[Vantage Point] Why are more ‘frentrepreneurs’ betting on franchising?

Just thinking about the impact the COVID-19 pandemic has wrought and continues to wreak on the lives and livelihoods of people around the world is too distressing!

There are those who have relatives or friends who died alone in their hospital rooms or on their own beds at home where they were kept in isolation. Many of us experienced some kind of psychological and emotional trauma for being cooped up at home for more than two years, while the government imposed seesawing health alert levels. Many of us felt the hard pinch or terrible jolt of finding our pocketbooks shrinking with each passing day, as the coronavirus disease ravaged our economy. 

During the first few months of the lockdown, for instance, Micro, Small, and Medium Enterprises (MSMEs) had it rough. Brick-and-mortar stores scrambled to migrate their products and services online. Those who had already gone digital pre-pandemic had to clamber over more online platforms or reshape their operations to reach more customers in less than a week. 

While Philippine commerce is now starting to scale up, reaching its pre-pandemic growth level is still proving to be a precarious climb. Just when many Filipino business persons have started dusting themselves off, the Ukraine war and the unprecedented devaluation of the peso happened. Those who have saved enough now seem to be having cold feet. 

This is what most of our readers – as I sifted through their comments sent to me by email – are concerned about. “We have some cash stashed up, enough to start a business, but which one should we invest in?” Anthony Cabalez from Makati asked.

I’m not a licensed financial consultant and it may not be proper for me to give Anthony or people like him counsel. What I can share here are general pieces of information about investing which I also learned from my friends in the private and government sectors.

“Frentrepreneurs” or “franchise entrepreneurs” seem to have found a workaround. This new breed of entrepreneurs is now tapping into the power of proven concepts. Rather than the almost Sisyphean task of successfully establishing a pure licensing or pure product distribution business, profitable business, an entrepreneur has the option to open a franchise. For would-be entrepreneurs who don’t want the hassle of creating a new business from scratch, buying a franchise is a viable move. Franchising lets aspiring business owners to swiftly capitalize on a prime piece of location, or even just a rising trend. 

Franchise-savvy entrepreneurs have found out that by operating as an extension of a well-known brand, they can basically cut through a significant chunk of the hurdles that fledgling businesses face — including the lengthy courtship to gain regular clientele.

As Department of Trade and Industry (DTI) Secretary Alfredo Pascual noted during a virtual conference for entrepreneurs, frentrepreneurs experience a higher success rate. “Unlike starting a business on your own,” he said, “franchisees build on tried-and-tested business models.” 

Beyond taking advantage of an established concept, a key benefit that frentrepreneurs also enjoy is the mentorship of the leaders responsible for the success of their chosen franchise brand.

I asked CEO Lester Yu of the Fruitas brand how this concept could be successfully applied. “I can attest to the competitive edge that proper guidance can produce. For us, it has been an invaluable instrument, as our company and its established and fresh concepts could be found franchised in as many as 100 locations.”

Yu believes that franchise partners should be treated like family, and that “we all work because we are invested to be successful.” According to him, this is what inspires their organization to provide a high level of guidance to aspiring frentrepreneurs.

“The efficiency and quality of every franchise’s management, day-to-day operations, are things that we equally treat as a responsibility of ours, too,” he added. “That, we believe, should be the industry standard.”

In franchising, a buyer (the franchisee) pays the established business (the franchisor) a licensing fee to trade using the latter’s branding, trademarks, products, suppliers, and systems. As a franchisee, you have the luxury of having a pre-existing customer base, which would have taken almost forever to build, giving you a faster rate of returns. Contingent on what you have agreed upon with your franchisors, they could provide you with a wide range of pre-opening and ongoing support on requisites such as site-selection, crew training, and marketing. A reputable franchisor can also back you up with loan approvals and vendor negotiations.

Depending on the type of franchise, a franchising strategy significantly reduces the chance of business failure. Compared to independent businesses, the two-year success rate of franchising is approximately 8% higher. Non-franchisees undertake the responsibility and shoulder the costs of their businesses. 

Even after a non-franchisee has set up his or her company, running its day-to-day operations and ensuring overall profitability present additional challenges to overcome. This is not to say that franchisees can just sit back, relax, and wait for their cash registers to start ringing. For a franchise to run smoothly, its owner must have various business skills in competently managing day-to-day operations, the staff, time, customer service, and sales. 

A franchise license can be a profitable investment for a secure financial future. Before you sign a franchise agreement, however, it’s crucial for you to understand your preferred franchise system has to offer. While there are many benefits to becoming a franchisee, there are also risks for you to consider. 

If at any time the market becomes volatile, or a big move – whether up or down – is made, investors must remember that it is the market that sets prices based on the collective wisdom, or stupidity, that comes from millions of business decisions made. Often, many investors rely heavily on the direction of prices to decide how they should act (leading them, eventually, to look for “expert” opinions or forecasts to confirm their actions).

The best way to protect yourself from any economic or geopolitical uncertainty is to invest in high-quality, cash-generating businesses over the long term, specifically those that deliver real value to the economies they serve. Whether you’re a fledgling entrepreneur or a seasoned business person wanting to diversify your holdings, you’re probably wondering: “Are franchises a good investment?” 

The simple answer is yes, especially if a great opportunity presents itself to you.

There is an obvious appeal to starting a business via buying a franchise. Starting a sole proprietorship often comes with several unknown elements. A franchise that has a proven track record is a successful business model that is already in motion. 

Look for franchises with the highest return on investment (ROI). They are the ones that demonstrate large profit margins and relatively low operational expenses. Check out franchises with low overheads. Many low-cost franchises operate from home or are on-the-go, thus removing the need for a brick-and-mortar location which translates into drastically reduced startup expenses. You don’t have to pay rent, build-out fees, utilities, or other expenses connected with a brick-and-mortar site when you run a home- or mobile-based franchise. Furthermore, many low-cost franchises require little or no personnel when you begin, which also significantly lowers operational expenses.

Simply put, investing into a franchise means you own a company with a support structure to fall back on when you need it the most and can pay for itself.

With the business climate starting to become less turbulent, and the lessons from the pandemic are becoming clearer, the call for new ventures is growing louder. While you ponder about what kind of business to venture into, consider franchising. There you have it, many of the fruits are already ripe for the picking. – Rappler.com

Val A. Villanueva is a veteran business journalist. He was a former business editor of the Philippine Star and the Gokongwei-owned Manila Times. For comments and suggestions, email him at mvala.v@gmail.com.