Career Memoirs by Ravikumar Pillai
Franchising as a business model has come a long way from the pitfalls, mutual suspicions and lack of transparency that clouded it in its early days in India. When I jumped onto the franchising bandwagon, the options available were minimal, the rules of the game were still unfolding, and it was out and out an unequal playing field with the franchisers calling the shots at every stage of the franchise management value chain. The franchisee was clearly the weakest link in the chain. Most Corporate Branding and Marketing strategists saw franchisees as nothing more than dummies lined up as targets in the firing range.
The franchising model was still a tentative game with many dots to be connected in its long and winding path to business maturity. I signed up and became a franchisee of a leading educational brand's diversification into what appeared to be a promising and strategic skill development domain.
Sales as a function has been perceived as operational, routine, and far from strategic in those days. The recognition of selling as a critical link in the go-to-market strategies, channel development and last mile touch point experience for customers and prospects was just about emerging.
In the 1980s and '90s, the Indian economy was poised to transform from a scarcity-driven, seller’s market where the quality of products and services was secondary to a dynamic, market-driven function. For the first time, the corporate sector was waking up to the reality that you just could not continue to dump any sham product or service on the market, but you had to offer to the customers what they needed and at a price and quality that they would feel satisfied. This shift was the early fallout of the economic liberalisation policies that the Government was forced by dire fiscal tightness and global headwinds to adopt.
In the open market model, the private sector would play the lead role, and marketing, sales and customer experience had important roles to play. The professionalisation of sales management was a key skill domain for the economy with a massive, upwardly mobile and aspirational middle class.
When NIIT, the pioneering and highly successful IT Education franchise ventured into professional sales training, certification and placement, the proposition was appealing for me to jump on the bandwagon as a potential business partner.
I shall try to honestly and objectively lay out the misses and hits, pitfalls and threats that I encountered in my franchising saga.
First, let us understand the logic and rationale behind the concept of franchising as a business model. Why should a company go for franchising when it has the option to handle the brand positioning, go-to-market strategizing and sales operations roll-out all under its direct control?
In mass-market products and services like education, restaurants, beauty and wellness and much more, there is always the risk of rapid scale-up of competition since the entry barriers are few and the customers are largely price-sensitive. In the field of computer education, for example, there were a lot of new entrants who attempted to ride on the massive sectoral marketing initiatives of the big players, who pioneered the sector in the 1970s and 80s.
The major players invested heavily in obtaining globally recognized licenses or master franchises, developing branding and go-to-market strategies and ensuring good quality faculty, rigorous faculty training, periodic upgrades of content and faculty competence. It, therefore, made sense for them to fast-track the market penetration and the build-up of the revenue pipeline. The first-mover advantage would evaporate sooner than later and newer competitors with a smoother path to grow at a lesser cost would garner market share playing on price elasticity and leveraging the concept marketing already done by the big ones.
Franchising helps to share the cost of brand-building by onboarding a crop of entrepreneurial business partners who would do much of the legwork. Theoretically, franchising is a win-win business model since both franchisers and franchisees benefit from it. The concept is benign and quite appealing to both the promoters and the business partners. However, the pitch queers because the jugalbandi between the Brand owners and business partners does not always play out smoothly, transparently and for mutual good.
Greed and selfishness by both parties are the key reasons why the franchise business model does not work well.
I faced five major challenges on my ‘business partner’ foray. I am sure the pain points would resonate with many of my readers who have managed or worked with franchise partnerships.
Firstly, the priorities of the franchiser, especially when introducing a niche brand or value proposition, are to optimize the cost of operations and leverage business partners in brand building and operations management. The advertisement and business development expenses are substantially shared by the franchisees, but the franchisers mostly get disproportionate benefits out of the expenses and efforts of the partner network. Franchise Owners most often pursue franchise network expansion disregarding the franchisee’s jurisdictional protection. This was much more in the early days of franchising in India.
The heavy brand promotion advertisements and campaigns blow a huge hole in the franchisee’s finances, but the outcome of the efforts often is skewed to the advantage of franchisors. The sanctity of the franchiser-franchisee covenant, mostly the ethical and uncharted one, usually falls apart. When a new franchisee props up just under your nose after all the shared brand advertising done by you, it hurts. What an uneven and distorted picture it is to see the franchisee who is attracted by the aura of the corporate brand and promising business value proposition offered by the Franchisor ending up as the mule on whose back the brand and the franchise ride. I was often reminded of the limerick “There was an old lady, who rode on a tiger, to hunt in the forests; when they returned, the tiger walked back content and happy, but the old lady was not seen around, for she was inside the tiger’s belly”.
Secondly, when I started the business partnership, there was cushioning available for the onboarding franchisee on working capital access. The advance fees collected were at the disposal of the franchisee. This could generate interest income and provide fallback working capital in case of fluctuating operational needs. However, due to some instances of unprofessional fund diversions, indulged in apparently by some of the franchisees, the system was overhauled. An escrow account system was introduced. All fees collected were deposited in the escrow account that was in the name of the franchisor. Franchisees were released the monthly payout based on the franchisor-appointed auditor’s certification of monthly revenue and course completion.
Well, to be fair, this system was desirable and served the interests of the students. However, the drying up of access to working capital strained the operational expenses management by the franchisees resulting in his or her having to tap overdraft facility from banks to meet operational exigences. Also, the franchiser benefited by being able to expand working capital access against the deposit held in the escrow account, because banks obliged by extending working capital against the escrow account balance.
On working capital access and in leveraging brand building and promotion expenses with franchisee funds, the franchise model proved to be heavily skewed in favour of the stronger party, the brand owner at the expense of the entrepreneur-business partner.
Thirdly, I made a big mistake in jumping into business entrepreneurship without basic financial security. Like many before me, and after me too, my entrepreneurship was flying on artificial wings and aiming at an imaginary sky where the hue was more of fantasy than reality. Even the initial franchise fees were paid by me on borrowed capital. As for set-up costs, a term loan was taken. The interest rates prevailing in India were high, naturally due to the high inflation. Thus, my business was front-loaded with a heavy interest burden even before the first rupee was received as revenue.
Further, the one lesson that I should have learned early on was that every rupee counted when it came to expense management. A rupee that could be saved in costs is as good as one rupee earned as revenue.
Frugality and moderation are great virtues in business. That is where the traditional business communities in India score as businessmen. The tendency to conserve capital, economize on spending and follow a simple and grounded-to-the-earth lifestyle are great qualities in entrepreneurs.
Routine items like rent, utility charges, travel and entertainment expenses are all unavoidable. Only those who are mindful of small expenses and casual and sundry spending would be able to practice the frugality needed to be in business, especially at the beginning of entrepreneurship and when the going is tough from time to time. In hindsight, I have no qualms in admitting that I failed miserably in containing and regulating costs.
Fourthly, a franchise arrangement binds you to the rules, said and implied, that the franchiser prescribes. Often these may constrain your freedom to pursue techniques, tools and associations that could give you better results. When you are on your own, you are the boss and you chart the way forward. When you are a franchisee, you are bound to follow the instructions, guidelines and approaches that the franchiser thinks can advance his business interest.
I wanted to try out corporate training as a promising revenue stream. I had experience in the field and was passionate about it. Customized corporate training on sales and business promotion was something that could have gone parallel with the student training. It would have enhanced the monetization of the hefty franchise fees paid and scaled up revenue. However, the brand owners saw corporate training as their preserve and restricted franchisees from tapping it. There were many such instances where bureaucracy and partisan perceptions came in the way of smooth and mutually supportive franchisee relations.
Fifthly, it was a great challenge to source, retain, reward and upgrade the faculty talent. The ability to pay at or above the market was constrained by a lack of financial robustness as a niche entrepreneur. The vulnerability of good sales trainers to poaching by corporates was a perennial risk.
Above all, the sales training market was proving to be quite different from what I had expected. The sales profession suffers from a skewed identity or image issue. Many fresh job seekers see it as high-pressure, strenuous and ‘burnout-prone. Making repeated calls on prospects, facing rejection one after the other, feeling like an automaton because of an obsessive push by superiors on target accomplishment and the perception of sales as a poor cousin of marketing have all resulted in dwindling demand for the course.
My franchise period was coming to an end. Fresh expenses for the renewal of the franchise, faculty upgrade and campaign for the newer courses all weighed in my mind. I counted my mounting losses and burgeoning payables. The interest burden and the rental outflow, apart from other expenses, continued to be major drags on financial viability. I decided to end the franchise and coordinated with the franchiser for a smooth transition to the new franchisee whom they identified to take over.
With a huge liability to clear and having closed the chapter of my entrepreneurial foray for good, I told myself it was time to look for the next journey. We do learn a lot more from failures than from our successes. There was tomorrow reckoning, however hazy and fluid it seemed to me then.
Comments