Published by Business Link for London and the International Franchise Research Centre

University of Westminster, London, UK. "The International Franchise Research Centre (IFRC) is committed to improving the understanding of franchising. This is achieved by the publication of impartial research and by the encouragement of informed debate." Franchising operates in a dynamic environment, with new issues and challenges emerging, including: globalisation, coping with competition, disclosure, industry regulation, managing relations with franchisee associations, franchisee recruitment & market saturation. Against this backdrop, the IFRC was established in 1993 by Professor John Stanworth (Director of the Future of Work Research Group at the University of Westminster), supported by Brian Smith (exBFA Chairman, franchisee, franchisor and author), and Chair of its Steering Group. FOUNDER MEMBERS Founder members and sponsors included: Barclays Bank, the British Franchise Association (BFA), Dyno-Rod, Franchise Development Services Ltd., Lloyds Bank (now Lloyds Group), Mail Boxes Etc., Midland Bank (now HSBC), Prontaprint, Rosemary Conley Diet & Fitness Clubs, Royal Bank of Scotland, The Swinton Group, and Wragge & Co. PUBLICATIONS Their support enabled the IFRC to publish a number of reports, including its Special Studies Series Papers, journal articles, book chapters and conference papers. Two IFRC papers received three awards over a period of 12 months (1996-97). The first being Business Format Franchising: Innovation & Creativity or Replication & Conformity ?, which received the Best International Paper Award in 1996, from the Society of Franchising. This paper also received the Outstanding Paper of 1996 award from Franchising Research: An

International Journal (MCB University Press). Additionally, Franchise Growth And Failure In The U.S. And The U.K.: A Troubled Dreamworld Revisited received the Best International Paper Award in 1997, again from the Society of Franchising. This paper was later published in Franchising Research: An International Journal. Close links were fostered with universities in Rome and Pisa (Italy), Haute Alsace (France) and Boston, Minneapolis and Texas (USA), with a view to research collaboration. Professor Pat Kaufmann of Atlanta, Georgia, addressed our inaugural annual strategy seminar, in 1994. Overseas speakers in subsequent years included Cheryl Babcock, Director of the Franchising Institute, University of St. Thomas, Minneapolis (1995), Professor Rajiv Dant, University of Boston (1996), Professor Francine Lafontaine, University of Michigan (1997), Professor Claude Nègre, University of Haute Alsace (1997), Colin McCosker, University of Southern Queensland (1998), Professor Frank Hoy, University of Texas at El Paso (1998), Professor Jack Nevin, University of Wisconsin-Madison (1999), Professor Tom Wotruba, San Diego State University (1999), Professor Bruce Walker, University of Missouri, (2000), and, Professor Wilke English, University of Mary Hardin-Baylor (2000). IFRC members were active supporters of the International Society of Franchising, and hosted the ISoF 2005 conference in London. The IFRC ceased its research activities in 2007, when John Stanworth took retirement. Web versions of IFRC Special Studies Series Papers 1993-2001 (listed overleaf) Many of the earlier papers have been re-set, to allow a successful conversion to Acrobat, and are now available online. John Stanworth, Emeritus Professor, University of Westminster http://www.westminster.ac.uk/schools/ business David Purdy, Visiting Fellow, Kingston University http://business.kingston.ac.uk/sbrc December 2010

International Franchise Research Centre

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LIABILITY DISCLAIMER The information and analysis in each report is offered in good faith. However, neither the publishers, the project sponsors, nor the author/s, accept any liability for losses or damages which could arise for those who choose to act upon the information or analysis contained herein. IFRC Special Studies Papers 1993-2001 Web versions published online December 2010, via http://www.scribd.com/: 1 The Blenheim/University of Westminster Franchise Survey: Spring 1993, (Stanworth & Purdy), 1993 2 Improving Small Business Survival Rates via Franchising: The Role of the Banks in Europe, (Stanworth & Stern), 1993 3 Targeting Potential Franchisees: Industry Sector Backgrounds and Declared Areas of Interest, (Purdy & Stanworth), 1994 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

10 London: A Capital City For Franchisee Recruitment, (Mills, Stanworth & Purdy), 1997 11 The Effectiveness of Franchise Exhibitions in the United Kingdom, (Chapman, Mills & Stanworth), 1997 12 Franchising: Breaking Into European Union Markets, (Stirland, Stanworth, Purdy & Brodie), 1998 13 Succeeding As A Franchisor, (Stanworth & Purdy, published jointly with Business Link London Central), 1998 14 Direct Selling: Its Location in a Franchise Typology, (Brodie & Stanworth), 1999 15 Unravelling the Evidence on Franchise System Survivability, (Stanworth, Purdy, English & Willems), 1999 16 Survey: Professional Services For Franchising In The U.K., (Stanworth & Purdy), 2001

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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 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.

evidenced by the high proportion of team managed businesses and their impressive backgrounds prior to starting these

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

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

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

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 ongoing 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 sometimes the portrayal of an industry undergoing phenomenal growth and presenting low levels of associated risk for those who choose to become involved. The best-known brand-names in the world -those of McDonald's and Coca-Cola - are both franchised brands and demonstrate the ultimate potential of franchising as a growth business strategy. However, life is seldom easy in business and, in reality, franchising is no exception. A quick flick through any old franchise directory or franchise exhibition programme will reveal the names of many long-since forgotten franchisors. 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.

The best-known brandnames in the world those of McDonald's and Coca-Cola - are both franchised brands and demonstrate the ultimate potential of franchising as a growth business strategy.

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 wellestablished 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 systems. Thus, we see a stark contrast here. Of franchise systems which appear, in any one year, in both of the main franchise directories, 84% are likely to be still in franchising 12-18 months later. Of companies which appear in only one of the principal franchise directories, the survival figure drops to 52%.

Any deal which soundscfoo 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.

Franchise 'Exits'
Death is not always final and the researchers involved in the above tracking survey found examples of 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.

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: Franchise System Start-up (Illustrative Example): Bormwing Requirement for 'Expected' and 'Worst-case' Scenarios
un r*

Borrowing requirements
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 'break-even' by the time they have 10 outlets, more mature systems in the 6- 10 years age range tend to estimate 'break-even' a occurring s typically around the 21 -50 outlets range. The exhibits have also been published in FranchisingYour Business: Getting Started (Lloyds BanWlFRC, 1998).


Exhibit 2 -Perceptions of 'Break-even' Franchise System Size: By Franchising Experience

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.

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 and chips. By the time Harry Ramsden died in 1963, the sole outlet was still the Guiseley restaurant, which now 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.

We don't have to

sell franchises. People
approach us wanting to buy them.

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 fundraising, 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 employees wishing to invest redundancy payments, but genuine self-made entrepreneurs in their own right, due to the scale of investment required. This being the case, relationships might be expected to be more 'bottom-up' than might otherwise be the case. Additionally, franchisees frequently continue to involve themselves in other business interests whilst running their franchises. In addition to offering 'financial leverage' for the development of the Harry Ramsden's Restaurant concept, franchising was seen by Barnes and Richardson as offering "closeness to the customer". Richardson says:
"Good franchisees always out-perform managers. Bad franchisees do not - they are a constant problem."

When running a franchise as a franchisor, you recruit staff to manage rather than t o run a business - the franchisees run the business. The franchisor-franchisee relationship is vital - if you are a control freak, you can forget being a franchisor.

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.

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.

Description: Franchises operate from mobile showrooms supplying hygiene and cleaning products to all types of businesses on a regular monthly basis. Year Company Established: 1985 Year of First Franchise: 1986 Number of Company Outlets: 0 Overall Cost of a Franchise: f 17,000 Number of Franchised Outlets: 103 Number of Additional Outlets Planned: 30 Overseas Operations: Opening outlets in Ireland, Malta, Cyprus and Denmark Royalty Fees: 7.5% on sales turnover plus mark-up on supplies.

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.

Decision to Franchise
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.
Franchising offered the ideal mode for rapid expansion at the time, with franchisees providing the strong commitment necessary to succeed.

The essential ingredients that make up a successful business, as Gray sees it, are extensive customer care, reliable advice and good products. He says:
"Franchising offered the ideal mode for rapid expansion at the time, with franchisees providing the strong commitment necessary to succeed. In the early days, we operated a successful 9-month pilot operation and then decided to go ahead. However, in the early days, we gave new franchisees a money-back-guaranteeafter 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.

Management and Financial Issues
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. Les Gray feels that franchise operations which expand very quickly are prone to failure since such companies often concentrate more on recruitment and attracting new franchisees than on system 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." There is no simple formula that will tell you who is likely to make a good franchisee.

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 indepth 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.

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.

Description: New and second-hand baby goods and toy retailers, operating from redundant rural buildings Year Company Established: 1990 Year of First Franchise: 1991 Number of Company Outlets: 1 Overall Cost of a Franchise: f27,000 Number of Franchised Outlets: 9 Number of Additional Outlets Planned: 25 Overseas Operations: None Royalty Fees: 7.25% on sales turnover.

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 year, mainly from sells more than f 2 million worth of new, second-hand and seconds products~a 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'.

Decision to Franchise
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 Hildenborough. A competitive at , .. - . 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 criticalmass 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.

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.

Description: Personalised computer-generated books and gifts for children and grown-ups. Year Company Established: 1991 Year of First Franchise: 1991 Number of Company Outlets: 1 Overall Cost of a Franchise: f 1,300 Number of Franchised Outlets: 130 Number of Additional Outlets Planned: 200 Overseas Operations: World-wide network controlled by Canadian Master Franchisor Royalty Fees: Income generated totally from mark-up on supplies

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.

Decision to Franchise
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.

Here we see an example of an imported franchise coming into the UK and also a franchisor (lane HuttonWilliams) 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.

Description: Home visit Will-Writing services. Year Company Established: 1989 Year of First Franchise: 1990 Number of Company Outlets: 1 Overall Cost of a Franchise: from f 15,000 Number of Franchised Outlets: 131 Number of Additional Outlets Planned: 200 Overseas Operations: Plans for Spain and Canada Royalty Fees: 9.50 per Will mark-up on products supplied

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 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.

Decision to Franchise
The company's Chairman & Managing Director, Justian de Frias, had previously spent 16 years in sales and marketing as the proprietor of a sizeable printing and publishing company. Whilst still in his early forties, he sold the printing and publishing business for a sum which would have enabled him to retire comfortably for life. Instead, after a gap of just a few months, he decided to develop another business JustWills Plc. Justian was joined in this venture by his wife Anne who had gained previous background experience as a senior administrator with a large pizza restaurant franchise operation. In addition to selling wills, franchisees have the opportunity to introduce their clients to a range of 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 coordinates 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

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.

Description: Suppliers of hydraulic and industrial hose assemblies from central depot and local mobile bases. Year Company Established: 1989 Year of First Franchise: 1989 Number of Company Outlets: 0 Overall Cost of a Franchise: from £200,000 Number of Franchised Outlets: 68 Number of Additional Outlets Planned: 20 Overseas Operations: German, Holland, France and USA Royalty Fees: 1.5% after 2 years plus mark-up on supplies.

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.

Decision to Franchise
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.

Management and Financial Issues
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 markup 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 I Technical and product support I Administration and management services I Financial 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.

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.

Description: One-hour high street film developing and printing service. Year Company Established: 1987 Year of First Franchise: 1987 Number of Company Outlets: 0 Overall Cost of a Franchise: from f115,000 Number of Franchised Outlets: 67 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%

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


W e knew franchising was a long-term business. The idea of rapid expansion with n o cost is totally false - there needs t o be a lot of up-front investment.

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 onehour high street developing and printing service.

Managerial and Financial Issues
Don Kennedy and Tim MacAndrews had been able to pilot their Snappy Snaps concept in their Kall Kwik 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 "overstated 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.

Snappy Snaps is a system that has achieved very substantial high-street visibility in Britain. However, this case study is a good reminder of the demands that can be made on people building up a new franch~se system. Don Kennedy and Tim MacAndrew each had good business skills by training and had previously proved to be very successful managers as franchisees. They had had the opportunity of piloting Snappy Snaps in their existing Kall Kwik outlets and, later, directed funds from the sale of the later into the Snappy Snaps. Even so, they encountered challenging times. 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.
Some redundant people g o into franchising for the wrong reasons - to 'buy a job'. But it is much more than that - it is a high stress, demanding position.

Description: Carpet care and restoration specialists. Year Company Established: 1987 Year of First Franchise: 1988 Number of Company Outlets: 0 Overall Cost of a Franchise: from £21,000 Number of Franchised Outlets: 79 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

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 Managing Director, Melvin Lusty, who invested substantial monies of his own from the sale of his ServiceMaster franchise and also via a f 150,000 loan. Melvin Lusty had previously been a successful multi-outlet franchisee with ServiceMaster - another US franchisee and founder-member of the British Franchise Association back in 1977. He had joined ServiceMaster at the age of 23 and, approximately 10 years later, had sold his ServiceMaster business with 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.

There are some good franchises based o n a sound concept which struggle and fail because the people running them don't understand franchising and come in under-funded

Management and Financial Issues
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.

This case-study highlights a number of important factors. Firstly, that corporate managers may not make a success of running a franchise if they have no prior experience of doing so. A common thread running through our case-studies, in fact in 6 out of 10, is the presence of prior experience of 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.

A common thread running through our case-studies, in fact in 6 out o f 10, is the presence of prror experience o f franchisrng

Description: Diet and fitness clubs with franchisees operating as trained instructors Year Company Established: 1993 Year of First Franchise: 1993 Number of Company Outlets: 0 Overall Cost of a Franchise: from f 13,000-f 15,000 Number of Franchised Outlets: 175 Number of Additional Outlets Planned: 200 Overseas Operations: recently considered expanding into South Africa Royalty Fees: 11 per class held

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
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 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.

Management and Financial Issues
Neither Rosemary Conley nor Mike Rimmington had had previous experience of franchising, and so they sought professional assistance. They were recommended to approach Brian Smith, who worked for accountants Ernst and Young. Brian was formerly Chairman of the British Franchise Association and Managing Director of the ServiceMaster franchise, and currently Chairman of the University of Westminster's International Franchise Research Centre. Approaching £60,000 was spent on professional advice before Brian Smith took early retirement from 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."

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.

Description: Conversion of building and maintenance direct labour workforces into franchisees. Year Company Established: 1996 Year of First Franchise: 1996 Number of Company Outlets: 1 Overall Cost of a Franchise: £ 7,000 Number of Franchised Outlets: 202 Number of Additional Outlets Planned: Under consideration Overseas Operations: USA Royalty Fees: 10%

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 reengaged 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.

The Decision to Franchise
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 considerable savings ... the individual staff w i n b y being able to continue doing the work they were doing before, but with the added bonus of being given the opportunity to o w n their o w n business.

Management and Financial Issues
In line with national trends towards down-sizing, out-sourcing, own-account self-employment and flexible working patterns, Yorkshire Electricity decided in 1996 to detach itself from a skilled, unionised closedshop, craft wbrkforce whilst, at the same time, retaining their crucial services, via what amounted to a 'rent-back' arrangement. This arrangement left management of the newly franchised workforce in the hands of Simon Rigby and Andrew Webster on the understanding that their bill for services would be cut by 25% compared to their previous direct labour costs. In order to give both parties to the agreement an element of initial security, a contract for 5 years was guaranteed. 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 selfemployed 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 ongoing 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.

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.

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, except in the case of Chemical Express where the finance provider was a sleeping partner. Only Melvin Lusty of Rainbow International operated 'solo'. Ten franchise systems selected from a population of several hundred can not be regarded as a totally representative sample - nor is it. The firms interviewed were selected on the basis of being relatively young success stories and, in this context, it appears that this finding is significant. Two partners with contrasting skills constitute a greater concentration of 'human capital'than might otherwise be available to 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'.

Once a franchise relationship goes wrong, it is difficult to rescue. You need t o k n o w what you are doing right from the start as a franchisor. You need to get things right first time round

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.

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.

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, PO Box 120, Longwood Close, Westwood Business Park, Coventry CV4 81N

Tel: 01203 534422 Fax 01203 532699 lnternet www. barclays.co.u k

Lloyds Bank Franchise Department Specialist Business Services PO Box 112, Canons House, Canons Way, Bristol BS99 7LB

Tel 0117 943 3410 Fax 0117 943 3079 Internet www.lloydsbank.co.uk

Midland Bank plc Franchise Unit 10 Lower Thames Street, London EC3R 6AE

Tel 01 71 260 6783 Fax 01 71 260 8638 Internet www.midlandbank.co.uk

NatWest Franchise Section Level 10, Drapers Gardens, 12 Throgmorton Avenue, London EC2N 2DL

Tel 01 71 920 5966 Fax 01 71 920 521 7 lnternet www.natwest.co.uk

The Royal Bank of Scotland plc Franchise and Licensing Department PO Box 31, 42 St Andrew Square, Edinburgh EH2 2YE

Tel 01 31 523 21 78 Fax 01 31 556 1817 Internet www.royalbankscot.co.uk

Business Link London Central Ltd. Centre Point, 103 New Oxford Street, London WCl A 1DP

Tel 01 71 31 6 1000 Fax 01 71 31 6 1001 Internet www.london-central.businesslink.co.uk

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, Newtown Road, Henley-on-Thames, Oxon RG9 I H G

Tel 01491 575903 Fax 01491 573517 Internet www.british-franchise.0rg.uk

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 University of Westminster, 35 Marylebone Road, London NW1 5LS Tel 01 71 911 5000 Fax 01 71 911 5839 Internet www.wmin.ac.uk/-purdyd

Researchers and publishers of academic and commercial research. The University maintains a website (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 630 Chiswick High Road, London W 4 5BG Magazine: Business Franchise Directory: Franchise Handbook Franchise Development Services Ltd. Rouen House, Rouen Road, Norwich NRI IRB Magazine: The Franchise Magazine Directory: The UK Franchise Directory Franchise World James House, 37 Nottingham Road, London SW17 7EA Magazine: Franchise World Directory: Franchise World Directory EXHIBITION ORGANISERS Careers In Industry (CII) 111 Upper Richmond Road, London SWl5 2Tj The British Franchise Exhibitions Miller Freeman UK Ltd 630 Chiswick High Road London W 4 5BG The National Franchise Exhibition Tel 01 81 785 2288 Fax 01 81 785 3388 lnternet www.franinfo.co.uk Tel 01 81 742 2828 Fax 01 81 742 8674 lnternet www.mf-exhibitions.co.uk

Tel 01 603 620301 Fax 01 603 6301 74 lnternet www.franchise-group.com

Tel 0181 767 1371 Fax 01 81 767 221 1 lnternet www.franchiseworld.co.uk

Tel 01 81 742 2828 Fax 01 81 742 3608 lnternet www.mf-exhibitions.co.uk (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 coauthored studies investigating Small Business Management Development and Teleworking.

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.

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