IFRC #13 - Stanworth and Purdy 1998 - BLLC Succeeding As A Franchisor

di
UNIVERSITY OF WESTMINSTER
Published by
Business Link for London and the
International Franchise Research Centre
THE INTERNATIONAL FRANCHISE International Journal (MCB University
Press). Additionally, Franchise Growth And
RESEARCH CENTRE (IFRC) 1993-2007
Failure In The U.S. And The U.K.: A
University of Westminster, London, UK.
Troubled Dreamworld Revisited received the
Best International Paper Award in 1997,
"The International Franchise Research
again from the Society of Franchising. This
Centre (IFRC) is committed to
paper was later published in Franchising
improving the understanding of
Research: An International Journal.
franchising. This is achieved by the
publication of impartial research and
Close links were fostered with universities in
by the encouragement of informed
Rome and Pisa (Italy), Haute Alsace
debate."
(France) and Boston, Minneapolis and
Texas (USA), with a view to research
Franchising operates in a dynamic environ-
collaboration. Professor Pat Kaufmann of
ment, with new issues and challenges
Atlanta, Georgia, addressed our inaugural
emerging, including: globalisation, coping
annual strategy seminar, in 1994. Overseas
with competition, disclosure, industry
speakers in subsequent years included
regulation, managing relations with
Cheryl Babcock, Director of the Franchising
franchisee associations, franchisee
Institute, University of St. Thomas,
recruitment & market saturation.
Minneapolis (1995), Professor Rajiv Dant,
University of Boston (1996), Professor
Against this backdrop, the IFRC was
Francine Lafontaine, University of Michigan
established in 1993 by Professor John
(1997), Professor Claude Nègre, University
Stanworth (Director of the Future of Work
of Haute Alsace (1997), Colin McCosker,
Research Group at the University of
University of Southern Queensland (1998),
Westminster), supported by Brian Smith (ex-
Professor Frank Hoy, University of Texas at
BFA Chairman, franchisee, franchisor and
El Paso (1998), Professor Jack Nevin,
author), and Chair of its Steering Group.
University of Wisconsin-Madison (1999),
Professor Tom Wotruba, San Diego State
FOUNDER MEMBERS
University (1999), Professor Bruce Walker,
University of Missouri, (2000), and,
Founder members and sponsors included:
Professor Wilke English, University of Mary
Barclays Bank, the British Franchise
Hardin-Baylor (2000).
Association (BFA), Dyno-Rod, Franchise
Development Services Ltd., Lloyds Bank
IFRC members were active supporters of the
(now Lloyds Group), Mail Boxes Etc.,
International Society of Franchising, and
Midland Bank (now HSBC), Prontaprint,
hosted the ISoF 2005 conference in London.
Rosemary Conley Diet & Fitness Clubs,
Royal Bank of Scotland, The Swinton Group,
The IFRC ceased its research activities in
and Wragge & Co.
2007, when John Stanworth took retirement.
PUBLICATIONS
Web versions of IFRC Special Studies
Series Papers 1993-2001 (listed overleaf)
Their support enabled the IFRC to publish a
number of reports, including its Special
Many of the earlier papers have been re-set,
Studies Series Papers, journal articles,
to allow a successful conversion to Acrobat,
book chapters and conference papers.
and are now available online.
Two IFRC papers received three awards
John Stanworth, Emeritus Professor,
over a period of 12 months (1996-97). The
University of Westminster
first being Business Format Franchising:
http://www.westminster.ac.uk/schools/
Innovation & Creativity or Replication &
business
Conformity ?, which received the Best
International Paper Award in 1996, from the
David Purdy, Visiting Fellow,
Society of Franchising. This paper also
Kingston University
received the Outstanding Paper of 1996
http://business.kingston.ac.uk/sbrc
award from Franchising Research: An
December 2010
International Franchise Research Centre Special Studies Series Papers 1-16 Web Versions 2010 p.1
LIABILITY DISCLAIMER 10 London: A Capital City For Franchisee
Recruitment, (Mills, Stanworth &
The information and analysis in each report Purdy), 1997
is offered in good faith. However, neither the
publishers, the project sponsors, nor the 11 The Effectiveness of Franchise
author/s, accept any liability for losses or Exhibitions in the United Kingdom,
damages which could arise for those who (Chapman, Mills & Stanworth), 1997
choose to act upon the information or
analysis contained herein. 12 Franchising: Breaking Into European
Union Markets, (Stirland, Stanworth,
IFRC Special Studies Papers 1993-2001 Purdy & Brodie), 1998
Web versions published online December 13 Succeeding As A Franchisor,

2010, via http://www.scribd.com/: (Stanworth & Purdy, published jointly
with Business Link London Central),
1 The Blenheim/University of 1998
Westminster Franchise Survey:
Spring 1993, (Stanworth & Purdy), 14 Direct Selling: Its Location in a
1993 Franchise Typology, (Brodie &
Stanworth), 1999
2 Improving Small Business Survival
Rates via Franchising: The Role of the 15 Unravelling the Evidence on
Banks in Europe, (Stanworth & Stern), Franchise System Survivability,
1993 (Stanworth, Purdy, English &
Willems), 1999
3 Targeting Potential Franchisees:
Industry Sector Backgrounds and 16 Survey: Professional Services For
Declared Areas of Interest, (Purdy & Franchising In The U.K., (Stanworth &
Stanworth), 1994 Purdy), 2001
4 The Impact of Franchising on the

Development Prospects of Small &
Medium-sized Enterprises (SMEs) in
Europe, (Stanworth & Purdy), 1994
5 The Blenheim/University of
Westminster Franchise Survey: A
Comparison of UK and US Data,
(Stanworth, Kaufmann & Purdy), 1995
6 Developing a Diagnostic
Questionnaire as an Aid to Franchisee
Selection, (Stanworth), 1995
7 Franchising as a Source of
Technology-transfer to Developing
Economies, (Stanworth, Price, Porter,
Swabe & Gold), 1995
8 Aspects of Franchisee Recruitment,

(Macmillan), 1996
9 Business Format Franchising:

Innovation & Creativity or Replication
& Conformity ?, (Stanworth, Price,
Purdy, Zafiris & Gandolfo), 1996
International Franchise Research Centre Special Studies Series Papers 1-16 Web Versions 2010 p.2
FOREWORD
The examples in this excellent booklet provide powerful evidence of the factors that are critical to operating a
successful franchise operation. N o matter how often the theory is repeated, and the misconceptions challenged, there
is nothing as persuasive as a real life biography of how an entrepreneur grew his, her (or in so many cases their)
business through franchising.
Here is the evidence of the surprisingly high number of outlets needed to reach breakeven, of the amount of working
capital needed, of the number of years before profits start to flow and of the substantial demands on human capital -
evidenced by the high proportion of team managed businesses and their impressive backgrounds prior to starting these
businesses.
If we ever needed it, these case studies provide confirmation that franchising is not for the faint-hearted or for those
with a fondness for leisure !
Yet that should not deter anyone with the will, the ability and the resources from electing to grow their business
through this route as these are undoubtedly phenomenal success stories and a testimony to the entrepreneurial flair of
those involved.
I am indebted to them for their co-operation in the creation of this booklet and to Professor John Stanworth for doing
the hard work in pulling it all together.
I hope these examples prove an inspiration to would-be franchisors.

Valerie Thompson
Chief Executive, Business Link London Central
CONTENTS
Introduction
Ten Franchisor Case Studies
1. Harry Ramsden's Restaurants

2. Chemical Express
3. Nippers
4. The Personalised Book Company
5. Just Wills
6. Pirtek (UK)
7. Snappy Snaps
8. Rainbow International
9. Rosemary Conley Diet and Fitness Clubs
10. Freedom Maintenance Franchise Group
Conclusions
Useful Contacts
Advice/lnformation
Disclaimer
Due care and attention has been paid to the collection and selection of the information and advice contained herein,
and as such, it is offered in good faith. Business Link London Central regrets, however, that neither it, the authors, nor
the University of Westminster are able to accept any.liability for losses or damages which could arise for those
choosing to act upon the advice or information contained herein. Competent professional advice should be sought
when developing a franchise system.
University of Westminster & BLLC 1998
SUCCEEDING A S A FRANCHISE
Introduction
At its best, franchising is a method of business development and growth used by franchisors (owners of a
'tried-and-tested' business format) which involves offering opportunities to franchisees (typically aspiring
small businessmen and women), in exchange for payment of a once-off front-end fee followed by an on-
going royalty related to sales success. Given that franchising is based on the principle of 'cloning'already
proven success, a major tenet of the franchise fraternity is that franchise failure rates are low.
From the viewpoint of small business advisors, franchising has been argued to be of particular importance,
since most franchisors still are, or have recently been, small businesses themselves and most of their
royalty-paying franchisees are also small businesses. Thus, in principle, franchising offers a route to growth
for the would-be franchisor and small business opportunities with limited risk for would-be franchisees.
One way to find out what life is like developing your own franchise is to simply go out and do it.
However, there are worthwhile lessons that can be learned from others rather than learned the hard way,
and the intention of this publication is to give readers the flavour of what life is like as a franchisor in
order, hopefully, to prepare aspirants for the road ahead.
There is a great deal of hype in the world of franchising. The reason for this is simply that there are a lot of
people in the industry selling legal and consultancy services, subscriptions, memberships, exhibition
space, etc. who have a vested interest in attracting people into franchising. An aid to achieving this goal is The best-known brand-
sometimes the portrayal of an industry undergoing phenomenal growth and presenting low levels of names in the world -
associated risk for those who choose to become involved. those of McDonald's and
Coca-Cola - are both
The best-known brand-names in the world -those of McDonald's and Coca-Cola - are both franchised
franchised brands and
brands and demonstrate the ultimate potential of franchising as a growth business strategy. However, life is
demonstrate the ultimate
seldom easy in business and, in reality, franchising is no exception. A quick flick through any old franchise
potential of franchising
directory or franchise exhibition programme will reveal the names of many long-since forgotten
franchisors. as a growth business
strategy.
In this publication, we shall attempt to deal with some crucial franchise growth issues via the presentation
of 10 case-studies of relatively young successful franchise systems that readers may well have heard of and
may even have used themselves. First, however, we shall deal with one or two background issues.
Is Franchising A Safer Method Of Business Development Compared To More

Conventional Alternatives 3
There is probably more uninformed and misleading discussion on this issue than any other in the entire
field of franchising. This is perhaps not too surprising given that even government statisticians, with all the
resources at their disposal, find it difficult to assess any kind of business failure rates with any great
accuracy.
Franchise failure rates as low as 1% are sometimes quoted by sources in the industry. More commonly, we
meet the claim that 90% of non-franchised new businesses fail in the first 10 years compared with only
10% of franchised businesses, thus making franchising an odds-on favourite. Franchise trade associations
and exhibition organisers commonly cite franchising as being 5 times safer than conventional new
businesses. Such figures appear to have little scientific basis and should be treated with caution.
The best research statistics we have on failure rates for new small businesses in the UK and the US suggest
that approaching 50% of all new small firms survive to their 5th birthday and 30% survive to their 10th
birthday. In the words of one leading expert:
"Entrepreneurship is clearly an activity involving risk, but the risk of failure is far smaller than
popularly believed."
Given that most young franchise systems are themselves small businesses, bearing the additional demands
of developing a franchise format and selling franchises, on top of the normal start-up pressures, there is no
reason why we should expect early stage franchise failure figures to be low and, in fact, the best available
evidence suggests that only around 30% do in fact survive the first 10 years. To quote a leading US
franchise researcher from the Massachusetts Institute of Technology (MIT):
"... a new franchise system brings with it a high probability that the new franchisor will not be around in future
years ... because over half of new franchisors cease to trade during the first 4 years, potential franchisees
should be very wary of buying into systems that have not yet reached their fourth anniversary"
This is not to say that properly researched and adequately funded franchise systems cannot be a great
success. The point which should be kept in mind is that hard work and risks involved in franchising are
very real. Franchising is no panacea. Any deal which sounds too good to be true almost certainly will be.
If you are considering becoming a franchisor, it is important to keep your feet on the ground at all times.
Avoid the view that franchisors invariably reap rich rewards.
How Many Franchise Systems Are There In The United Kingdom And
What Happens To Them ?
Until recently, we had never really known with any accuracy precisely how many franchise systems there
are in the UK at any one time or, indeed, how many move out of franchising within any given period.
However, research by the University of Westminster's International Franchise Research Centre (IFRC) has
recently cast light on this.
There are two comprehensive franchise directories produced each year - one by Franchise World and
the other by Franchise Development Services. Researchers from the IFRC combined entries from the two
(1995 and 1996) directories into a single comprehensive database of 704 systems, after rejecting those
considered to be simply 'business opportunities'. Each of these 704 companies was tracked by telephone
over a twelve-month period.
The first observation to be drawn from compiling this mass franchise database was that, of the total of 704
companies, less than half (only 31 5 in fact) appeared in both directories. Each directory contained
substantial numbers of franchise systems not present in the other.
A mass telephone survey conducted in 1996 and 1997 in order to see what had happened to these 704
systems, started with the 31 5 firms featured in both of the directories. In the event, almost 90% of these
firms were still in existence typically 18 months later, though 6% had actually 'exited'franchising. In short,
84% were still alive and active as franchise systems.
Next, the researchers looked at the remaining 389 franchise companies which had appeared in just one or
other of the two main franchise directories but not both. These were generally younger and less well-
established franchises and those considered most vulnerable to failure. In the event, regardless of which
directory a company had appeared in, the figures were similar with 70% surviving 12 - 18 months later,
including 18% which had 'exited' franchising. Just 52% were alive and still functioning as franchise
Any deal which soundscfoo systems.
good to be true almost Thus, we see a stark contrast here. Of franchise systems which appear, in any one year, in both of
certainly will be.
the main franchise directories, 84% are likely to be still in franchising 12-18 months later. Of companies
If you are considering
which appear in only one of the principal franchise directories, the survival figure drops to 52%.
becoming a franchisor, it is
important to keep your feet
on the ground at all times.
Franchise 'Exits'
Avoid the view that
franchisors invariably reap Death is not always final and the researchers involved in the above tracking survey found examples of
rich rewards. failed franchise systems living on in the form of franchisees continuing to trade either individually or
collectively. There were also sizeable numbers of franchisors withdrawing from franchising whilst
continuing to seek their business futures along more conventional lines. When contacted, the proprietors
of the latter businesses ('exits') explained their withdrawal from franchising usually in terms which
indicated their lack of preparedness for the rigours of living with the challenges thrown up by franchising.
Under-estimatingthe capital resources required, under-estimating the difficulties involved in franchisee
recruitment and the amount of 'handholding' and support required by franchisees, under-estimating the
cost of consultants and legal advisors, plus the nervousness of the banks in lending to new franchise
systems, featured most frequently. In short, they had often not been fully prepared for the demands and
challenges thrown up by franchising which involves a symbiotic inter-dependence between franchisor and
franchisee, rather than a once-and-for-all sale of a 'business kit' and set of instructions.
How Fast Is Franchising Growing In Britain ?

It is not uncommon for franchise industry spokesmen to claim rapid growth rates for the franchise industry
and to publicly issue predictions for phenomenal future expansion. Predictions for a 10O0/0 growth during
the next 4-5 years are issued almost routinely. For instance, in 1990 we witnessed predictions of franchise
sales volume growth from around f5bn in 1990 to f12.5bn by 1995 (NatWesVBFA Franchise Survey).
In the event, actual franchise sales volume in 1995 was f6.0bn or, when adjusted for inflation at 1990
prices, just f5.1 bn. Nonetheless, the impression of rapid growth continues to be strongly fostered as part of
the industry's marketing and self-promotion effort and people considering becoming franchisors should be
aware of this.
TEN F R A N C H I S E CASE-STUDIES
The following case-studies are based upon in-depth interviews conducted at the offices of people who had
set up and successfully run the franchises in question. Thanks are due to the people involved for
contributing their time and co-operation. These case-studies should serve to give the reader an indication
of the sheer range of different activities which can be franchised, as well as the challenges concerned.
Also, they should give some indication of the sheer scale of resources and time involved in reaching
break-even point.
Our previous research had indicated that new franchise systems frequently required a total investment of
between £250,000 and £500,000 before attaining break-even point (Exhibit 1). The latter often takes 5 - 6
years to achieve and typically between 20-50 franchise outlets up and running (Exhibit 2). This is the
point at which the income flow derived from franchise royalties matches the franchisor's administrative
and management overheads.
The franchise systems selected for featuring in this publication all had several things in common:
they are companies formed within the last 5 - 10 years
they have already achieved break-even point but recently enough
- to be able to remember the growth
challenges and financial requirements involved
they are generally regarded in the franchise industry as 'good'companies
the key individuals involved in developing the franchise system are still in post.
The history of any real live company is inevitably complex and difficult to capture fully in a short and
easy-to-read case-study. All of our case studies were written personally by Professor John Stanworth who
freely acknowledges that he may not have done full justice to the companies concerned in the space
available. However, this publication was written essentially in order to give readers the atmosphere of
franchise system development and we the authors are happy that this has been achieved. Apologies are
offered in advance to any companies which feel that detail has been sacrificed to accessibility but we
hope that they will feel that the end justifies the means.
In addition to a range of questions, the two exhibits mentioned above were put to the franchisors
interviewed for their comments. These summarised key research findings from a survey of franchisors
conducted some months earlier. Both exhibits were as follows:
EXHIBIT 1 :
Exhibit 1: Franchise System Start-up (Illustrative Example): Borrowing requirements
Bormwing Requirement for 'Expected' and 'Worst-case' Scenarios
urn* The 'borrowing requirements' analysis graph
prepared by Lloyds Bank specialists shows a
franchise company starting with £250,000
(6100,000 owner's finance and a TI 50,000
loan) achieving 'break-even' between 5-6
years, but only with the help of an overdraft
facility peaking at f199,000 in year 4.
Thereafter, if the system has managed to recruit
20-50 franchisees, profitability grows fairly
quickly.
EXHIBIT 2:
Break-even analysis
Whereas young franchise systems in their first 2
years of experience tend to expect to achieve
I Exhibit 2 -Perceptions of 'Break-even' Franchise System Size:
By Franchising Experience
'break-even' by the time they have 10 outlets,

more mature systems in the 6- 10 years age
range tend to estimate 'break-even' as occurring
typically around the 21 -50 outlets range.
The exhibits have also been published in
FranchisingYour Business: Getting Started
(Lloyds BanWlFRC, 1998).
HARRY RAMSDEN'S RESTAURANTS
Outline
Description: Fish and Chip Restaurants and Takeaways
Year Company Established: 1928
Year of First Franchise: 1990
Number of Company Outlets: 3
Overall Cost of a Franchise: f 1m+
Number of Franchised Outlets: 35
Number of Additional Outlets Planned: 6
Overseas Operations: Hong Kong, Australia, Eire, Tenerife, Jeddah, Singapore
Royalty Fee: 7% on sales turnover.
Background
Harry Ramsden's original fish and chip shop was set up in Guiseley, Yorkshire, in 1928 in a wooden hut
sized 10 feet by 6 feet. In 1931, Harry Ramsden borrowed money from his suppliers in order to open his
now famous fish and chip restaurant which still occupies the Guiseley site today. In 1954, the restaurant
was completely redesigned with the fitting of cut-glass chandeliers, classic design wallpaper and matching
wall-to-wall carpeting. A measure of relatively 'classless' style and sophistication came to the world of fish
We don't have to and chips.
sell franchises. People
approach us wanting to By the time Harry Ramsden died in 1963, the sole outlet was still the Guiseley restaurant, which now
buy them. features in the Guinness Book of Records as the world's largest fish and chip restaurant with seating
capacity for 275 people. By this time, the name Harry Ramsden had achieved national recognition and
become a household name, particularly in the North of England. However, 20 years after the death of the
founder, ownership of the shop and the Harry Ramsden name rested with a large public company by the
name of Associated Fisheries.
Decision to Franchise
In the mid-to-late 1980s, the single existing shop was purchased from Associated Fisheries by three
businessmen with experience of franchising - John Barnes, Richard Richardson and Richard Taylor. John
Barnes had operated as Chief Executive of Kentucky Fried Chicken (KFC) and Richard Richardson had
worked as an executive with an advertising agency where he had been Account Director for the KFC
account. Richard Taylor had had a background in senior management with the brewery chain, Watney
Mann and Truman.
Barnes, Richardson and Taylor purchased the existing Harry Ramsden's Restaurant and ownership of the
name with the specific intention of developing its potential as a franchise. They raised the necessary
finance via a floatation of shares on the 'Third Market' and became a PLC. They sold their first franchise in
Blackpool in 1990, having first used the original Guiseley shop as a pilot in developing a franchise and
training format and operations manual.
Although the original Harry Ramsden's Restaurant in Guiseley had been in operation for many years,
Barnes and Richardson realised that the local knowledge and expertise required to run the business had
been "all still in people's heads" and required to be distilled and presented in manual form in order to
service a strategy of expansion by franchising.
As a result of starting with a relatively sound financial base, there was little pressure to sell franchises quickly
in order to ensure an income stream. Rather, the build-up rate was relatively modest and purposeful.
The reason for the firm's first franchised outlet being located in Blackpool was simply that they had wanted
to begin in the North where the Harry Ramsden brand was best known and that the first person requesting
a franchise opportunity lived in Blackpool and knew the local community.
Given the strength of the brand, franchisee recruitment has never been a problem. Richardson says:
"We don't have to sell franchises. People approach us wanting to buy them."
This has been true not only at the national level but also internationally. In fact, the company's first
international venture came about as a result of a senior member of staff working with a Hong Kong
catering concessions company having had a Yorkshire upbringing and establishing direct contact with
Barnes and Richardson in the early 1990s.
Management and Financial Issues

Now, after less than ten years as a franchise system, the company has nearly 40 outlets (including 3
company-owned) and is represented in 6 countries abroad. The company also has 14 separate products
approved by, or sold under, the Harry Ramsden name, in over 2,000 supermarkets in the UK and
internationally. The company is currently piloting Harry Ramsden's "Hut" outlets. These follow a small
format unit modelled on Harry Ramsden's original Hut opened in 1928. If successful, they will facilitate
the rapid expansion of the franchise network by appealing to franchisees who are unable to raise the Im
capital required to set up a full-scale Harry Ramsden's Restaurant.
Barnes, Richardson and Taylor all have large-company backgrounds and this was reflected in their initial
strategy for raising funds - a public flotation of shares. They regarded this as the cheapest form of fund-
raising, which left them free of financial constraints in the early days which might otherwise have included
the need to service and repay banks loans, coping with the uncertainty of variable interest rates, offering
personal collateral as security for loans, etc.
The financial sums and break-even number of outlets featured in Exhibits 1 and 2 accorded reasonably
closely with the experiences of the company executives, even though their route into franchising had been
essentially one more characteristic of ex-corporate executives rather than small businessmen. Looking at
Exhibit 2, the time taken to achieve break-even (5-6 years), plus the number of outlets (20-50) required
to achieve break-even, had been reduced in the case of the Harry Ramsden's franchise as a result of not
having to pay off large loans but also due to the relatively large size of each franchise outlet. The latter
requires an investment of fIm or more and thus ensures relatively rapid growth in franchise system
turnover with only modest growth in terms of the number of outlets.
Having a knowledge of franchising from their earlier experience with KFC, Barnes and Richardson were
careful to avoid mistakes which they might otherwise have made. Richardson says:
"It was good to be able to start with a clean sheet of paper for; once a franchise relationship goes wrong, it is
difficult to rescue. You need to know what you are doing right from the start as a franchisor: You need to get
things right first time round. When running a franchise as a franchisor; you recruit staff to manage rather than
to run a business - the franchisees run the business. The franchisor-franchiseerelationship is vital - if you
are a control freak, you can forget being a franchisor. For people from large organisations without any former
franchise experience, franchising can be a culture shock. As a franchisor, you have to expect to be
'challenged'by franchisees in a way that corporate managers are not accustomed to. They (franchisees)
challenge you with new ideas. There are plenty of examples of ideas we would never have followed up on but
for franchisees. They convinced us to let them try something new and it works. If franchisees are
entrepreneurs, they think differently to large company franchisors - they think intuitively ... most franchisees
would not make franchisors because they would be uncomfortable in structured environments."
It is interesting that the franchisees which Harry Ramsden's recruit tend not to be 'downsized' former
When running a franchise
employees wishing to invest redundancy payments, but genuine self-made entrepreneurs in their own
as a franchisor, you recruit
right, due to the scale of investment required. This being the case, relationships might be expected to be
staff to manage rather than
more 'bottom-up' than might otherwise be the case. Additionally, franchisees frequently continue to
t o run a business - the
involve themselves in other business interests whilst running their franchises.
franchisees run the business.
In addition to offering 'financial leverage' for the development of the Harry Ramsden's Restaurant The franchisor-franchisee
concept, franchising was seen by Barnes and Richardson as offering "closeness to the customer". relationship is vital - if you
Richardson says: are a control freak, you can
forget being a franchisor.
"Good franchisees always out-perform managers. Bad franchisees do not - they are a constant problem."
In the experience of Harry Ramsden's, it is quite common for franchises to be sold to pairs of individuals
working in partnership, though neither may work full-time in the business. This in turn acts to yield access
to two sets of managerial skills and two source of financial assets. Some Harry Ramsden's franchisees are
corporate catering establishments such as Compass and Granada. For instance, the restaurant at Gatwick
airport is owned by a corporate franchisee. However, these companies have prior experience of being
franchisees and so are able to cope with the demands involved in the franchiseeiranchisor relationship.
Comments
This particular case-study acts as an interesting example of an existing brand name being converted to a
franchise format. Added to this was the ability and know-how required to raise enough funding early on to
avoid any strong reliance on 'boot-strap' finance, or front-end franchise sales fees.
Harry Ramsden's Restaurants franchise is a British success story. However, for over 20 years ownership
had languished as an item in a corporate equity inventory simply awaiting the arrival of the new
management team who were able to assess its franchise potential. Barnes, Richardson and Taylor could
hardly have been more suited in terms of their background experience to meet the challenges that lay
ahead of them in the late 1980s. Their background managerial experience with fast-food franchising had
given them a knowledge of both good practice and also bad practice not worth repeating.
CHEMICAL EXPRESS
Outline
Description: Franchises operate from mobile showrooms supplying hygiene and cleaning
products to all types of businesses on a regular monthly basis.
Overall Cost of a Franchise: f 17,000
Overseas Operations: Opening outlets in Ireland, Malta, Cyprus and Denmark
Royalty Fees: 7.5% on sales turnover plus mark-up on supplies.
Background
Established in 1985, Chemical Express opened its first franchise outlet in 1986. Chemical Express offers an
extensive range of cleaning chemicals and hygiene products, as well as dispensing equipment, required on
a daily basis by almost all businesses in every sector of industry and commerce. Today it is one of the
leading UK franchising companies operating both at home and abroad with over 100 franchise outlets.
The company holds strong ambitions to expand its franchise operations into continental Europe, Australia,
Canada and the USA through Master Franchises.
The company's founder Les Gray, had a background in retail marketing prior to 1985 and had occupied
several executive positions in large companies. He had long nurtured a desire to set up his own business
and eventually focused his attentions on the chemical industry. This industry, he felt, had great potential
but was a often a poor performer in terms of customer service, reliability and professionalism. In short,
poor management and high labour turnover levels in the industry had typically led to poor
communications, lack of continuity and broken promises to customers.
The essential ingredients that make up a successful business, as Gray sees it, are extensive customer care,
Franchising offered the
reliable advice and good products. He says:
ideal mode for rapid
expansion at the time, "Franchising offered the ideal mode for rapid expansion at the time, with franchisees providing the strong
with franchisees providing commitment necessary to succeed. In the early days, we operated a successful 9-month pilot operation and
the strong commitment then decided to go ahead. However, in the early days, we gave new franchisees a money-back-guaranteeafter
necessary to succeed. 6 months whilst we were refining the package. Some took us up on it too!"
Today the company handles its more than one hundred franchise operations from its 4 acre industrial
estate premises in the West Midlands. These offer space for office, warehousing and manufacturing
activities.

The basic package offered to franchisees consists of one week's residential training plus a 12-week launch
in their area. Each franchisee has a clearly defined territory. There is a team of six Business Development
Managers employed by the company, who devote all of their time to working closely with franchisees.
Additional contact is maintained through regular Newsletters, product launches, quarterly Regional
Meetings, a bi-annual National Conference, area sales blitzes, ongoing field training courses, senior
business development meetings, etc.
For their f 17,000 initial investment, franchisees end up with a van, full stock range of cleaning materials
for sale, a territory plus administrative systems. With good average profit margins and modest operating
costs, annual sales o f f 100,000 can yield a net profit to the franchisee of around f30,OOO. A cap on
royalty fees above this level ensures that any subsequent growth in turnover increases profits quite
disproportionately.
The company operates a so-called 'Business Expansion Scheme' where support is offered to franchisees in
order to expand their sales turnover. Under the scheme, the 7.5% royalty is capped at f550 per month.
Options offered to franchisees are then to either stop paying the excess over the cap fee or, alternatively, to
put the excess paid into a special reserve account for future development. In return, Chemical Express then
match franchisee expenditure with a non-repayable grant. It should be noted that, even when franchisees
achieve sales turnover levels which no longer attract payment of royalties, the company franchisor still
makes profits on product mark-ups.
O n the question of who makes a good franchisee, Gray says:
"There is no simple formula that will tell you who is likely to make a good franchisee. We get people from all
kinds of backgrounds. Inexperiencedsons of successful fathers tend to fail. Sometimes, we have had families
begging us to set up their son who has previously failed at everything else. Whenever we have weakened, we
have regretted it. The key trait required is stickability which is the key to surviving the first 18 months'.
Chemical Express now has 100 franchisees who are overwhelmingly male. The current top 5 performers
are an ex-postman, sales manager, buyer, farmer and shipping agent. Gray has found that ex-forces
personnel tend to make good franchisees provided they have officer backgrounds and are accustomed to
taking responsibility. He has found that new franchisees tend to hit 'pain' barriers at certain stages in their
early development - often after the first 3 - 4 months and then again around 6 months later. By being
aware of this and adopting a supportive management style, Gray and his managers help franchisees, who
may be losing confidence and experiencing isolation, to overcome these hurdles.
There is no simple formula
Les Gray feels that franchise operations which expand very quickly are prone to failure since such
that will tell you who is likely
companies often concentrate more on recruitment and attracting new franchisees than on system
to make a good franchisee.
development and franchisee backup. He feels that a strong relationship of mutual dependence between
franchisor and franchisees is the best guarantee of long term success.
Chemical Express found that prior business experience was not a pre-requisite for franchisee success.
Instead enthusiasm, focused determination and tenacity were vital characteristics that every franchisee
should possess.
Les Gray was in broad agreement with the contents of Exhibits 1 and 2. He said:
"The cash-flow shown in Exhibit 1 conforms quite closely with my own experience except that the banks did
not contribute early on. We had to use private funding and then managed to get a f 100,000 overdrait We
actually broke even in year 7 with 30-40 franchised outlets. We defined break-even as the point where
income from royalties plus mark-up on supplies met the costs of running the franchise."
Gray points out that some franchises may reach break-even point before achieving 30-40 outlets. In fact,
he points to franchise systems that have over 100 outlets with only a single field manager and where in-
depth franchisor-franchisee contact is no more than a rare annual event. Here, costs are lower which can
act to reduce break-even point.
When Gray first set up the Chemical Express company in 1985, he had a sleeping partner who put in the
required financial funds, whilst Gray set about forming and developing the business. In the mid-l990s,
Chemical Express organised a buy-out for f 3 m using investment bank funding.
Comments
Chemical Express was voted 'Franchisor of the Year' in 1996 and was described by British Franchise
Association's Director General, Brian Smart, as 'one of the outstanding success stories of British
franchising'. The business has enjoyed the benefits of an excellent management team and a strong stream
of private financial funding from the early stages. Once again, we are looking here at a company which
managed to avoid the hazards of 'boot-strap' financing in the early days where the front-end fees from
franchise sales have to make up a substantial element of the franchisor's working and development capital.
The company has always adopted a long-term view. Typical evidence of this is the fact that, in its first year
of franchising and after an initial 9-month pilot scheme, the company agreed to offer new franchisees a
buy-back guarantee after 6 months, whilst it continued to learn from their experience and adjust to it.
NIPPERS
Description: New and second-hand baby goods and toy retailers, operating from redundant
rural buildings
Overall Cost of a Franchise: f27,000
Overseas Operations: None
Royalty Fees: 7.25% on sales turnover.
Background
In 1983, Julia Cassel, founder of Nippers, converted a barn next to her house in rural Hildenborough,
Kent, into a showroom in order to retail second-hand and new baby-equipment and toys. In 1990, she
decided to expand what had become a business success via franchising. In 1993, her franchise won a
'Women into Business Awardt- presented by then Prime Minister John Major plus the award for
Innovation within the Franchise Industry presented by Sir Bernard lngham on behalf of the British
Franchise Association.
Currently there are 9 Nippers franchise outlets trading in a variety of locations - from converted
agricultural buildings to a unit in a shopping mall and a store in the centre of a golf course. Nippers now
sells more than f 2 million worth of new, second-hand and seconds products~ayear, mainly from
franchisees' rural homes. In 1997, one of their franchisees won the 'Farming Diversification of the Year
Award' and another was a finalist in the British Franchise Association's 'Franchisee of the Year 1997
Awards'.
Nippers started as a part-time income generating venture, from a converted barn located next to Julia
Cassel's rural home in Hildenborough, Kent. Prior to this, she had gained considerable experience in
retailing second-hand nursery goods, purchased from jumble sales and car boot sales, restored, and then
resold in good condition.
Following her barn conversion in 1990, the business was put on a more formal basis and prospered,
gaining a good reputation and attracting customers from a wide area. Franchising was seen as a suitable
strategy for expansion of the business, since it was believed to reduce the risks linked with business
performance, control, management motivation, etc. The business is now run as a husband-wife operation
by Julia and her husband, Clive.
Financial and Management Issues

Franchisees are typically farmer's wives living on working farms with an unused barn suitable for
conversion. The franchise package offered to Nippers franchisees includes training, on-going advice and
support, merchandise ordering services, administration, plus marketing and financial assistance.
Comprehensive training is provided in two stages. The first stage is undertaken at Nippers' headquarters in
Hildenborough and the second stage is provided at franchisee's own premises.
On-going support includes regular telephone contact, regular visits from either Julia Cassel or other
members of her team, and also via 'Nippogram', a regular newsletter faxed to all franchisees. Nippers'
culture has evolved in a manner adapted to reflect Nipper's rural origins and recreate the 'Barn'
atmosphere. A capital investment of around f27,000 is required for a franchise package that includes:
W Nippers 'trading' package ('Trade Dress' Package, cash register, fax, business stationery pack, etc)
Full Training Programme
W Promotional Launch Campaign
W Franchise Licence Fee
W Insurance & Sundries
A strong marketing strategy has been developed which includes advertising, promotional activities and
media interviews, as well as regular visits to ante-natal clinics and hospitals. Franchisees' orders for
merchandise are Drocessed bviitmers
, . . Central Purchasing- ~epartment
. at Hildenborough. A competitive
pricing policy is iacilitated by bulk purchasing from suppliers, negotiated by Nippers. ~simplified,but
effective, accounting system is provided which reduces involvement in administration whilst providing key
management information on stock movement, turnover and the general progress of the franchisee's
business.
Nippers' franchise contains a number of novel elements - the identification with rural and farming life,
babies and young children, business women - and attracts a great deal of media attention. Julia Cassel is
a very extrovert personality and her husband Clive also works full-time in the business.
Nippers was privately funded throughout its development. The founders did not seek initial bank funding
but, in any case, do not consider banks to be very sympathetic to the needs of franchise systems,
particularly in the developmental stages. They feel that the assistance provided by banks is inadequate,
particularly in relation to the more specialised advice needed by both franchisor and franchisee. Due to
this, they strongly recommend the services of accountants with experience in franchising. Interestingly,
however, there are actually very few of these in the franchise industry, particularly when compared to the
number of legal experts.
They considered the financial sums suggested in Exhibit 1 as not untypical of the costs involved in
franchise system development. They said that, for much of their time spent as franchisors, they had
operated with an overheads structure which would have required around 20 franchise outlets in order to
reach full financial break-even. However, due to a slowing down of growth at around the 10 outlet point
during a period of consolidation, they had trimmed-down their overhead structure in order to achieve
financial break-even at around their current size.
Julia and Clive support the view that both very fast or, alternatively, slow growth can present threats for a
young franchise system survival. Rapid growth can involve high recruitment and development costs before
fee income grows to match it, whilst too slow growth may delay the achievement of a break-even critical-
mass and increase risks even further. In retrospect, Julia and Clive Cassel feel that they might have been
best advised to have restricted the development of Nippers to the South of England, in order to minimise
their communications and overhead costs.
Julia and Clive are currently experimenting with performance related bonuses for franchisees in order to
stimulate motivation. Another aspect of recent concern, as with all franchise systems, has been that of the
monitoring and control of franchisees. The solution has been a more comprehensive financial control
system.
On the issue of what kind of person makes the best franchisee, Nippers do not require potential
franchisees to have had previous experience relevant to the operational line of the franchise, but seek
people with great enthusiasm, some business sense, family backing and an ambition to develop a
successful business.
Comments
Nippers is an interesting and unusual franchise in a number of respects. It is designed essentially for
women franchisees using premises they already own but need money to convert. These franchisees then
typically need to organise their energies over a number of competing roles - mother, farmer's wife, farm
worker and also franchisee. O n occasions, the resulting tensions have been problematic.
julia and Clive Cassel are both energetic, bright and well-educated but, unlike some of the other
franchisors involved in our case-studies who already had background experience in franchising, were on a
fairly steep learning curve when they first entered the world of franchising, as indeed are the vast majority
of new system franchisors.
T H E PERSONALlSED BOOK C O M P A N Y
Outline
Description: Personalised computer-generated books and gifts for children and grown-ups.
Overall Cost of a Franchise: f 1,300
Overseas Operations: World-wide network controlled by Canadian Master Franchisor
Royalty Fees: Income generated totally from mark-up on supplies
Background
Soon after graduating from university with a degree in politics in the early 19701s, Jane Hutton-Williams left
England for Canada with her husband, in a search for job opportunities. In the event, they became
franchisees of the Canadian Personalised Book Company which specialised in personalising children's
books on largely North American cartoon heroes (for example, Superman, Batman, Flintstones, 101
Dalmatians, Sesame Street, Ninja, etc.) plus fairy tale and sporting heroes. In addition, titles cater for a
variety of key ethnic groupings (African-American Heroes, My Jewish Holiday, etc.) plus more generic titles
such as Jesusthe Provider, School is Fun, Noah's Ark, Three Little Pigs, Mother Goose and Circus Star.
In 1989, Jane and her husband finally returned to England and, in 1991, opened a franchise outlet as the
UK Master License holder for the Personalised Book Company. They are, effectively, the franchisor for the
UK. Today they have 130 franchisees in the UK, ranging from single individuals operating part-time to
couples operating full-time.
Before deciding to take up a Master License in the UK, Jane Hutton-Williams had realised that
personalised books already existed in the UK but were printed in Korea. In the UK, there was no system
for producing them quickly whilst customers waited.
Marketing strategies used in order to sell the products range from sub-contracting, using agents, mail order,
party-plan, displays in retail outlets, products made at home and sold directly to the customer, etc. The
Personalised Book Company also deals with national department stores who rent space to franchisees
especially during peak seasons, such as Christmas.
Franchisees are required to pay a minimum one-off franchise fee which starts at around f 1,300, but can
be as much as f5,000 according to the precise software package purchased. There is no renewal fee and
potential franchisees are required to have their own computer and laser printer.
Financial and Management Issues

The once-and-for-all software licence fee offers the following package:
Software License
Software Package
Book Production Manual
Licensee ID Software Feature
Technical Support
News and Information
On-going Support
The licence package also offers access to other products, such as personalised featured business cards,
clocks, name expressions, family name origins etc.
The Personalised Book Company started life without borrowing. Its capital funding took the form of
personal investment. However, an overdraft facility has been used. Jane Hutton-Williams initially
experienced banks averse to offering assistance in the early days of franchise system development. She
also felt that levels of assistance offered to men were not always extended to women.
Levels of field support are low compared to many other franchises and so are the Master Franchisee's
overheads. Thus, break-even occurred at a fairly low level compared to many other franchises. The
Personalised Book Company actually started up with a relatively modest level of investment, i.e. less than
f50,000, and achieved break-even at a relatively low level of outlets, i.e., 10-20. They raise their income
through one-off licence fees and through mark-ups on the products they sell to their franchisees. Part-printed,
though not bound, books are imported from the Canadian parent franchisor. These contain pre-printed
pictures ready for text to be added by franchisees using special software plus clients desired names to feature
in chosen stories. Thus, after initial one-off license fees, Jane's income comes from re-order supplies.
Comments
Here we see an example of an imported franchise coming into the UK and also a franchisor (lane Hutton-
Williams) with prior experience as a franchisee - in this case in the exact same franchise. The children's
book industry is healthy and thriving. It is one of the fastest growing segments in the publishing industry.
With more children throughout the world enrolling every year into nursery schools, kindergartens and
elementary schools - there seems to be a good market ahead.
JUST WILLS
Outline
Description: Home visit Will-Writing services.
Overall Cost of a Franchise: from f 15,000
Overseas Operations: Plans for Spain and Canada
Royalty Fees: 9.50 per Will mark-up on products supplied
Background
JustWills began franchising in 1989 following the establishment of two pilot home-visit Will-writing
operations, one of which is still in existence today. Market research carried out before concept realisation
had indicated that the majority of people in the UK felt the need for a Will but very few actually had them.
Market research also indicated that this mainstream consumer need was inadequately catered for by
solicitors, banks and the various financial and legal institutions. As a result, Will-Writing computer
software was designed which was unique to the company. Today there are over 130 franchisees operating
under the name of Just Wills Plc nation-wide, making Just Wills the country's single largest Will-Writing
company. Overseas expansion is currently planned, with Master Franchise agreements soon to be
established in Spain and Canada. Will writing often subsequently generates more profitable probate and
trust work.
Bank rules oblige

lending managers to look The company's Chairman & Managing Director, Justian de Frias, had previously spent 16 years in sales
only at your bottom-line and marketing as the proprietor of a sizeable printing and publishing company. Whilst still in his early
profit figures, rather than forties, he sold the printing and publishing business for a sum which would have enabled him to retire
your system turnover comfortably for life. Instead, after a gap of just a few months, he decided to develop another business -
which may be a better JustWills Plc. Justian was joined in this venture by his wife Anne who had gained previous background
indication of your true experience as a senior administrator with a large pizza restaurant franchise operation.
potential in the early days
when you are building a In addition to selling wills, franchisees have the opportunity to introduce their clients to a range of
franchise system. additional services which Just Wills offer. These include funeral services, guardianship protection plans
and executor and probate services, all of which command additional commission payments.
After selling a first franchise in 1990, the company grew quickly and there are now around 130
franchisees with expansion plans for Canada and English language speaking ex-patriots in Spain.
Managerial and Financial Issues

Justian de Frias, like most franchisors, attracts potential franchisees by means of advertising and taking
stands at franchise exhibitions. He stresses the 'white-collar', and 'middle class' aspects of his franchise.
However, attracting highly motivated prospective franchises is not always an easy task in his view:
"It is as if some of the people we interview have an identical twin. The one that turns up for interview
promises to work his socks off, is in excellent health and doesn't mind forsaking holidays for a couple of years
whilst his business is getting up and going. The twin that actually signs up for the franchise may turn out to be
a pale imitation of his name-sake - he has aches and pains, he needs visits to dentists, he needs holidays, he
has problem kids, you name it !"
The company has moved away from the notion of simply selling off defined geographical areas to
franchisees and expecting them to each be responsible for sales in those areas. Now the company co-
ordinates the major sales effort via agents working on commission. High performing franchisees are also
used as local, regional and national salesmen. The company is currently building up a system of Area
Directors, drawn from the ranks of outstanding operational franchisees. There is currently just one of these
but the eventual target is 10. Area Directors will be sold shares in the company.
Justian de Frias made an initial investment of around f500,OOO in the first 2 years of his franchise system's
existence. Early bank loans were typically fully-secured overdrafts. He said:
"Bank rules oblige lending managers to look only at your bottom-line profit figures, rather than your system
turnover which may be a better indication of your true potential in the early days when you are building a
franchise system."
Even after the investment of substantial private funds, the system took around 6 years to really break-even.
In fact, the experience of this franchise accords, overall, quite closely with the situation outlined in Exhibits
1 and 2, both in terms of funding requirements and also time taken to establish break-even. It was pointed
out that the road to financial break-even is not, in reality, usually a smooth line or curve but is rather more
bumpy. For instance, any new franchise recruitment drive will incur quite heavy advertising, training and
support costs and these may take some time to recover since franchisee turnover-related royalty fees take
some time to gather momentum.
In addition, timing, franchise package price, franchise growth rate, as well as the geographical area were
seen as determining this level and subsequently creating different levels of break-even. Very positive cost
reduction in their case was achieved through franchisees'operations being run from their homes, thus
reducing overheads to a minimum. Even so, Justian de Frias said that he had invested around f0.5m of his
own money in the business in the first 2 years and had broken even only in the last 3-4 years, i.e. after
about 5 years in franchising.
Just Wills Plc confirmed very positive relationships with banks, especially since, they feel, banks are
becoming increasingly aware of the needs of smaller businesses. However, they have found one major
deficiency in their alliance with banks and that was the need for a more specialised service relating to
franchising. Currently, banks have insufficient capacity to capture these, Justian de Frias feels. He claims
that banks are not interested in lending to young franchise systems, but make their money lending to
franchisees once the franchise company is established. All early bank loans have to be fully secured on a
1 :I ratio of bank to business finance.
Justian de Frias feels that a key ingredient of franchise system success is well planned, evenly 'spread'
franchisee recruitment. The other most prevalent threats to success he says are:
poor franchise monitoring
domestic problems in franchises owned by partners
Comments
The ingredients of success here would appear to conform to the patterns observed in other case-studies.
From the beginning Justian and Anne de Frias brought a considerable amount of private funding and prior
managerial experience to the market niche which they had researched -wills. The decision to franchise
allowed fairly rapid expansion in a dispersed market where clients required a personal service and where
individual orders are unlikely to be large enough to carry a large conventional company overhead without
becoming expensive.
The company is now a PLC and looks set for future growth both in the UK and abroad. The middle
management layer of the company's administration is set to be reinforced by means of the development of
a layer of Area Directors, drawn from the ranks of outstanding franchisees, who will become share-holders
in the company.
PIRTEK (UK)
Outline
Description: Suppliers of hydraulic and industrial hose assemblies from central depot and local
mobile bases.
Overall Cost of a Franchise: from £200,000
Overseas Operations: German, Holland, France and USA
Royalty Fees: 1.5% after 2 years plus mark-up on supplies.
Background
The original Pirtek company was formed in Sydney, Australia in 1980. Operating as an on-site supplier of
hydraulic and industrial hose replacement assemblies for cars and commercial machinery, it is now
Australia's leading provider with 60 Hose Centres and over 200 vehicles on the road.
In 1988 Pirtek (UK) was formed as a joint-venture between the Australian company and two former
Prontaprint franchisees in the UK, in order to build a national network in the UK, where on-site vehicle
hose replacement was still largely unknown. Today Pirtek dominates the UK market with 68 centres
spread around the country generating in net sales in excess of £27 million. They operate business format
franchises where franchisees acquire the rights to establish, own and operate a Pirtek business in their
region.
The Pirtek system is now operating successfully in the USA, mainland Europe and,New Zealand. In the
spring of 1996 a successful pilot centre opened in Minneapolis/St.Paul and now franchise outlets are
opening across the USA. In Europe, the first German centre opened in Cologne in late 1996 and has
achieved the same rapid growth as in other countries.
Formal acknowledgement of the success of the Pirtek business formula came in May 1997, when the
company was presented with the 'Franchisor of the Year' award by the British Franchise Association,
confirming that Pirtek was amongst the best in terms of business format, profitability, franchisee support
and corporate standards.
The major decision to become franchisors was based upon the empirical knowledge that the Pirtek (UK)
co-founders, Peter Brennan and Forbes Petrie, had gained from their previous franchising experience in the
printing industry with Prontaprint, where each had built up a string of successful outlets as franchisees
before being made directors of the main franchisor company. Having dealt with the franchise business
format during their years at Prontaprint, they saw a golden opportunity for the Pirtek system in the UK.
Peter Brennan and Forbes Petrie initially travelled to Australia looking for franchise opportunities which
were succeeding there and might be appropriate for exploitation in the UK. In the event, they short-listed
two different franchises. One was a mobile carvery roast for use at parties, receptions, barbecues, etc
and the other was Pirtek. The Pirtek parent company agreed with Peter Brennan and Forbes Petrie that a
joint-venture should be set up and run by the latter in order to capture markets in the UK, Europe and then
the US.
Their analysis of British industry revealed that almost universally there was some hydraulic component
requirement in every business sector. Each of these sectors represented an opportunity for Pirtek products
and services. The market sector itself is estimated to be worth £500 million annually. Pirtek Hose Centres
already command a substantial part of this market and there are plans to double that market share in the
next five years.

Pirtek (UK) operates from a modern office and distribution centre at Acton, West London, providing a
comprehensive support programme to the network throughout the UK.
The cost of opening up a typical Pirtek Centre is around £200,000 of which Pirtek can organise the
financing of two-thirds for franchisees. Thus, Pirtek requires franchisees to start up with a personal liquid
capital resource of around f 70,000. The remainder of their financial requirement can be borrowed. For
the first year or two, whilst building up their businesses, franchisees need to actually work as operators in
their own businesses until financial turnover reaches a level where they can employ enough other staff to
allow them to move into a full-time managerial role. All products are purchased from Pirtek UK. Only after
operating for 2 years is the franchisee expected to pay a royalty fee of 1.5% in addition to paying a mark-
up on products.
The above level of capital investment provides plant and equipment, fixtures and fittings, motor vehicles,
set-up stocks, licence and training fees, office equipment and start-up expenditure (printing/advertising/
stationery, uniforms, staff advertising, legal costs, architect, freight costs, start-up wages).
In addition, franchisees receive:
Sales and marketing assistance
I Operational services
I Training
ITechnical and product support
I Administration and management services
IFinancial and legal support
Pirtek's franchisees purchase their products on a monthly, weekly or sometimes daily basis from the
franchisor. Each franchisee then becomes a local or regional distributor selling on these products to its
own customers.
Although Pirtek achieved break-even at around just 10 outlets, this had been as the result of high outlet
sales turnovers and good profit margins on products. The company, over all, made a loss of £250,000 in
year 1 but profits exceeded f2m in 1998.
Pirtek UK experience differed from that of many franchisors in that they had not required any bank
funding until year 3 when they had an overdraft facility of £1 00,000. Up until then they had used their
own capital by choice. In general they found that banks were supportive in respect of their funding
requirements. This was mainly on account of the confidence they reflected due to their previous track
records and also in being an adequately funded profitable company.
The major threats to a franchise system were perceived to be insufficient on-going support to franchisees
and potential conflict between the franchisor and franchisees. With reference to the question on
franchisee's previous experience and skill requirements to become a successful franchisee, Pirtek have
found that their franchisees come from many walks of life - from banking, sales and marketing
backgrounds, from industrial managers to marine engineers, thus proving that previous experience was
mostly irrelevant. What was vitally required was adequate sales skills and a strong will to succeed.
Comments
Pirtek has, to date, proved a considerable success story. The formula leading up to this success has been
thorough planning and good management. When Peter Brennan and Forbes Petrie decided to re-enter
franchising after their multi-outlet success stories as franchisees with Prontaprint, plus the additional
experience gained as Directors of Prontaprint, they were almost uniquely qualified and situated to
make a success of another franchise. Rather than face the long haul of developing a completely new
franchise concept, they turned to Australia in order to find an established concept which was, at that
time, undeveloped in Europe and America. Rather than becoming Master franchisees by simply buying
the development rights for the UK, they formed a joint-venture with the franchisor. Peter Brennan and
Forbes Petrie between them, due to their considerable earlier business successes, had money to invest
and so were able to endure the early period of heavy investment which lay on the road to eventual
success.
SNAPPY SNAPS
Outline
Description: One-hour high street film developing and printing service.
Overall Cost of a Franchise: from f115,000
Number of Additional Outlets Planned: up to 5 a year
Overseas Operations: under consideration
Royalty Fees: 6% on sales turnover plus advertising levy of 2%
Background
In the early 1980's Don Kennedy and Tim MacAndrews invested jointly in a Kall Kwik franchise and were
very soon successfully running four outlets, thus gaining an extensive knowledge and valuable experience
of franchising. As early as 1983, they had realised that there was a potential demand for instant processing
of photographic films and so they opened their first Snappy Snaps one-hour film processing pilot store in
that year, using vacant space in one of their existing Kall Kwik outlets, located in a tourist area of London.
They eventually sold their Kall Kwik outlets in order to concentrate on their own Snappy Snaps franchise
system. The first dedicated Snappy Snaps franchise outlet opened in 1987 and today there are 67 such
franchise outlets throughout the UK.
Decision to Franchise 3
Don Kennedy and Tim MacAndrews had been amongst Kall Kwik's first franchisees and had thus
witnessed fast franchise system growth in a young system at first hand. Also, given their rapid success as
franchisees and familiarity with franchise system structures and procedures, they felt able to develop a new
franchise system themselves. Don Kennedy had first seen rapid Japanesefilm development equipment in
operation whilst on holiday in Canada. Their experience of franchising, coupled with the franchise
potential of this new technology, led the partners towards the decision to franchise Snappy Snaps, a one-
W e knew franchising was hour high street developing and printing service.
a long-term business. The
idea of rapid expansion Managerial and Financial Issues
with n o cost is totally false
- there needs t o be a lot of
Don Kennedy and Tim MacAndrews had been able to pilot their Snappy Snaps concept in their Kall Kwik
up-front investment. outlets before selling the latter in order to concentrate totally on their new idea. Prior to involvement with
Kall Kwik, Don Kennedy had undertaken a degree in Business Studies and then worked in McDonald's.
His partner, Tim MacAndrews had qualified as a chartered accountant.
In the early days of the Snappy Snaps franchise, there were 2 other fast film developing franchises around
but neither of these ever succeeded as franchises, though both tried. Don Kennedy says:
"We knew franchising was a long-term business. The idea of rapid expansion with no cost is totally false -
there needs to be a lot of up-front investment. This requires the franchisor not to be greedy but to take a
good profit in the longer term. Franchisees have to make profits before you do. Often franchise systems start
trying to make fast profits and there is no real backup - franchisees become disgruntled and the whole thing
falls apart. "
The partners had invested f500,OOO in four pilot shops and ensured that all four had been making profits
before franchising. They borrowed heavily from banks who "wanted security on everything".
O n the issue of break-even point, Don Kennedy looked at Exhibit 2 and said:
"The shape of the graph in Exhibit 2 is similar to ours though the mix of ingredients was somewhat different.
Break-even point for us was close on 25 outlets."
He continues:
"We had our problems in the early days. We grew quickly and could have gone broke through over-trading
All our cash was going back into the business then. We still had some Kall Kwik outlets and they were
experiencing strong competition there - our overdraft spiralled."
At that point, the Kall Kwik outlets were sold in order to divert resources into Snappy Snaps. Finally, the
Kall Kwik franchisor suggested to Don and Tim that they should concentrate their efforts on either Kall
Kwik or, alternatively, Snappy Snaps. In the event, they went with the latter.
As ex-franchisees the two directors understand the anxieties and problems encountered by franchisees.
The Snappy Snaps franchise package reflects this empathy and is more comprehensive than most,
including:
assistance in finding suitable locations
introduction to a major clearing bank
full technical training
corporate image reflected in store layout and design
staff recruitment and interviews
marketing, financial and legal assistance
on-going support consisting of weekly newsletters, regional meetings, focus groups and
annual conferences.
The owners, as franchisees at Kall Kwik, had seen the emergence of a franchisee association "born out of
contention" and were keen not to see the process repeated at Snappy Snaps. With this in mind, they
actually facilitated the formation of such a body at Snappy Snaps. They feel that people without prior
experience in the operational line of the franchise make better franchisees since people from the industry
"think they know it all and think they don't need a franchise - they do really". Also, they claim not to
"overstate" likely earnings to potential franchisees. Some franchisors, they feel, do actually hand out "over-
stated information". The company takes no mark-up on bulk purchases sold on to franchisees and there is
a cap operating on franchise fees in order to avoid dis-incentives to franchisee growth.
The owners feel that:
"Some redundant people go into franchising for the wrong reasons - to 'buy a job'. But it is much more than
that - it is a high stress, demanding position."
Snappy Snaps franchisees are mostly male with approaching half deriving from ethnic minority backgrounds.
Half of all Snappy Snaps outlets are located within the M25 ring. New digital technology currently emerging
in the industry is meaning than many independent outlets in the industry are finding they cannot cope. New
machines can cost as much as f200,000 and independents are often selling rather than re-investing. Thus,
Snappy Snaps often is experiencing a choice of available sites where this is happening.
Comments
Snappy Snaps is a system that has achieved very substantial high-street visibility in Britain. However, this Some redundant people
case study is a good reminder of the demands that can be made on people building up a new franch~se g o into franchising for the
system. Don Kennedy and Tim MacAndrew each had good business skills by training and had previously wrong reasons - to 'buy a
proved to be very successful managers as franchisees. They had had the opportunity of piloting Snappy job'. But it is much more
Snaps in their existing Kall Kwik outlets and, later, directed funds from the sale of the later into the Snappy than that - it is a high stress,
Snaps. Even so, they encountered challenging times. demanding position.
Finally, having previously been Kall Kwik franchisees, they felt they had learned both good practice and
also bad practice. For instance, rather than wait for a franchisee association to be born out of contention,
they actually encouraged its formation. Both prior experience of a franchise system per se and, more
specifically, actual experience of life as a franchisee in the franchise partnership, helped fit the partners for
long-term success.
RAINBOW INTERNATIONAL
Outline
Description: Carpet care and restoration specialists.
Overall Cost of a Franchise: from £21,000
Number of Additional Outlets Planned: 100 by year 2000
Overseas Operations: none intended currently
Royalty Fees: 9% of which 1.5% is payable to US Master Franchisor
Background
Given that the US largely dominates the world franchising scene, it is perhaps not surprising to see US
franchises being exported into Europe and elsewhere. In fact, the UK has a massive franchise trade
imbalance with the US. On occasions, US firms come across with the specific intention of getting
established in Europe. O n other occasions, however, they are less pro-active and await European
approaches. Rainbow lnternational is a case in point where a UK brewery management team travelled to
the US in order to discuss buying a food franchise and came back having paid f500,OOO for a Master
License for use in the UK of a carpet cleaning franchise. In the event, the franchise had been failing in the
UK when, three years later in 1990, it was bought by a former ServiceMaster franchisee, and current
owner-manager, Melvin Lusty.
The Decision to Franchise

In 1987, a management team from a UK Brewery travelled to the USA with a view to buying a UK Master
License on a food franchise to add to their existing catering interests. In the event, they bought into a system
called 'Bonanza' - a steak and jacket potato franchise. In addition, they paid £500,000 for a Master License
in Rainbow International, a carpet care and restoration franchise owned by the Dwyer Group in Texas.
Three years later, in 1990, the brewery had established around 30 franchised outlets, having made an
investment of nearly f2million. At that stage, they sold the entire operation to the current owner and
There are some good
Managing Director, Melvin Lusty, who invested substantial monies of his own from the sale of his
franchises based o n a
sound concept which
ServiceMaster franchise and also via a f 150,000 loan.
struggle and fail because Melvin Lusty had previously been a successful multi-outlet franchisee with ServiceMaster - another US
the people running them franchisee and founder-member of the British Franchise Association back in 1977. He had joined
don't understand franchising ServiceMaster at the age of 23 and, approximately 10 years later, had sold his ServiceMaster business with
and come in under-funded
an annual turnover of f250,OOO and 12 full-time staff. He then joined the Rainbow lnternational staff at
Mansfield as Operations Manager shortly before taking over ownership and management.

Since 1990, Melvin Lusty has transformed Rainbow lnternational UK into a success story. He now has 79
franchisees and is Rainbow International's most successful Master Licensee world-wide. Current turnover is
f6.5 million. Lusty claims that his success has left the parent Rainbow lnternational company actually
learning more from him than vice versa, though he is still substantially dependent upon them for supplies
of specialist cleaning chemicals.
Lusty says:
"If you are wanting to set up a franchise system, you are looking at a minimum investment of £250,000. Many
people don't realise this. I bought out an ailing franchise system when I took over the Rainbow lnternational
UK license and I may look for other ailing franchises to buy out in the future. There are some good franchises
based on a sound concept which struggle and fail because the people running them don't understand
franchising and come in under-funded. I could buy them out, get good management and proper systems in
place and give them financial backing."
Although the Rainbow lnternational franchise is now operating profitably in the UK, Lusty says that it has
still not achieved full break-even in the sense of franchisees royalty fees matching the full-cost of his
overheads. The company is still partially dependent upon income from selling franchise territories and
taking a once-and-for-all franchise fee in the process. When all territories are sold, he will no longer
have this form of income. However, against that, he will have more income from his 9% levy on
franchisee sales turnover. He ends up with 7.5% of this whilst the remaining 1.5% goes to the US parent
franchise.
He makes the point that the road to financial break-even is not in reality completely smooth. For instance,
any programme of franchisee recruitment has associated with it cash incomes and costs which are
incurred at various stages in the process and which may also involve reinforcement and expansion of
head-office staff.
On the issue of why UK franchising is so American in flavour, he said a large percentage of franchise
activity in the UK is run either by American companies or, alternatively, UK replicas of US franchises. He
felt that few UK franchises are exportable.
On the issue of who makes an ideal franchisee, he says:
"Some franchisors want good salesmen but we disagree. Salesmen can often win orders but they can't always
look after and retain them. We look for 'growers'. We like to help our franchisee to grow and invest a lot in
training and advice. When new franchisees want to take on staff, we recommend in the early days that they
take on staff like themselves for ease of team working. In the early days, if you have no experience of handling
employees, you will struggle and so I advise them to look for clones of themselves so that, at least, they have
someone they can get along with. However, as they get bigger, we tend to suggest they recruit people unlike
themselves in order to round out the team - to get different skills, perspectives and viewpoints on board. I am
following this philosophy myself with the team of 18 staff I now lead."
Currently, he is finding independent small businessmen running carpet cleaning franchises wanting to
convert to becoming franchisors with Rainbow. This process of 'conversion' is common to many other
franchise systems also. With Rainbow International, one of the main appeals is their specialised
knowledge of the fire, flood and clean-up insurance market. This was an area in which Lusty had excelled
whilst at ServiceMaster and where he now negotiates national contracts with insurance companies and
passes the work onto individual franchisees.
A common thread running

Comments through our case-studies, in
This case-study highlights a number of important factors. Firstly, that corporate managers may not make fact in 6 out o f 10, is the
a success of running a franchise if they have no prior experience of doing so. A common thread presence of prror experience
running through our case-studies, in fact in 6 out of 10, is the presence of prior experience of o f franchisrng
franchising. In 4 of the 6 cases in question, this came in the form of someone who had actually been
a successful franchisee. In 3 cases out of these 4, the franchisee had been very successful in building up
multiple outlets.
Melvin Lusty did comment, however, on possible drawbacks associated with prior experience as a
franchisee. He pointed out that most franchisees are 'small businessmen' and think like small businessmen.
Not all of them, he felt, would be capable of making the switch to running a bigger business as a
franchisor.
ROSEMARY CONLEY D I E T AND FITNESS CLUBS
Description: Diet and fitness clubs with franchisees operating as trained instructors
Overall Cost of a Franchise: from f 13,000-f 15,000
Overseas Operations: recently considered expanding into South Africa
Royalty Fees: 11 per class held
Background
Every week, more than 70,000 people attend over 2,000 Rosemary Conley Diet and Fitness Club classes
run by 175 franchisees and their staff throughout the UK. Rosemary Conley is the UK's leading diet and
fitness expert following a career in the industry spanning over 25 years. In the last decade, she has written
12 best-selling books and made 15 chart-topping videos, with total sales of seven million.
In 1993, after running her own classes for more than 25 years, Rosemary and her husband, Mike
Rimmington, launched the Rosemary Conley Diet and Fitness Clubs franchise operation. The aim was to
provide a service for the overweight and inactive, creating classes combining both diet and fitness, run by
professionally qualified franchise instructors.

The decision to franchise was made in the light of a number of factors. First, Rosemary Conley was already
a nationally known name which meant that brand awareness would be no problem. Second, the diet and
fitness industries were already growing rapidly and, finally, Rosemary Conley and Mike Rimmington had
already achieved a good income stream from their earlier activities in the area sufficient to meet the costs
of launching a franchise system.
Greed is probably the

biggest cause of franchise Management and Financial Issues
failure. Many refuse to pay Neither Rosemary Conley nor Mike Rimmington had had previous experience of franchising, and so they
for professional advice and sought professional assistance. They were recommended to approach Brian Smith, who worked for
few succeed without it. accountants Ernst and Young. Brian was formerly Chairman of the British Franchise Association and
Also, franchisors sometimes Managing Director of the ServiceMaster franchise, and currently Chairman of the University of
don't re-invest in their Westminster's International Franchise Research Centre.
business but funnel their
money into life-style Approaching £60,000 was spent on professional advice before Brian Smith took early retirement from
instead. Ernst and Young and became a director of the newly formed Rosemary Conley Diet and Fitness Clubs
franchise. Brian Smith says:
"Rosemary and Mike didn't use initial bank finance because they didn't need it. They invested money they
already had plus a great deal of their own time. Pre-investment in a franchise takes the form mainly of
professional, consultancy, legal and accounting fees."
The system operates from the premises and grounds of Quorn House in Leicestershire. This is an historic
house of some considerable scale and beauty, acquired by Rosemary with the proceeds of her business
success. The franchise was launched in 1993, and the company took cheques for nearly f 100,000 at its
first recruitment seminar. The initial franchise fee costs between f 13,000-f 15,000 depending upon
whether the franchisee is already RSAINVQ trained in dance and movement.
This is almost totally a female franchise based on franchisees running a minimum of 9 fitness classes per
week and paying a fee of 11 per class. In total, franchisees undergo an initial 3-month training period with
spells spent both at Quorn House and their home territories. In addition, franchisees receive support from
field development managers. Franchisees are able to run their businesses from their homes, thus reducing
overhead costs.
Commenting upon the essential ingredients of franchise success, Brian Smith said:
"Greed is probably the biggest cause of franchise failure. Many refuse to pay for professional advice and few
succeed without it. Also, franchisors sometimes don't re-invest in their business but funnel their money into
life-style instead."
Smith said that the Rosemary Conley method of sk~ectionis fairly structured but that there is a definite
limit to how scientific such processes can be. There is a view in the industry which argues that people
without prior experience in the operational line of the franchise are liable to make the best franchisees.
However, Smith says:
"I don't agree with this view as much as I used to. It was Edwin Thirlwell, the original founder of Prontaprint,
who first got that idea going and he was motivated by not wanting print union members coming into his
franchise. This was the case that got this whole idea going. I can understand franchisors getting nervous of
franchisees coming in with prior experience of being self-employed in case they wanted to do things
completely their own way."
Comments
Rosemary Conley Diet and Fitness Clubs is a successful and rapidly growing franchise. It surprised some
people in the world of franchising by opting not to engage in a formal process of franchise format piloting
when set up in 1993. However, it could be argued that this would have been largely unnecessary due to
the strength of the company's situation. After all, here was a company with a strong brand name directly
relevant to the operational content of the intended franchise. Also, one of the UK's leading franchise
experts, Brian Smith, became heavily involved in the development of the franchise right from the initial
stages. Finally, much of the content of Rosemary Conley's earlier books and videos, etc., was relevant to
the franchise packages developed.
FREEDOM M A I N T E N A N C E F R A N C H I S E G R O U P
Outline
Description: Conversion of building and maintenance direct labour workforces into franchisees.
Overall Cost of a Franchise: £ 7,000
Number of Additional Outlets Planned: Under consideration
Overseas Operations: USA
Royalty Fees: 10%
Background
Simon Rigby and Andrew Webster were managers of a Yorkshire Electricity in-house property
maintenance division until April 1996 when, in a management buy-out, the unionised workforce of 75
staff maintenance and repair staff were made redundant from Yorkshire Electricity and subsequently re-
engaged as franchisees of Freedom Maintenance. Fifty-five of the 75 staff made the conversion and now
work on planned and reactive maintenance, on a home-based basis, undertaking the work they had
previously undertaken for Yorkshire Electricity.

With the privatisation of Yorkshire Electricity in 1996, Simon Rigby and Andrew Webster, until then
employed as managers in the utility, put into practice a plan they had spent 2 years devising. The cost of
the redundancy packages was met by Yorkshire Electricity and, for the 55 workers who joined the new
franchise set-up, their redundancy money largely funded their front-end franchise fees. Thereafter,
Yorkshire Electricity contracted the work formerly undertaken by these franchisees to their franchisor, who
then allocated it out to franchisees via a computerised call-centre, in exchange for a 10% royalty fee.
The customer wins as it can
focus o n its core business,
yet retain the skills of its
former workforce and make In line with national trends towards down-sizing, out-sourcing, own-account self-employment and flexible
considerable savings ... the working patterns, Yorkshire Electricity decided in 1996 to detach itself from a skilled, unionised closed-
individual staff w i n b y being shop, craft wbrkforce whilst, at the same time, retaining their crucial services, via what amounted to a
able to continue doing the 'rent-back' arrangement. This arrangement left management of the newly franchised workforce in the
work they were doing hands of Simon Rigby and Andrew Webster on the understanding that their bill for services would be cut
before, but with the added by 25% compared to their previous direct labour costs. In order to give both parties to the agreement an
bonus of being given the element of initial security, a contract for 5 years was guaranteed.
opportunity to o w n their
o w n business. Freedom has, in the past 2 years, grown from start-up to one of Britain's largest franchisors by applying
their 'conversion' process to other businesses including Lloyds Bank and Thomas Cook, pushing their total
number of franchisees past the 200 mark. In essence, the system converts non-core employees into self-
employed franchisees in return for a contract for the ex-employees to continue doing their old jobs for a
specific period of time. Freedom, for its part, allocates this work to the franchisees in exchange for an on-
going royalty. Rigby says:
"The customer wins as it can focus on its core business, yet retain the skills of its former workforce and make
considerable savings ... the individual staff win by being able to continue doing the work they were doing
before, but with the added bonus of being given the opportunity to own their own business."
Although franchisees are given the freedom to seek out new work unrelated to Yorkshire Electricity
contracts, the fact remains that the overwhelming bulk of their work comes from maintaining Yorkshire
Electricity's 15,000 properties, whilst showing 25% savings on their former £8 million maintenance
budget. The Inland Revenue has been unwilling to recognise these new franchisees as self-employed,
given their total reliance upon a single customer - Freedom - not only for work but also for services
such as insurance, banking, accounting, invoicing and debt collection. Franchisees, receive a monthly
cheque from the franchisor for work done minus franchise fees. In the event, each franchisee operates as
a Limited Company with a single customer and themselves as an employee.
For the Freedom management, the franchise system set-up costs were modest compared with those of a
traditional business format franchise, since they inherited 55 franchisees with redundancy money to fund
front-end franchise fees, and a guarantee of sufficient work for the next 5 years. The usual high costs of
recruiting franchisees via exhibitions and advertising were avoided, as were the costs of generating work
from scratch. In turn, the former employers of the now self-employed franchisees, Yorkshire Electricity,
saved such money by shedding direct labour-force overheads (salary administration, sick pay, holidays
and pensions) as well as the cost on non-productive time, training and vehicle and equipment costs.
Comments
The Freedom Group burst onto the UK franchise scene in 1996 with its Yorkshire Electricity 'conversion'
franchise. Since then, its take-over of First Call, a somewhat similar but failing Bristol-based building
maintenance franchise in 1997, plus other activities involving the conversion of direct labour workforces
to franchisees, has taken its total annual turnover towards f 3 0 million. The company is currently seeking
out more conventional franchise opportunities in order to reduce its current dependence on time-specific
'conversion' franchises with individual clients. For instance, if Yorkshire Electricity in 2001 were to fail to
renew their current contract with Freedom or, alternatively, were to put it out to tender, to move to annual
contracts or perhaps even to scale down their maintenance programmes overall, Freedom franchisees
would suffer. Another threatening factor in the field is the continued prospect of take-overs in the utility
field with acquiring companies cutting maintenance in order to show early profits.
The change in status of a formerly direct labour force to franchisees is one which will interest labour
market specialists and which bears close similarities to similar conversions in milk diary workforces in
recent years.
CONCLUSIONS
Most new franchise ventures are initiated by small business entrepreneurs with little or no prior
knowledge of franchising or, on occasions, even the precise business sector involved. Most do not expect
to pay for professional advice and most never survive to break-even point. Yet a minority of franchise
systems do find the "promised land" and survive to become highly successful franchise businesses.
Franchising is not a license to charge franchisees fees simply for the privilege of using your name. Readers
may remember from our Harry Ramsden's case-study, the claim by Richard Richardson that, in expanding
from a single outlet, they realised that the expertise required to run the businesses was "all still in people's
heads" and required to be distilled and presented in manual form in order to service wider a strategy of
expansion via franchising.
In the early days of developing a franchise system, rather than a net flow of money into your business,
you can expect a net flow outwards. Support staff have to be paid and new franchisees recruited and
trained. Franchisees themselves can cost thousands of pounds each to recruit and, in the early days, will
require substantial support whilst still generating little business and paying little by way of fees.
In short, if you decide to become a franchisor, you will be entering into a world you may know very little
about. You may be on a steep learning curve. To, once again, quote Richard Richardson:
"... once a franchise relationship goes wrong, it is difficult to rescue. You need to know what you are doing
right from the start as a franchisor. You need to get things right first time round."
Partners and Partnerships

Probably the most noticeable common element running through an examination of our 10 successful
franchise case-study firms was the incidence of partners and partnerships. It was noticeable that hardly
any (in fact just 1) were run by 'solo' individuals. Firstly, there were four husbandlwife teams: Rosemary
Conley, Julia Cassel, Jane Hutton-Williams and Justian de Frias all had their husbands or wives in business
with them from the start. In addition Snappy Snaps, Harry Ramsden's, Freedom Group, Chemical Express
and Pirtek were each set up by two or more people (each male in every case) working closely together,
Once a franchise except in the case of Chemical Express where the finance provider was a sleeping partner. Only Melvin
relationship goes wrong, Lusty of Rainbow International operated 'solo'.
it is difficult to rescue.
You need t o k n o w what Ten franchise systems selected from a population of several hundred can not be regarded as a totally
you are doing right from the representative sample - nor is it. The firms interviewed were selected on the basis of being relatively
start as a franchisor. You young success stories and, in this context, it appears that this finding is significant. Two partners with
need to get things right contrasting skills constitute a greater concentration of 'human capital'than might otherwise be available to
first time round a new franchise company in the early days. Also, the 9 partnerships in our case-study sample were
partnerships of some standing. That is, they had endured over a period of some considerable time - they
were 'tried-and-tested'.
Prior Experience of Franchising

A very noticeable point to emerge from our series of case-studies was that most of our successful
franchisors had had considerable franchise experience prior to setting up their current franchise
businesses. For instance, Don Kennedy and Tim MacAndrew of Snappy Snaps had previously been
successful multi-unit franchisees with Kall-Kwik. Peter Brennan and Forbes Petrie of Pirtek had been
successful multi-unit franchisees with Prontaprint and had even subsequently joined the Prontaprint main
board. Melvin Lusty of Rainbow International had been a successful multi-outlet franchisee with
ServiceMaster and Jane Hutton-Williams, UK Master License holder of the Personalised Book Company,
had previously been a franchisee with the very same company whilst living in Canada. Anne de Frias of
Just Wills, had previously been a senior management administrator with a large pizza franchise company,
and Rosemary Conley, though devoid of previous franchise experience herself, had recruited the services
of leading UK franchise expert Brian Smith, first as a consultant and later as a Director. Finally, both John
Barnes and Richard Richardson of the Harry Ramsden's Restaurants franchise had previously gained
specialist franchise knowledge and experience with Kentucky Fried Chicken.
Thus, 7 of our 10 successful case-study firms had had the benefit of prior high quality franchise
experience. Of the others, Les Gray of Chemical Express plus Simon Rigby and Andrew Webster of
Freedom, all had prior large company management experience. Julia and Clive Cassels of Nippers came
closest to having emerged from a more typical small business background but, again, they were
middle class professionals with life-style and personal assets considerably above those of the average
aspiring small business entrepreneur.
Break-Even Point: Years in Operation and System Outlets
Earlier research had suggested that franchise system break-even tends to occur after 5-6 years with the
achievement of 20-50 system outlets. For the most part, our case-studies bore this out. However, there
were grounds for variation. For instance, Jane Hutton-Williams, UK Master License holder of the
Personalised Book Company had broken even fairly quickly with only 10-20 outlets, and Peter
Brennan and Forbes Petrie of Pirtek had broken even in less than 5 years with only 10 outlets.
However, against that, Les Gray of Chemical Express had taken 7 years and 30-40 outlets to achieve
break-even whilst Melvin Lusty of Rainbow International had not quite achieved full break-even after
7 years with 79 outlets and 18 full-time head-office staff. Whilst it is probably true that this team of 18
staff will be able to eventually support 100 outlets with only modest reinforcement, the fact remains
that full break-even is at least some small distance away.
Julian and Clive Cassel of Nippers have been operating for around 7 years and had previously carried
an overhead requiring 20 franchisees to achieve break-even. N o w they have reduced this to around
their current size of around 10 outlets.
Break-Even Point: Financial Investment

Although most of our 10 case-study firms had absorbed private investments of around £250,000-
£500,000 in the development of their franchise systems, there was again some variety. Again, Jane
Hutton-Williams of the Personalised Book Company had needed to invest less than £50,000. This is,
however, understandable since the development work on the system had been undertaken by the
Canadian parent company, there were no sizeable front-end fees to be paid (unlike in the case of
Rainbow International) and Jane was already familiar with the product-line and systems, having
previously been a franchisee with the company in Canada. She operated from modest premises in
rural Norfolk and did not find it very expensive to sell this home-based, low-cost franchise.
In stark contrast to the above, the Rainbow International (UK) had involved a £500,000 front-end
Master License fee, the funding of substantial premises for head-office and warehouse use, and the
development of a substantial management team and support system. The full development cost here
was close to f1,000,000.
Overview
So, how tough is it really to get going as a franchisor ? Well, allowing for some variation, most
franchises will absorb both substantial sums of money and several years of time and energy to reach
break-even. Most new franchise systems fail within 5 years of being established, particularly those
without considerable prior experience of franchising. The only safe alternative is substantial
investment in professional services to cover consulting, legal and accountancy fees.
As a prospective franchisor you can expect, in the early days at least, only fully-secured loans from
banks. You will be regarded as yet another small business start-up with about the same chances of
survival. The franchise sections of banks, after all, make their money for the most part from lending to
franchisees of well established franchise systems rather than franchisor start-ups.
If you are intending setting up a franchise system, you will not be setting up a small firm. You will be
forming a medium-sized firm with all the resourcing that involves. All of our 10 case-study firms had
the advantage of access to fairly substantial sums of private capital. Nine of these firms had the
'human capital' (energy, synergy, moral support, varied skills) contributed by partnerships of two
people - either married or simply business partners. Seven firms had the advantage of considerable
in-house franchise expertise right from the outset. Two of our firms also had the advantage of a
nationally-known name at the outset.
The firms studied are all high quality, well regarded, franchise operations that have been in
franchising for some time. Partnerships, prior franchise experience and access to fairly substantial
sums of private capital are themes running strongly through the veins of these franchise success stories
which appear to separate them from the scores of 'here today, gone tomorrow' franchisor aspirants
which pass briefly across the landscape of British franchising each year.
USEFUL CONTACTS
THE M A I N CLEARING BANKS
It should be noted that the expertise regarding franchise system development is likely to be concentrated
in specialised departments (noted below), although lending decisions may be taken at a more local or
regional level, depending as to which bank is involved.
Barclays Bank plc

National Franchising, Tel: 01203 534422
PO Box 120, Fax 01203 532699
Longwood Close, lnternet www. barclays.co.u k
Westwood Business Park,
Coventry
CV4 81N
Lloyds Bank Franchise Department

Specialist Business Services Tel 0117 943 3410
PO Box 112, Fax 0117 943 3079
Canons House, Internet www.lloydsbank.co.uk
Canons Way,
Bristol
BS99 7LB
Midland Bank plc Franchise Unit

10 Lower Thames Street, Tel 01 71 260 6783
London Fax 01 71 260 8638
EC3R 6AE Internet www.midlandbank.co.uk
NatWest Franchise Section

Level 10, Tel 01 71 920 5966
Drapers Gardens, Fax 01 71 920 521 7
12 Throgmorton Avenue, lnternet www.natwest.co.uk
London
EC2N 2DL
The Royal Bank of Scotland plc

Franchise and Licensing Department Tel 01 31 523 21 78
PO Box 31, Fax 01 31 556 1817
42 St Andrew Square, Internet www.royalbankscot.co.uk
Edinburgh
EH2 2YE
Business Link London Central Ltd. Tel 01 71 31 6 1000
Centre Point, Fax 01 71 31 6 1001
103 New Oxford Street, Internet www.london-central.businesslink.co.uk
London
WCl A 1DP
BLLC Franchise & Licensing Advisory Panel

Offering early-stage advice and support for promising franchisors.
The Business Link network is the national gateway to a comprehensive range of business support, advice
and information services.
Business Link aims to help businesses compete, develop and grow in an increasingly competitive world
marketplace and is committed to offering the highest possible level of customer services and value for
money.
Internet www.businesslink.co.uk The Business Link Signpost Line - 0345 567 765
British Franchise Association (BFA)

Thames View, Tel 01491 575903
Newtown Road, Fax 01491 573517
Henley-on-Thames, Internet www.british-franchise.0rg.uk
Oxon
RG9 I H G
The BFA is the single regulatory body for franchising in the UK. It is a non-profit making body
responsible for developing fair and ethical franchising through its member franchisor companies. The
BFA has 160 franchisor members, with more than 10,000 franchised outlets, and it also has accredited
over 70 professional advisors (lawyers. bankers, accountants and consultants). It publishes guides to
help prospective franchisors and franchisees.
lnternational Franchise Research Centre
lnternational Franchise Research Centre Tel 01 71 911 5000
University of Westminster, Fax 01 71 911 5839
35 Marylebone Road, Internet www.wmin.ac.uk/-purdyd
London
NW1 5LS
Researchers and publishers of academic and commercial research. The University maintains a web-
site (Internet) with information about franchising and also showing links to other franchising-related
sites, including the lnternational Franchise Association (IFA). The lnternational Franchise Resesearch
Centre (IFRC) is committed to improving the understanding of franchising. Membership is suitable for
anyone with an interest in franchising and further details are available from the above address.
PUBLISHERS OF FRANCHISE MAGAZINES & DIRECTORIES
Blenheim Business Publications Tel 01 81 742 2828

630 Chiswick High Road, Fax 01 81 742 8674
London lnternet www.mf-exhibitions.co.uk
W 4 5BG
Magazine: Business Franchise
Directory: Franchise Handbook
Franchise Development Services Ltd. Tel 01 603 620301

Rouen House, Fax 01 603 6301 74
Rouen Road, lnternet www.franchise-group.com
Norwich
NRI IRB
Magazine: The Franchise Magazine
Directory: The UK Franchise Directory
Franchise World Tel 0181 767 1371

James House, Fax 01 81 767 221 1
37 Nottingham Road, lnternet www.franchiseworld.co.uk
London
SW17 7EA
Magazine: Franchise World
Directory: Franchise World Directory
EXHIBITION ORGANISERS
Careers In Industry (CII) Tel 01 81 785 2288

111 Upper Richmond Road, Fax 01 81 785 3388
London lnternet www.franinfo.co.uk
SWl5 2Tj
The British Franchise Exhibitions
Miller Freeman UK Ltd
630 Chiswick High Road Tel 01 81 742 2828
London Fax 01 81 742 3608
W 4 5BG lnternet www.mf-exhibitions.co.uk
The National Franchise Exhibition (BFA-sponsored)
The Authors
Professor John Stanworth is director of the International Franchise Research Centre and has been
engaged in research into franchising since the mid-1 970's. He also leads the Future of Work Research
Group, based at the University of Westminster, which has a record of specialist research in Teleworking,
Small Business Development and Human Resource Management. Studies have been undertaken for
many clients, including the Department of Trade and Industry, The Department for Education, The
Economic & Social Research Council and various commercial organisations.
David Purdy is a researcher supporting the Future of Work Research Group and its interest in franchising.
He has also specialised in small business research since 1985, and publications include authorship of
'Risk Capital for Small Firms', commissioned by the Small Business Research Trust. He has also co-
authored studies investigating Small Business Management Development and Teleworking.
Acknowledgements
The International Franchise Research Centre is pleased to acknowledge Business Link London Central in
sponsoring the research, analysis and presentation of this report.
All information was correct at the time of writing, 1998 O BLLC and University of Westminster.
Finally, we wish also to acknowledge the support of the participating firms, without whom the survey would
not have been possible.

IFRC #13 - Stanworth and Purdy 1998 - BLLC Succeeding As A Franchisor

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IFRC #13 - Stanworth and Purdy 1998 - BLLC Succeeding As A Franchisor

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Web versions published online December 13 Succeeding As A Franchisor,

4 The Impact of Franchising on the

8 Aspects of Franchisee Recruitment,

9 Business Format Franchising:

I hope these examples prove an inspiration to would-be franchisors.

1. Harry Ramsden's Restaurants

4. The Personalised Book Company

9. Rosemary Conley Diet and Fitness Clubs

10. Freedom Maintenance Franchise Group

Is Franchising A Safer Method Of Business Development Compared To More

How Fast Is Franchising Growing In Britain ?

'break-even' by the time they have 10 outlets,

Management and Financial Issues

Management and Financial Issues

Financial and Management Issues

Financial and Management Issues

Bank rules oblige

Managerial and Financial Issues

Management and Financial Issues

The Decision to Franchise

Management and Financial Issues

A common thread running

The Decision to Franchise

Greed is probably the

The Decision to Franchise

Partners and Partnerships

Prior Experience of Franchising

Break-Even Point: Financial Investment

Barclays Bank plc

Lloyds Bank Franchise Department

Midland Bank plc Franchise Unit

NatWest Franchise Section

The Royal Bank of Scotland plc

BLLC Franchise & Licensing Advisory Panel

British Franchise Association (BFA)

PUBLISHERS OF FRANCHISE MAGAZINES & DIRECTORIES

Blenheim Business Publications Tel 01 81 742 2828

Franchise Development Services Ltd. Tel 01 603 620301

Franchise World Tel 0181 767 1371

Careers In Industry (CII) Tel 01 81 785 2288

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