Building a network and a brand

The growth journey of any network from a single point of presence to multiple points of presence has a number of critical steps. At what point did McDonald’s, Flight Centre, and Boost Juice transition from being that local store on the corner where everyone knows your name to a national or international network that consumers recognise and respect as a brand?

The key phases that businesses (and franchisors) progress through are concept, start-up, growth, maturity and exit, international or diversification. Each of these phases has been the focal point of plenty of documentation and commentary over the years and yet with the advantage of history there are still more examples of successful small businesses that scale to become poor medium size businesses than those who scale the success through small, medium and large.

As a franchisor or prospective franchisor no matter your existing size there is one simple fact to grasp — businesses do not last forever and size does not afford complacency. How does Pan Am go from number one airline in the world to bankrupt two years later? Why did Ford never regain number one spot in automotive? Why has McDonald’s never been surpassed in food retail?

The key challenge every group faces in building a distribution network of either service or retail based businesses is how to best scale the network. Key issues such as geography, type of business model, size of location, product range changes, customer support, site availability, head office staff or franchisee recruitment and motivation are all top of mind when growth of a network is discussed.

Concept The key issue with concept and franchising is they should not be mixed.

A concept requires structure, skills, resources and above all commitment to bring an idea to life. Simultaneous ideas of franchising and launching a concept will guarantee failure at some point. All businesses have been in this phase at some point — it is exciting, challenging and the key issue any founder needs to address is whether the intended plan on balance has a significant chance of success, If not there will be other alternatives.

Start-up The start-up phase transitions the business from idea to reality and it is the time to get the fundamentals right. The primary foundation of any business is (1) Develop the value proposition, (2) Identify the target market and consumer base, and (3) Identify a sustainable and profitable business model.

Boost Juice started with two stores in Adelaide, Secrets Shhh opened its doors in Noosa, PoolWerx had a single van in Queensland and all of these businesses tackled the issues of brand, business model, pricing, marketing, people and cash flow. From a franchise perspective the most important decision will be the timing and quality of the development of the franchise system.

Sadly, in Australia there are too many people being encouraged to develop franchise systems too early on a weak foundation. Over 75 per cent of franchise systems have fewer than 10 operators and this lack of scale and success can in large part be attributed to the quality of the foundation of the business. The first step in developing a franchise system is to operate a profitable company operation prior to developing the franchise system and the strategy for growth. Franchising is not an industry in itself and selling a handful of franchises is not a measure of success if the core business is not well structured or meaningful for growth. This is an issue in Australian franchising as the breadth of small franchisors with insufficient structure or a lack of business proposition is concerning.

Growth Growth as a topic is popular and is a reasonable aspiration of almost all businesses. Statistics suggest it is also the stage of a businesses life that is the potential undoing of an otherwise successful business. Growth is a topic and strategy that requires respect. As a franchisor and business the issues of infrastructure, scalability and network growth are all live. The concept of group revenue growth or franchises granted on its own is of little value. There needs to be an understanding of the priority and focus of how to scale an infrastructure and resource base to drive and manage the growth. Matchbox, Life Resolutions, Grill’d, Phence It, Healthy Habits, Pie Face, HolySheet, and Big Dad’s Pies are all businesses and franchisors that are in growth phases in Australia that are constantly juggling the identified issues.

Maturity Maturity is a difficult stage given the propensity to assume past success brings future success. The mature business is a time for consideration of the redevelopment of the core business model, the asset value in the group, rebranding, or refreshing the consumer value proposition. The global average for a business to experience above average market returns is five years. At this time the pack catch up, imitate or operate from lower cost bases. Constant innovation in the mature phase of a business is exemplified by McDonald’s and Boost Juice — introduction of new menu and food lines, Forty Winks — re-brand and product diversification, and PoolWerx — transition to hub and spoke retail and mobile business formats. The maturity phase for a franchisor is often a time to evolve the infrastructure after a sustained period of growth. Whatever the challenge, the existence of complacency or the thought that size is a defence to change has been, and will continue to be, the undoing of many successful businesses.

International, exit, diversification This stage of the business life cycle is the least documented or understood. Exit or succession planning is something that should be at the forefront of the planning at the outset of the business. It is a difficult area for many franchisors as years of emotional attachment can blur the perspective of the actual business needs. What is the strategy? The options of outright trade sale, debt raising, partial sell down or capital restructure are all live. At present in Australia there are only a very small number of franchisors where international revenue exceeds domestic revenue and given the global opportunity this is an area that more groups will seek profitable growth. Boost Juice, Dymocks, Cartridge World, Pack & Send, Bakers Delight and Fastway Couriers are all broadening their international footprint. The maturity of many sectors or franchisors is driving an increase in the prevalence of a diversification strategy. Operating a multi brand group either within one sector or across multiple sectors offers the opportunity to leverage the core competency and resource base of the group. Luxottica Group (OPSM, Laubman & Pank, Sunglass Hut, Watch Station, Budget Eyewear), or Flight Centre (Escape Travel, Flight Centre, Student Flights), or Angus & Robertson (Angus & Robertson, Whitcoulls, Supanews) demonstrate the growth potential. It is however an area that is littered with groups that have aggregated businesses on ill-conceived grounds. This is often driven by insincere advisors, private equity or financers that are more focused on growth by number or self interest than the concept of understanding how to manage multiple businesses. Managing a multi brand strategy confronts similar issues associated with any growth — infrastructure, resource, focus to name a few, but there are critical structural changes that are often overlooked or do not receive sufficient attention.

Conclusions The series of decisions that are made in building a network have a significant impact on progress and the overall success of the growth. The statistics indicate the majority of networks do not grow beyond ten points of presence and this should be food for thought for many boards, managers or business owners. There are many issues but the inability to scale the business in a sustainable and profitable manner is one of the largest contributors to poor performance. Why can Flight Centre become a global brand and yet the family business with two stores struggles to scale to five stores and also experiences diminishing returns per store?

Growth of any kind in a distributed network requires a solid infrastructure and a very clear understanding of the best way to manage the limited resources of time, money and people. There is no one silver bullet but those that progress through the stages of a businesses life cycle have an ever-present opportunity to increase profitability and importantly asset value. .

Adrian McFedries is the Managing Director at DC Strategy which is a leading Strategy, Franchising and International consulting group. DCS has developed the networks and brands of many successful businesses. Adrian McFedries can be contacted at adrian.mcfedries@dcstrategy.com Tel: (03) 8615 7222 www.dcstrategy.com



Building a network and a brand - To learn more about this author, visit Adrian McFedries's Website.

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