On the cold and breezy evening of April 26, 2018, Niraj Taksande, director of Express Bike Works

(EBW), was sipping hot coffee while contemplating the service delivery model and retail format of his
new venture. Should EBW go for self-owned stores or opt for a franchise model, and what would be the
most appropriate retail format? A much-awaited meeting for raising funds (series B) with investors was
scheduled on May 10, 2018. The investors wanted Taksande to provide insights on the retail business
format and the expansion strategy (self-owned stores or franchise model). As the business concept was
novel, the issue of acceptance of EBW's services by the market was making Taksande restless.
EXPRESS BIKE WORKS (EBW): COMPANY HISTORY
EBW, which was founded in June 2013 by three young and talented engineers, was going to change the
motorcycle washing landscape in India. The unique selling proposition of EBW was to wash any two-
wheeler motorcycle (or scooter) in just two minutes, using only an optimal quantity of water and human
effort. Taksande was one of the founding directors and solely responsible for machine design and
development. He was an avid biker and had toured India multiple times on his motorcycle. Like most
bikers, Taksande considered his motorcycle very close to his heart and always wanted to provide it with
the best possible maintenance and care.
The idea of EBW stuck with Taksande during his business school days. He had periodically taken his
motorcycle to be washed, but the long queues and unprofessional behaviour at the washing centres, which
used manual processes, always frustrated him. He wanted to find a solution to this problem, and during
his master of business administration summer project, he designed India's first fully-automated
motorcycle and scooter washing machine in his garage.
With the help of his two friends, Taksande gathered a modest amount of seed capital and manufactured
the first working prototype of the machine in late 2013. The first public disclosure of the machine took
place during the prestigious Auto Expo 2014 at Goa, India. Everyone greatly appreciated EBW's
motorcycle washing solution, and inquiries soon started to pour in. One of them was from a prominent
motorcycle manufacturing company from Japan, which installed the first commercial machine at its
service station in Mumbai; the pilot project was a huge success. However, EBW required additional
funding for product development and market expansion.
SERVICE DELIVERY PROCESS
EBW's motorcycle wash concept was new and innovative. The washing process was designed to optimize
time, labour, space, water, and other ingredients for washing. The machine consisted of a rectangular
metal box with transparent glass walls.' This allowed the biker to watch the motorcycle getting cleaned in
real time. One employee was required to operate the machine; the job consisted of parking the motorcycle
inside the machine and pressing the start button. The machine did the rest of the job in just two minutes.
After that, the operator removed the motorcycle and returned it to the customer along with the bill.
EXPANSION PLANS
After successfully implementing motorcycle washing machines in multiple locations in Maharashtra,
Karnataka, Jharkhand, and a couple of overseas locations, Taksande wanted to expand his business by
opening independent stores in key locations in South India. The three strategic locations selected for
expansion were Udupi, Chennai, and Bangalore. Taksande researched the market potential of these three
locations and found that there was a 70 per cent probability of having a favourable market. The steady
growth of two-wheeler segments along with the boom in electric vehicles in these cities had a positive
impact on market potential.
The expansion could be done by following one of two models: self-owned stores or franchise stores. If
EBW expanded through self-owned stores, it would enjoy greater control over technological expertise and
other propriety resources. In comparison, the franchise model would be relatively economical, and EBW
might benefit from the expertise some franchise owners would have in marketing, sales, and operations of
motorcycle wash services. Taksande estimated that he would generate a profit of INR 143,000 per month
in a favourable market and INR 68,000 per month in an unfavourable market if EBW expanded through
self-owned stores. If it expanded through franchising, Taksande expected to receive a franchise fee of INR
132,000 per month in a favourable market and INR 82,000 in an unfavourable market.
EXPERT OPINION
Taksande consulted with Varun Pai, who was at the time the owner and operator of multiple car wash
locations in Udupi, Manipal, Chennai, Mangalore, Bangalore, and Hyderabad. Pai, who had extensive
knowledge of the market scenarios in these major cities, informed Taksande that if the self-owned stores
were located close to petrol stations, the overall profit generated would be at least 15 per cent higher than
Taksande's estimate of INR 143,000 per month. In the case of self-owned stores in other locations, the
profit generated would remain the same as estimated by Taksande. However, due to enormous demand
and space constraints in these cities, the probability of getting locations for self-owned stores close to
petrol stations was about 35 per cent.
Pai also estimated that, if the expansion were done through franchise stores, the overall profit generated
by locations close to petrol stations would be 18 per cent higher than Taksande's estimate. If a franchise
store was opened in association with an authorized motorcycle service station, the overall profit would be
as high as 25 per cent more than Taksande's initial estimate. For all other locations, the overall profit
would remain the same as that estimated by Taksande. According to Pai, the probability of setting up a
franchise store close to a petrol station was 40 per cent; that of setting up near an authorized motorbike
and motorcycle service station was 20 per cent; and that of setting up in other locations was 40 per cent.
THE CONSULTANCY FIRM
While Taksande was busy in his office, he received an email from Pai. Pai had come across a well-known
consultancy firm that provided information on the service distribution strategy. The consultancy firm had
been operating since 2013 and provided information on a fixed-rate basis. Pai hinted to Taksande that, for
EBW's expansion plans, the consultancy firm would charge up to INR 20,000 for information about
expansion through self-owned stores. Pai also highlighted that the consultancy firm did not operate in the
domain of franchise models for the business handled by Taksande. Finally, Pai shared a document
regarding the performance of the consultancy firm on self-owned stores in previous years (see Exhibit 1),
which made it possible to estimate the accuracy of the firm's predictions.
THE DILEMMA
The dilemma faced by Taksande was to decide on a distribution channel — whether to go for self-owned
stores or opt for the franchise model. Both options had strong implications, financially and strategically.
The decision, further complicated by the probable locations of new stores, had multiple implications for
the future growth of EBW, including its ability to raise Series B funding from investors. One of the
investors had expressed a strong desire to fund EBW, provided that its distribution strategy was
impressive. Taksande was not sure about paying a high premium to the consultancy firm but was keen to
factor in the information for the expansion strategy. After several sleepless nights and a few days of
gathering and modelling data for self-owned stores versus the franchise model, Taksande pondered the
selection of an appropriate retail format. As he looked at his empty coffee cup, he remembered a famous
idiom: "Experience is something you do not get until just after you need it."
EXHIBIT 1: HISTORICAL FORECASTING DATA ON LOCATIONS OF SELF-OWNED
STORES

Year Number of Predicted Locations Obtained Locations

Predictions Petrol Other Petrol Other
Stations Locations Stations Locations
2013 65 27 38 21 26
2014 95 32 63 25 47
2015 116 41 75 34 61
2016 134 61 73 56 61
2017 160 58 102 54 88