Among all business ideas a keen entrepreneur can think of, the franchises rank at the top. Every process will be taken care of or provided by the main company; training is provided in-house; you don’t have to deal with multiple suppliers; the brand recognition will help to pull in customers; and costs are reasonably low if you set up an affordable plan.
The appeal of franchises has been very well understood in Cambodia. Today, you cannot go anywhere without finding a Pizza Company or Brown Coffee shop at every corner. People use the brand and the values that are associated to it to rake in the benefits.
Therefore, to help people looking to become their own Boss, here are our views on franchises, using Porter’s Forces, to bring to you everything you need to know to start one.
The Franchises’ Licenses
Unfortunately, you cannot get started right away once you settle on the brand you want to be a part in. You need a license, and depending on the brand, prices can be quite high. For your information, a Café Amazon license can cost you up to $16,000. That amount can increase tenfold for the big name brands such as Burger King. And depending on the internal policies of the company, it might have to be renewed from time to time. While it is because of this barrier at the start that franchises are not completely overwhelming the market, it also means licenses are allowing competition to happen. Nobody wants to have his business copied on the same street.
This one can wildly vary. If you’re looking for a prime location in the city center of Phnom Penh, investments will rise accordingly to $100,000 and more. Not only will you have to deal with a price tag for rent, but the costs to furnish the place up to the standards of the company are not going to be low either. Look for more remote places, with lower traffic but also lower expenses, and you can reduce the bill to $30,000 on average, according to our experience. All in all, expect something in this range, not including the license, if you want to get started.
Not all is lost though, such investments lower the threat of substitution. You are not going to be replaced easily once you settle in and create your customer base.
The Supplier Power
Yup, the franchise is at your side, and just like marriages, it is for the better or for the worse. No matter if you’re willing to let them take care of everything or want to do business as you wish, only using their experience and name, there are matters where you will be disappointed. You will have to follow their orders and guidelines, buy their products even if your margin is low, accept their prices without negotiation, give back a fixed amount of your benefits and answer to them at all times. It is to be expected, as they trust you with their hard-earned reputation and expertise, but it is stopping the ambitious entrepreneurs from being independent and using the profits as they see fit. Something to keep in mind.
Last, but not least, you have to deal with customers, and it’s not like any other business. At first, they can come for the novelty, the brand, the quality associated with it or simply by convenience, but as soon as the going gets rough, you will find yourself very limited. Are they tired of the static menu? You cannot change anything, it’s up to the headquarters. The brand is losing appeal? Good luck with that, as you bought the license and signed a restrictive contract. The prices are too high? You can only reduce your margin.
And don’t count on your smooth talking and sales proficiency to get you out of a potential mess. Franchises are faceless. You are only a part of a machine. Talking to customers to give a face to the business can even be forbidden. The supplier’s power is at it again.
Starting a Franchise can be explained easily. You minimize the risks and increase your chances of success but also lose your independence and room to fix issues along the way. A franchise is as good as its popularity. If it goes down, replaced by a trendier competitor, you will accompany them. Rest assured though, the probability gets lower and lower the older the brand is.
In a market like Cambodia, be prepared for anything. Customers are fickle and value novelty more than anything. If you represent yourself a franchise, know that you must constantly stay at the top, never getting used to success, or it is not going to last.
We hope that this article has been helpful. If you are thinking of starting your own business and want to develop your Project Management skills, check out our certificate course on “Project Management Fundamentals”.