Employees or Franchisees? A Franchise New Zealand Article

Franchising isn’t just for big businesses, suggests Tereza Murray. It can be a viable alternative to the hassle of employing staff – and if you want to be self-employed, a small franchise can offer some real benefits
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Franchising isn't limited to just big corporations with extensive multi-department head offices. Particularly in recent years, it has emerged as a more practical and sustainable growth model for smaller businesses than the traditional approach of opening and staffing new locations or adding more service vehicles. Although the franchisor ultimately benefits from reduced expansion costs and risks, it may take more time to bring franchise partners on board. However, once they join, franchise partners tend to stay longer than employees and consistently maintain a higher standard of work.

For many Kiwis, the idea of self-employment is appealing, however, the inherent risks and high failure rates associated with start-ups typically extinguish such aspirations. Many tradespeople venture into self-employment with the aim of building their own brand and often return to contracting within six months due to struggles in marketing, cash flow and competition against larger brands. With franchising's popularity in NZ well established and on the rise, many bored, underpaid and dissatisfied employees are exploring franchise opportunities that offer a successful and rewarding career alternative.

While well-established franchise brands may seem attractive, emerging and growing franchise systems offer unique benefits and opportunities that larger systems find difficult simply due to their size, such as more available territories and entering new markets and industries with less competition. Additionally, these brands often bring fresh, innovative concepts, allowing franchise partners to differentiate themselves and appeal to a more diverse customer base.

What we have observed through working extensively with smaller businesses is that franchise partners aren’t prioritising a well-established brand in their decision-making process and that they are more compelled by the franchisor/franchise partner relationship and the franchisor's enthusiasm and commitment to the overall business and success. Also, I think that some franchised businesses are now just that… ’franchise businesses’ rather than a business that grooms dogs or mows lawns, provide handyman services, sell good food and coffee or build homes. I think at a certain size, the business becomes a business of selling franchises, and the service or product is secondary.

Another advantage is the focus on personalised support, as smaller networks usually provide more mentorship to their franchise partners, fostering stronger partnerships through a willingness to collaborate on key strategies and policies. It is often the lack of this opportunity that causes discontentment across franchise partner networks. As franchise partners have more access to the franchisor and real mentorship, this can make for a more meaningful journey into self-employment, where real professional growth is achieved rather than just following systems, and the franchisor benefits from a motivated, engaged and proactive community representing their brand.

Since the impact of Covid, I regularly engage in conversations with business owners, struggling to meet the surge in demand for their services. Simultaneously, it has become increasingly challenging to attract and keep talented staff, especially in trades and services businesses, where many positions demand industry qualifications and/or skilled labour. The demand for skilled workers has risen, intensifying the competition and raising the cost of recruiting and retaining competent employees. Employees now wield more influence in negotiations relating to remuneration, benefits, and flexible work arrangements. Consequently, small business owners have had to adapt, and franchising has emerged as a solution to tackle many of these obstacles.

Another emerging trend brought on by Covid is many choosing to depart the larger cities in favour of rural regions and smaller towns with lower population density and reduced traffic. This migration is expected to boost the demand for franchised enterprises in the regions. Home-based franchises have also enjoyed a surge in popularity as they offer more lifestyle flexibility and lower operating costs, meaning less risk, and are seen as more ‘family-friendly’.

It is important to note that not all business owners we speak to have grand plans for world domination. Many simply want the ability to meet existing demand or fulfil service agreements in other locations without the headache of managing remote teams. By partnering with invested individuals, the franchisor has the capacity to concentrate on performance and innovation. This is a challenge that many small business owners grapple with, as they often find it difficult to ‘get off the tools’. ‘Success’ for our clients is subjective, for some, it's 2 – 3 franchised locations in addition to their main operation that require very little input or oversight on a day-to-day basis from the head office, and for others, it’s about becoming a market leader and eventually transitioning away from direct delivery of the product or service and operating wholly through a franchise network.

Business owners considering expansion through franchising need to be aware that franchise partners are not glorified employees and should approach the relationship as they would any healthy partnership. Mutual respect, honesty and a collaborative approach are important traits for a franchisor who wishes to establish a franchise with long-term prospects. Equally, franchising is not a get-rich-quick scheme but rather should be approached as the long game. A key strategy in attracting franchise partners should be keeping the entry cost low. Franchise partners shoulder the associated cost of establishing a new location, so the main objective should be to help them set up and become operational and profitable quickly.

My advice for individuals interested in exploring opportunities with emerging franchisors, aside from the usual due diligence, is to spend time understanding the franchisor's vision for the brand, and their approach to the relationship. Their business journey will be a big tell also. What has been the biggest driver behind their success, and what have been the biggest lessons learnt along the way, after all, it is this knowledge and experience you are investing in.