‘‘Years ago, when I was fighting for the cell phone license in Zimbabwe, a friend of mine who ran Coca-Cola Africa, heard about my plight, and made me an interesting offer: “McDonald’s is looking for a master franchisee for Africa. I would like to put forward your name. You will have to go to their university for a year.” I declined the generous opportunity. I only had one regret from my decision: This was the equivalent of a young soccer player from a small African team being invited to train with Barcelona for a year!
It would have honed my craft skills as an entrepreneur. There are about 40,000 McDonald’s restaurants worldwide. Just imagine what it takes to build an operation like that?’’ Writes Mr. Strive Masiyiwa Zimbabwe’s richest man, and the eight richest man in Africa.
A franchise is a type of license that a party (franchisee) acquires to allow them to have access to a business’s (the franchiser) proprietary knowledge, processes, and trademarks in order to allow the party to sell a product or provide a service under the business’ name. The next KFC or ShopRite on your street may not actually be a direct investment from KFC or ShopRite, but the hard work of a franchisee who has been licensed by the brands to run such businesses in their names within any locality they may choose. Below, we discuss why your may consider procuring a franchise to run your next big business.
Why Franchise?
Franchise is a good business model for entrepreneurs for many reasons.
You Require Little Or No Experience To Run A Franchise Business:
You do not necessarily need business experience to run a franchise. Most times, the franchisors provide the necessary training you need to operate their business model.
Franchise Has a Higher Rate of Success Than Most Startup Business.
This is mostly because you are opening an already established business with a good business plan already in place. Hence, there is less chance that the business will fail. When you sign an established and well-known brand, you can benefit from the name and goodwill, much more than small businesses or most startups.
It Costs Less To Own A Franchise Than You Think
Most financial institutions may be more ready to grant you loan or other forms of debt finance than would be the case if you start your own business of the same type.
Although I turned down the opportunity, I was intrigued by the franchise model and began to study it closely. I later used it when launching Econet stores.
There are some of you struggling with any of the following challenges:
#1. You do not have capital to start and expand a business;
Or
#2. You don’t know how to run a big business with more than one outlet;
Or
#3. You don’t know how to innovate a product or service continuously to keep customers interested;
Or
#4. You don’t know how to attract the best people to join your business;
Or
#5. You want to be an entrepreneur but you are risk-averse.
The answer for you lies in franchising from a tried and tested business with an established brand.
Franchising opportunities [as a franchisee] are found in almost every industry.
If you are shrewd, you can develop your business as a franchisor, and use other entrepreneurs and their capital to grow your business,’’ Mr. Masiyiwa continues.
Financial Benefits From Owning a Franchise:
Franchise can be profitable if all the franchisees within your locality use the same suppliers in which case you can negotiate lower costs for the items you sell. You also have access to existing business infrastructure as well as the franchisor’s network which you may not have if you set up an independent small business. Most times, this includes preferential rates — discounts given to franchisees due to the large numbers using that particular supplier. All this means that you have a higher profit.
As entrepreneurs, there is no point in discussing an idea unless we are prepared to put it into practice. Real entrepreneurs are practical! We learn to DO!!
Remember when I started talking about “the digital shared economy” model and my excitement about the “Uber model”? You should have known that I was working on something. Now we have our own business called Vaya Mobility and Logistics!
We are already scaling it in two markets: Zimbabwe and Nigeria! (Remember what I said about “execution”? Always start in one or two markets, otherwise you create execution risk).
Uber has almost 4m cars on its platform. The cost of so many cars would be over $60bn if Uber had to buy them! This would obviously been totally prohibitive for any #StartUp.
Franchising can be used in many different types of industries. We are currently developing a very interesting franchise model for Waste Collection!
# We have already recruited 10x private contractors (franchisees) and we have assigned them each an area of the city of Harare (franchise area).
# Now we have begun to equip them with resources to collect waste from homes and businesses.
# In this model, we provide each franchisee with access to vehicles (using the Vaya Truck platform).
# We are using our #process# to ramp up these small companies so that they can handle 1m homes within three months, something they could not do on their own!
__We call this initiative: “Clean City Africa!”
Imagine if we could scale this to cities like Lagos and Kinshasa!
Who knows… maybe you will be one of our franchisees!
My question for you: Can you ReImagine your business (model) today, as either a franchisor or franchisee?
Why Not Franchise?
Owning A Franchise Is Highly Costly
Most of the time, franchisors only specify the cost for getting franchises from them, but there are other hidden costs such as rent and tenancy fees to your landlord, travel, lodging expenses when attending franchise training; legal, insurance and accounting cost the franchisor may require you to obtain. In all. you may end up spending, on average, $50,000 to $200,000 to acquire a franchise. However remember, as have been noted above, that it is easier to obtain debt financing for most well known franchises. It is left for you to do the calculations based on your budget.
The Length of Franchise Agreements
The nature of franchise agreement is such that it can be extremely limiting. In most cases, once the franchise agreement ends, the franchisee may be prohibited from running the franchise independently. Most franchise terms provide for franchise duration anywhere from 5–10 years, often with an option to renew (at an additional cost). A better strategy for franchisees is to have an exit plan in place before the franchise ends, unless you desire to keep the franchise going.
Not Much Freedom In Owning A Franchise
- Franchise agreements dictate how you run the business; so there may be little room for creativity.
- There are usually restrictions on where you operate, the products you sell and the suppliers you use.
- Buying a franchise means ongoing sharing of profit with the franchiser.
- Bad performances by other franchisees may affect your franchise’s reputation.
- Franchisers often limit their franchisees to a specific geographic region, preventing them from moving outside the area. If you cannot see yourself staying in the same place for 15 years, a franchise may not be a good fit for you.
- The profit may not be glamorous, after all. This is because though it takes hard work to start your own business, if it became successful, the profit would be yours. This, however, is not the case for a franchise; you will owe a fee to the franchiser, and repeat customers might frequent other franchises of the same brand, rather than your particular store.
How To Get A Franchise Across Africa
- First find what business you need to have its franchise depending on local needs for it. Study your locality and the franchise opportunities in it. You can check the franchise directories of these countries: Nigeria|South Africa | Congo | Egypt | Mauritius | Zimbabwe| Malawi |Ghana |Kenya and others.
- Execute a franchise agreement after due diligence has been conducted on the franchiser, and the terms of the contracts are acceptable and agreed by the parties.
- Make sure that the Franchise Agreement is executed in accordance with local laws.
Nigerian Law on Franchising
- Nigeria does not have a specific law on franchise. A Bill on Franchise has been passed by Nigerian Parliament but has not been signed into law.
- The Bill intends to provide a mandatory requirement of 20% minimum local content for all franchise operators in Nigeria. However, Nigeria regulates technology transfer and commercial agency agreements, which may impact on franchise agreements depending on how the franchise is structured and the sector it operates in. Such agreements are regarded as involving the transfer of technology and so is regulated by the provisions of the NOTAP Act. To know the guidelines you have to follow to register your franchise which has a touch of technology in Nigeria, click here.
South African Law On Franchising
- There is no specific law on franchising in South Africa. The Consumer Protection Law of 2009, regulations pursuant to the law and the common law regulate franchising in South Africa. However, there is no registration requirement relating to franchising in South Africa. All the law requires to be done is that the franchiser shall disclose certain material information to the franchisee at least fourteen days prior to the signing of the franchise agreement. The format of the disclosure is prescribed by the regulation to the Consumer Protection Law.
Kenyan Law On Franchising
- Kenya has no specific legislation on franchising. It, however, has laws regulating franchise agreements, including; the Competition Act, Consumer Protection Act and the Trademarks Act. The Competition Authority of Kenya (CAK), being a regulatory and supervisory institution, draws its powers from the Kenyan Competition Act in carrying out is mandate. There is no requirement for the registration of franchises in Kenya, although certain franchises may fall under the supervision of the CAK on requirements regarding market entrance on competition.
Egyptian Law On Franchising
- There is no specific law on franchising in Egypt. All that is needed is a franchising contract between parties which shall be subject to industry related laws in Egypt. However, the main law to be resorted to in franchising is the Civil Code. In addition to the Commercial Law, some relevant provisions can be found within the Intellectual Property rules, Taxation law, Labor law and Insurance law covering many aspects in the franchising contracts.
Angolan Law On Franchising
- In Angola, if a franchise agreement contains service provisions [that is, part of the agreement relates to ‘services’ (such as initial training, guidance on the use of trademarks, etc.)], it is likely to be classified as a Technical Assistance and Management Agreement, which must satisfy certain criteria (including the requirement that the services cannot be obtained within Angola, and that the provision of the services will bring significant benefits to the ‘franchisee’ and the Angolan economy), must be licensed by the Ministry of Economy, and any fees paid thereunder will be subject to a higher tax burden. Other than that, there is no specific law on franchising in Angola
Charles Rapulu Udoh
Charles Rapulu Udoh, a Lagos-based Lawyer with special focus on Business Law, Intellectual Property Rights, Entertainment and Technology Law. He is also an award-winning writer. Working for notable organisations so far has exposed him to some of industry best practices in business, finance strategies, law, dispute resolution and data analytics both in Nigeria and across the world.