During our franchise interview with Derek Smith, owner of Hot Dog Café and FASA Chairman Elect 2013, he explains how beneficial franchising can be to investors and the local economy.
What is the best piece of advice you would give a franchisee?
A franchisee must sustain a daily presence and have a ‘hands-on’ management style in their franchise. Although it has been shown that franchises have a very high percentage success ratio, there remains an element of risk. This risk can be minimised and profits maximised by the owner of a franchise maintaining a daily presence in the business.
If a potential investor in a franchise system believes that they can delegate responsibility for the operations of a franchise and merely reap the rewards, they will strain the resilience of any business system, even a proven franchise.
What do you think some of the most common misconceptions among franchisees are?
The most common misconception is that a franchise system is a guaranteed, risk-free investment. No business is without risk and it’s imperative that a prospective franchisee investigates the potential investment thoroughly. Once invested in a franchise, the business system will reap rewards proportional to the effort put in. The franchisor can train, guide, give advice and support, but cannot do the job for the franchisee.
What do you think the ‘next big thing’ in franchising is?
At present I am aware of investigations in many government sectors to use franchising to help standardise and improve the service delivery of services such as health care, water and sanitation, education etc. There are huge benefits, opportunities and rewards to be reaped in this area.
Another area where franchising can significantly benefit the country is in job creation and empowerment. The simplest solution to the current unemployment problem in South Africa is via the expansion of the small business sector. There is no better way to achieve this than via the proven business systems which exist within franchising.
Proposals are currently with government agencies to form public/private partnerships with the franchising sector to train and employ 30 000 to 50 000 of the currently unemployed over the next three years.
What do you think is currently the biggest challenge for the franchising industry?
The main problem for the industry as a whole is the stain on its credibility caused by unethical operators marketing unprofitable business systems under the guise of franchises when they are clearly not. FASA attempts to eliminate such operators by maintaining strict ethical and operating standards amongst its members.
However, at this moment in time franchising is not regulated by government as it is in other countries and, as such, FASA is a voluntary organisation.