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An appropriate way to become your own boss

Friday 1st September 2000

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Many individuals dream about being their own boss and a considerable number put the dream into practice and set up business.

An earlier survey of small business enterprises in NBR Personal Investor (August 1998) noted some of the activities: seven-days-a-week dairies, owner-driver taxis, book and magazine shops, fast food outlets, restaurants, cafes, wineshops, public relations consultancies, advertising agencies, sundry general retail outlets, gardening and odd-jobs businesses, and the range of trades, including painting, carpentry, plumbing, automotive maintenance and general engineering as well as smallscale engineering.

Even that list does not exhaust self-employment opportunities. There are also professional activities, such as medicine, dentistry, legal services, other forms of medical or semi-medical assistance, optometry and accountancy.

Professional services are, in the main, outside the scope of this survey, because their practitioners usually need a formal tertiary educational qualification and, in many cases, must have a practising certificate and be members of a professional association, the latter having disciplinary powers under particular statutes.

People who decide to become self-employed need to remember that a large number of small businesses do not survive for more than a few years. No exact statistics are available on small business and self-employment failures, partly because many self-employed people just close down and walk away when the going gets tough. They are usually absorbed back into the general workforce and there is no statistical record of their comings and goings.

Statistics are available on the people involved in taking up a business opportunity on a franchise basis and their rate of success.

Franchise Association of New Zealand (Fanz) president Win Robinson said people starting up in franchise operations have a 74% success rate in the first five years. He considered the failure rate of independent self-employed was possibly close to the success rate of franchisees, although there was a lack of concrete figures.

Mr Robinson described franchising as "photocopying a successful business with a good track record and reproducing it in another area."

"The advantage is that you have a good history to predict how the photocopied business in a new area is going to operate."

Franchising in New Zealand is now a $6 billion business, employing 45,000 people across a wide range of activities from lawnmowing to operations like Placemakers and Mitre 10 stores. Fanz is an industry organisation for franchisors, franchisees, affiliates -"legal entities" offering support services to the franchising industry - and associate members, the last category covering anyone with an interest in franchising, including students.

In conjunction with the National Bank as principal sponsor, Fanz recently presented its third annual survey of franchising. Industry estimates indicated there were 200 or more business-format franchise systems in the country.

Such a franchise had these elements:

  • the entire business concept, which included the brand and all intellectual property;
  • a process of induction and training in all aspects of the business according to the business concept that was written up in the business manual(s); and
  • a continuing process of assistance monitoring and guidance.
It excluded trademarks, product relationships and associated licences.

Highlights from the survey showed 75% of the operations originated in New Zealand, 30% of the indigenous systems were being exported or intended to be so soon, and 85% of the system franchised started within the past five years. There were an estimated 4900 franchised and company-owned units in 1999.

The media total start-up cost for a franchise was $90,000 but there would obviously be a range of prices. Mr Robinson said the costs could range from, say, $8000 for a lawnmowing operation to $1 million for a retail business.

The survey showed retail non-food and personal and other services were the largest industry grouping with each having 21%. Disputes stayed low at 1% of the total number of franchise units. Franchisors instigated 41 disputes and franchisees 22.

It is common practice for a main franchisor to appoint a master franchisor for all or part of the country and the master then appoints and deals with franchisees. Mr Robinson gave the Body Shop (UK) and McDonald's (US) as examples of overseas operators appointing master franchisors in New Zealand.

There could also be master franchisors appointed by New Zealand-based operators for particular areas of the country if there were a large number of franchisees. The New Zealand-based Greenacres, for example, had 600 franchisees and had master franchisors in various areas.

Mr Robinson's examples of large-scale franchises included Restaurant Brands, Telecom's Business Directions (cellphones), Mobil Oil, Fletcher Challenge (Placemakers), Mitre-10 (run from Australia), the Lotteries Commission (Lotto outlets) and New Zealand Post (Post Shops).

It has even extended to legal and medical practices. A franchise system in a medical practice, for example, had nothing to do with how to treat a patient, a matter for which a medical practitioner has a personal responsibility.

A franchise system developed in Hawke's Bay and called "the doctors" was a business system or effectively an office guide with operating manuals for operating the business side of the practice.

Franchising would seem an appropriate way for individuals to enter their own business. The system has advantages in that there is a relationship between franchisors and franchisee and support systems in place, a situation an independent, standalone business person may not enjoy.

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