10 top tips for potential franchisees

Need help to find the perfect business opportunity?      
  

The South African franchise industry presents a mind-boggling array of franchises, and every month more are added to this fast-growing sector. Wonderful choice, but the bling generated from aggressive marketing by each franchise can be blinding to someone looking for a solid business opportunity.

Fortunately, those prepared to work their way methodically through a number of basic steps will be able to cut through the clutter and find a franchise in which they can thrive.  

Below are some useful tips if you are looking to buy a franchise:

Know the industry

Choose a franchise in an industry that you know. Your industry knowledge is an important tool for judging the value of the business opportunity, to know if the business suits your personality, and to help you succeed. The ideal scenario is to have worked in an outlet of a franchise that you intend to buy. Failing that, work experience in a similar business is invaluable. Where even that is lacking, choose a franchise with a thorough franchisee training course, the bare minimum for any franchisee.

Choose within your budget

Work out what price range you can afford – savings together with finance that you would realistically be able to raise. There are a number of things to keep in mind here. First, too much finance can ruin your venture. Even if you can get it, be wary of overburdening your business with too big a loan. Second, calculate the entire investment required, including set-up costs and working capital. Do not limit your funding to just the franchise fee.

Check out the franchisor

The first two steps should dramatically narrow down your search and allow you to focus on a particular franchise. Now you have to investigate the franchisor. Start by having a look at the documentation the group provides, but go beyond that. Find out as much as you can about the reputation and financial help of the franchise. The business media and internet searches can reveal a lot about a company’s reputation. Membership of the Franchise Association of South Africa counts in the favour of a franchise, but it does not guarantee success.

Speak to franchisees and ex-franchisees

This is probably the most important exercise in the process. A franchisor should be able to give you a fully updated list of franchisees and ex-franchisees and their contact details. You can test all the assertions of the franchise group with the franchisees – their levels of support, the quality of their training, the profitability of the business, and the integrity of the franchisor’s business dealings.

Investigate the site

Just as important as the integrity of the franchise group is the suitability of the site that you are going to choose for your outlet, or, in the case of non-retail franchises, the area in which you are going to operate. You have to gain a truly deep understanding of the market around your site, not just merely the foot traffic past it, but what kind of foot traffic it is. Are they your target clientele? If you have access to advice from experts or the franchisor, use it, but do your own independent research to help you think deeply about it.

Get the value calculation right

You have to make sure that you are not overpaying for the franchise outlet that you have in mind, whether it is a new or existing one. Once you have done your due diligence and market research, sit down with an accountant to check your financial projections and value calculations. Industry specialists are helpful if you can afford them.

Get legal advice and knowledge

The franchisor will give you a franchise agreement to sign. This is a crucial document detailing the rights and obligations of you and the franchisor. Get a lawyer, preferably one with knowledge about the franchising sector, to go through the document with you, not only to make sure that it is fair to you, but also to explain any clause that you do not understand. While you are in a legal frame of mind, get to know your rights as a franchisee as embodied in the Consumer Protection Act.

Lease considerations

Don’t neglect to get legal and strategic advice on the lease you will sign with the landlord. Some franchisors may recommend that they hold the lease, which can help you if they use their clout to negotiate a good rental. But the disadvantage is that you lose some control over your business if the group ever decides to disband as a franchise.

Think before taking on a business partner

Do not just go into business with someone because it seems nicer than doing it alone. A business partner must add value, such as bringing a skill or capital that you do not have. Even so, you have to make sure that your values and expectations of reward are aligned.

In the end, it depends on you

The strongest franchise brand can still fail if you, the franchisee, do not make it work. Just as in any other business, your operational and cash-flow management must be sharp if you are going to make a success of it. Hands-on management is almost always required. And remember, if you are an experienced independent business owner and this is your first attempt at franchising, you’ll need to get used to operating according to the rules of the group.

Article by Jeremy Lang, regional general manager at Business Partners Limited

Checklist for distributors in Nigeria

Top eight things to consider when exporting consumer goods to Nigeria.

The word boring does not come to mind when you think of Nigeria. Nigeria is one of the fastest growing markets. Beyond the perceived risk and all of the hype, the fact remains that it represents Africa’s largest market, with a population of over 170 million.

Companies in operating in a wide range of industries have been successful in Nigeria. MTN, La Farge, Coca-Cola, PZ Cussons and Diageo come to mind.

Whether you are searching for market entry or looking to expand your business in the country, there are a number issues to consider when formulating your of Route-to-Market strategy:

Fragmented outlet base 

One of they key barriers for most consumer goods companies remains distribution. In Nigeria, the outlet base is fragmented and modern trade is still in the early stages of development. Reaching large numbers of traditional outlets is a difficult and costly business.

From “table tops” to “go slow”

It is also important to understand informal trade channels; “table tops” and “go-slow” channels are two examples.  “Table tops” are tables, set-up as temporary sales points to sell a limited number of stock keeping units. Mobile phone operator MTN successfully targeted table tops as a channel to expand their distribution footprint. The “go-slow” channel or hawking channel sells various types of merchandise that are easy to carry. It has been successfully targeted by mobile phone operators and snack companies, for example, biscuits manufacturers.

Shopping malls

There are two Class A malls in Lagos, providing a high quality shopping experience. These malls are high traffic areas and meeting points. Malls are often visited by “window shoppers” and often used by companies for brand building opportunities. Beyond the mall, shopping complexes offer a more organized shopping experience than traditional trade channels. Shopping complexes are found in fast growing areas, e.g. Lekki, and are organized along a strip, similar to strip malls found in the United States.

Modern trade 

While investment in shopping malls has begun, few supermarkets have entered Nigeria, constrained by capital and land use rules. Notable players include Shoprite (South African), Spar (Netherlands, with Nigerian partner) and Game (South African, US' Walmart acquired a majority stake in the parent company Massmart). Supermarkets are increasingly purchasing directly from product principals and importers. Beyond the international supermarket chains, local chains are growing fast and they vary in the degree of their modernity and category mix.

Open air markets 

In many cases products flow from agents who sell directly to wholesalers or directly in open markets. In Nigeria, open air markets remain primary purchase channel for a number of product categories. An estimated 70% of all wholesalers and retailers are located in the traditional markets. Wholesalers sell to retailers in large quantities and at discounted prices. Small groceries often require an intermediary, such as wholesaler, to break bulk. For example, on a market visit to Kaduna, Nigeria, we identified the ability to break bulk as one of the key value drivers for smaller distributors or wholesalers. Nearly all importers have outlets or representative wholesalers in open markets.

Feeder markets 

Some markets also act as feeder markets. The coverage of the feeder town depends on product category, price and availability. It is estimated that 60% of consumer goods products flow through markets in Lagos, Kano, Maiduguri and Onitsha. In Accra, Ghana, I met retailers selling satellite dishes purchased from markets in Lagos, which they profited on even after factoring in the bus fare to collect the dishes. However, the retail landscape is changing quickly and open markets are in decline for certain product categories.

Distribution models 

The majority of international brand owners operating in Nigeria utilize third-party distribution networks (e.g. FMCL, Great Brands). A number of companies have developed direct distribution models or are actively managing their 3rd party distribution partners, e.g. Coca-Cola. Some companies, such as Coca-Cola, have also developed micro-distribution models (mini depots, push carts) to better service traditional trade channels (view picture of Coca-Cola distribution).

Finding the right partners 

Finding the right partner can be a challenging undertaking. Few distributors handle the “last mile” of logistics and most distributor footprints are limited to wholesale and key account outlets. A number of companies have opted for multiple distribution networks focused on geographic areas and types of customers, as there are few distributors with a national footprint.

Nigeria is a fast changing environment, modern trade and retailing are expanding and middle class consumers shopping patterns are changing. What works today will likely not work tomorrow. Take time to understand culture issues and don’t assume anything.

This article is re-published with permission from Frontier's content partner, The Supply Chain Lab. 

Eight tips to attract private equity investment

What do investors want? Experts at private equity firm, Jacana Partners, reveal how to make your company appealing to investors.

Are you a team leader? - Stephen Dawson, chairman and investment director, East Africa

Do not hire a personnel manager even if your business employs large numbers of people. Selecting, motivating, managing, and communicating with your core team is one of the most important things that you do and cannot be passed over to another manager.

Do you have an in-house finance manager?

You may think that financial management capability is something you can hire as needed, but as your business grows you need to have this resource in-house. These skills are very different from the entrepreneurs’ and you may need help in choosing the right person for this role.

Are you running too fast?

Beware of over-expansion and particularly moving into new fields before you have really proven the model in your core area; this applies to product or service range expansion, but especially to geographic expansion.

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Do you know your strengths? - Robert Jenkins, Investment Director, East Africa

Look for patient value-added capital that will round out your weaknesses. We expect you to have the vision and the domain expertise to get started. We can then build up the execution team together.

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Prudence always prospers - Kenneth Ibbett, Investment Director, West Africa

Don’t borrow money just because you can – spend only on what is critical to improve your bottom line. Frugality forces discipline and focus.

Think entrepreneur

We like entrepreneurs, so think outside the box, challenge convention, outwit the competition. Be savvy when it comes to strategic partnerships with investors and other partners. A real entrepreneur realises it is better to seize the opportunity with a good partner now, rather than haggle over terms for six months and be left empty handed.

Expansion: Have you considered all your options - Ezra Musoke, Partner, East Africa

As you expand, look at the case for equity finance as an alternative to bank finance. A private equity firm can be a valuable partner in your business and strengthening your equity base means you can also prudently take on more debt.

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The courage to change direction - Barnaby Terry, Investment Director, West Africa

Once you raise money, don’t be afraid to deviate from the Plan. Circumstances change, more market information emerges, so don’t be afraid to rework the plan with your investors and team as you go along.

Jacana Partners is a pan-African private equity company that invests in entrepreneurs, builds successful small-to-medium sized enterprises and delivers sustainable financial and social returns.

Seven things to consider when exporting products to Ethiopia

With a population of over 90m and a fast-growing economy, Ethiopia is a ripe market for distributors.

By Tielman Nieuwoudt, Principal at The Supply Chain Lab

Ethiopia is the second most populous country in Africa (after Nigeria) and one of the fastest growing economies, with an average GDP growth rate of 10% (IMF) over the last eight years.

When entering Ethiopia, there are a number of issues to consider when designing your Route-to-Market: 

Infrastructure and territories

Ethiopia has made great progress in infrastructure development with the country spending US$-1.3-billion or 10% of its GDP annually on infrastructure development, according to the South African Institute of International Affairs. However, as impressive as these numbers are, distributing products in upcountry areas remains a challenging undertaking.

Port

Ethiopia lost its port in 1992, when Eritrea became independent. They now rely on the port of Djibouti where costs are high. It costs more to transport a container from Djibouti to Addis Ababa than China to Djibouti (The Economist). The Lamu Port-South Sudan-Ethiopia Transport Corridor (Lapsset) holds future potential.

Territories

In comparison to other African countries, Ethiopia has a low urbanisation rate (11% vs. 30%). Addis Ababa, the capital city, contributes the bulk of the volume in Ethiopia. Ethiopia’s second city, Dire Dawa, has a population of 274,000 (ESA) compared to Addis Ababa’s estimated three million. It is estimated that 38% of the population still resides five hours or more away from a city with a population of 50,000 (IFPR).

Trade channels

Modern trade is in the very early stages of development and there are currently no international supermarkets operating in Ethiopia. In a very fragmented trade market, souks/kiosks remains the largest trade channel in Ethiopia.

Market

The Mercato market in Addis Ababa is one of the largest markets in Africa and the largest in Ethiopia. The market is dominated by wholesalers. Some companies generate more than 70% of their sales from Mercato. Wholesalers make low margins (2-5%) and most tend to be passive, waiting for customers to collect. While the role of Mercato wholesalers cannot be overlooked, they are not always a good option for building relationship with retailers and building brands. Most MNCs (Multinational companies) we talked to highlighted the importance of direct distribution, as it remains difficult to build a brand through a wholesale system.

Route-to-Market Models

MNCs are entering Ethiopia though distributors as they lack the required knowledge, scale and product portfolio to build their own distribution. However, beverage companies with local bottling operations also make use of direct distribution (key accounts) and micro distribution (such as the Coca-Cola Micro distribution system). It is important to note that foreign companies cannot distribute imported finished products, whether sourced directly or from local importers.

Organisation

Most MNCs are still operating out of their Nairobi offices. However, companies are increasingly opening new offices in Addis Ababa. Ethiopia is significantly different from the other East African markets and care should be taken to understand the culture aspects. Including when displaying role models for advertising purposes.  Foreign investors are increasingly recognising the consumer goods potential in the country, as recent acquisitions from Diageo, Heineken and Tiger brands have demonstrated.

Free tips for entrepreneurs to prepare for equity funding

Investment experts give SMEs and start-ups in Africa tips on growing successful businesses.

Globally, Small and Medium Enterprises (SMEs) are considered the single largest driver of economic growth and job creation. In Africa, there is growing importance to support local entrepreneurs in order to build a pipeline of future deals for equity investment. To attract funding, there are basic fundamentals that start-ups and SMEs must effect, for instance, having sound business plans and implementing best practices in business governance. 

Frontier, in partnership with investment gurus at SME-focused private equity group, Jacana Partners, brings you the second part of a three-part series of tips to help you successfully start your business and get it ready for funding. 

Starting to grow a business

Initial growth - Barnaby Terry, Investment Director, West Africa

​When planning your new business, you need to focus on a simple product or service that has a clear value proposition and business model.

Product-line profitability

Many businesses have multiple activities, whether they be a mix of products and services; multiple product lines and different territories. Find out which activity makes money and put resources behind it. Find out which activity loses money and either fix it or close it.

Focus on gross margins
Gazing at revenues can be seductive, but they are often not the right thing to measure. Make sure you know your margins, and also make sure you know them at a customer level.

Plan your exit 
Most companies sell to companies they know already. Remember this when you are dealing with business relationships.

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Key Performance indicators - Stephen Antwi Asimeng, Partner, West Africa

Choose less than five key performance indicators that best reflect your business and measure them on a timely basis. You wouldn’t fly an aeroplane without instruments after all.

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Be decisive - Paul Fitzsimons, Investment Director, West Africa

If things obviously aren’t working in a part of your business, act quickly and cut your losses. A half-hearted approach to important business decisions wastes time and money.

Manage your cash
Cash flow is everything in a growing business – a business must have a robust method of forecasting cash receipts and payments – on a very detailed basis for the next 12 weeks and on a broader basis for the next year. The business should look at actual versus budget on a weekly basis and follow up on any variation from the original plan.

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Be competitor savvy - Stephen Dawson, Chairman and Investment Director, East Africa

Be aware of your competition. You  may think you do not have competition but they are always there (even if indirectly); by studying your competitors you can learn from the things they do better than you and make sure you make the most of the things you do better.

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Frontier African Success Story

Zambia-based Zambeef Group, began 20 years ago, delivering meat around Lusaka in the back of an old Land Rover. The company has has since grown into one of the largest agribusiness companies in Southern Africa. Zambeef is now replicating this success in West Africa.

Download a complimentary eBook on the company to learn more about how Zambeef found success.

Seven top tips from investment experts

Frontier, in partnership with private equity firm, Jacana Partners, brings you expert advice to help get your business off the ground and ready for investment.

Building a business in Africa is not easy. It takes years of practice, not to mention a certain amount of trial and error. SME-focused private equity firm, Jacana Partners, canvassed its experienced senior team members to provide you with valuable tips that can help to build your business and get you ready for investment.

This article is part of a series, which Frontier will bring to you over the next couple of weeks, in partnership with Jacana Partners. 

Setting up a business

Business plan ownership - Barnaby Terry, investment director, West Africa

Write the business plan yourself; don’t get advisers to do it – and make sure the senior team contributes and takes ownership of the document. The business plan is not just a document that private equity groups like to read, it’s the vision, the business case and action plan for your company. It’s an important exercise in determining the future direction of the business and ensuring the whole team is behind it.

Size matters

Is the market you are addressing large enough? And are you targeting a niche within that market? Become a market leader in your niche and progress from there. Remember that as a private equity investor, we eventually need to exit our investment in your company, so size of market is important to ensure you are of interest to an investor in the future. As a general rule, we would expect the company’s revenue to be at least five times the size of our investment in four years – so think big!

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Know your audience - Anthony Gichini, Partner, East Africa

The first thing you need to understand when starting a business is your customer market. What is their problem and what is your solution to that problem? It is a proven fact that people will pay a premium for a unique offering which makes their life simpler.

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Revenue counts most - Stephen Dawson, chairman and investment director, East Africa

In business plans the revenue number is the hardest to get right but by far the most important; spend 90% of your effort on the aspects that lead to the revenue number: market size and growth, competitor offerings and your competitive advantage,  pricing, marketing, converting prospects into customers, routes to market etc.

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Start-ups: simplicity is key - Christian Opoku Biney, Partner

When planning your new business, you need to focus on a simple product or service that has a clear value proposition and business model.

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Validation - Barnaby Terry, investment director, West Africa

To be successful, you must validate your offering with real customers before launch. This is an iterative process that takes time, and cash preservation is key during this phase.

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Don’t try and do everything yourself - Paul Fitzsimons, investment director, West Africa

Surround yourself with people with experience of the industry you are focussed on – you don’t have to agree with them but they can often have helpful insights or contacts, which could grow your business more rapidly than you can. You can also learn from their past mistakes, as opposed to finding out for yourself.

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Frontier Success Story

Africa has many indigenous and successful companies that have international reach. Download a complimentary eBook on the success story of Zambeef Group, and learn how your company can attain the kind of success groups such as MTN, Imara Group, Dangote Group, and Shoprite Holdings are enjoying on the continent.