fide franchise opportunities, complete with contact details. Select brands that are of interest to you and contact the franchisors concerned directly.

  • Established franchisees

Make sure that you get the best out of your franchise by utilising the support services the network offers. Being active in your networks Franchisee Council or similar structure also helps.

Lastly, assuming that your existing franchise is doing well, now is the time to expand. Talk your plans over with your franchisor and use him as your ally when negotiating the shop lease and other contractual arrangements. As the official representative of the network, the franchisor can bring additional negotiating pressure to bear, for your ultimate benefit.

Careful selection is key

Although all bona fide franchised networks observe the same proven principles of franchising, not all franchises are created equal. If you want to become a franchisee, take your time but use it wisely.

  • Find out as much as you can about franchising and decide whether this is for you. You might find it stifling to adhere to a laid-down way of doing things.
  • Find out as much as you can about the industry sector you wish to enter. Will you enjoy working in a unit of this nature in 5, 7 or 10 years from now?
  • Find out as much as you can about the network you consider joining. Insist on meeting with the network’s executives as well as with other franchisees. A franchise is like a team; will you enjoy working with its members?

What about funding?

Funding is available from Absa Franchising and other commercial banks but, as the saying goes, conditions apply! Staying with Absa Franchising for a moment, they will expect applicants to make a reasonable contribution. In practice, applicants have to come up with between 30% and 50% of the total investment (including working capital). Some form of surety for the required loan is expected, but this is usually negotiable.

Should the own contribution create an insurmountable hurdle, all is not lost. Why not start with a smaller venture? Service franchises, dubbed a man and a van in the UK, are very popular there. In South Africa, this hasn’t really caught on yet but this could be a question of demand. If sufficient would-be entrepreneurs express interest in low-cost franchises, opportunities will be created.

Why act now?

The downturn has caused prices for products and services to fall; even shop rentals are beginning to show signs of softening. Move now and you may gain access to prime retail property, advantageous buying opportunities and excellent staff. To get the ball rolling, visit whichfranchise.co.za, look at the franchise opportunities on offer, then contact brands that are of interest to you and the franchisor will take it from there.

Remember: The upturn is just around the corner. By acting now, you will not only be ready to take full advantage of it but you will have a head start. Our panel of experts is standing by to answer any questions you may have. Simply write to experts@whichfranchise.co.za.

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