How to succeed as a franchisee

Turning a start-up franchise business into a success is tough, but possible. Learn from an expert the keys to striking gold.


By Jeremy Lang

If you’re the kind of guy who likes to go to sleep early, don’t buy a restaurant franchise. I am stating the obvious? Perhaps, but you’ll be surprised how many first-time franchisees make the mistake of buying a franchise that simply does not fit their lifestyles.

In the world of start-up franchising, it can easily be a fatal mistake to make, because there is so little room for error. Very few people who buy their first franchise have the resources for a second chance once they’ve found out that the franchise they had set their heart on is actually not the right fit.

Lifestyle preference is only one of three pillars which prospective franchisees must consider to make sure that the franchise they choose is the right fit for them. The other two are skills and personality.

The skills set of the entrepreneur is the most important. First, there is the technical know-how related to the specific industry, such as a beauty salon or a service station. You’ve got to be able to choose a franchise for which you either have a natural skills set, or one in which you’ve had previous experience in.

Irrespective of the industry, a franchisee will always have to be a jack-of-all-trades to a certain extent - the HR person, the salesperson, the office-manager person and the tea lady, so you’ve really got to have a good general hybrid of skills such as:

• Good management ability, which is the core of what the franchisee is signing up for
• Sales skills, because your whole enterprise revolves around your ability to secure business
• An eye for detail and practical problem solving skills. Because you will be fulfilling multiple tasks in your business, you have to know as much about all the different systems as possible
• Networking and relationship-building skills for forging ties with your clients, staff, suppliers and franchisor, and
• Practical problem-solving skills. You are going to be faced with many challenges every day. You will have to be decisive, and think quickly to find solutions to problems.

This list is true for any start-up business, franchised or not, but there is one set of skills particular to franchising: the ability to follow the rules of the concept. Franchising is a recipe that requires strict adherence by franchisees, otherwise the service or product will start differing from branch to branch, and the collective power of the brand will suffer. If you are not somebody who likes to operate your business under a strict set of rules that you have not created, then franchising may not be for you.

Being a successful franchisee not only has to do with skills, but also with personality. Prospective franchisees need to be honest with themselves about their personality. A generally introverted person should shy from retail or service-heavy businesses such as restaurants. Similarly, a sociable, outgoing personality will become frustrated in a desk-bound business where there is little interaction with clients.

Although nothing can replace common-sense self-knowledge, I would suggest doing a personality test such as the Myers Briggs test, more to help you think through what you already know about yourself rather than teach you about aspects of your personality that you didn’t know.

The unknown usually lies on the side of the franchise. A first-time franchisee who knows himself well could still be in for a nasty surprise when it turns out that the franchise requires an approach, attitude or trait that he simply isn’t comfortable with.

There are two methods of avoiding this mistake. First, speak to the franchisor that you have your eye on. A reputable, established franchise group will have a very clear idea of what kind of personality and skills set are required to make a success of their concept. Some will have formal descriptions and even tests as part of their assessment process.

Most importantly, speak to the franchisees in the group that you want to join. If possible, work-shadow franchisees who are hands-on involved in the management of their businesses for a week or two. The exercise should leave you under few illusions about whether you are up to the task, and whether the work and lifestyle suit you.

Jeremy is regional general manager of Business Partners Limited.

______________________

Below are links to some franchise opportunities on the Frontier platform

International financial services company is seeking a master licensees in Africa

Investors sought for expanding popular fast food franchise in South Africa

Top 9 private equity deals in Africa

The month of March saw an abundance of activity in the private equity sector in Africa. Below are some of the transactions realised.

1. Citadel Capital Subsidiary acquires additional stake of Rift Valley Railways (Kenya, Uganda)

Africa Railways, a core subsidiary of investment company Citadel Capital, has acquired a 34% stake in the national rail operator of Kenya and Uganda. The US$ 37.8m transaction brings Africa Railways’ total ownership of Rift Valley Railways (RVR) to 85%.

The selling party is TransCentury, a Nairobi-listed infrastructure company.

As part of this transaction, Africa Railways shareholders including Citadel Capital have together committed US$80m to increase Africa Railways’ capital to US$200m. Of that USD$80m in fresh capital, US$37.8m has been used to finance the acquisition of shares from TransCentury, while the balance will be injected into RVR to support the ongoing five-year turnaround program.

Citadel Capital first acquired a minority stake in RVR in 2010, eventually becoming lead shareholder via Africa Railways. The firm has since led the creation and full financing of a five-year, US$287m turnaround program for what was then an ailing railway at risk of defaulting on its concession agreements with the governments of Kenya and Uganda.

The first phase of the rehabilitation of 500 kilometers of track that links Kenya with Tororo in Eastern Uganda and Gulu in the north has been completed. The railway is now more efficient and is supported by world-class technology.

2. AfricInvest Group achieves third closing of its AfricInvest Financial Sector Fund (Africa)

The AfricInvest Financial Sector fund, which garnered €60.6m in commitments, will focus on financial inclusion in Africa through investments in financial institutions that service, amongst others, micro, small and medium-sized enterprises (SMMEs). It is one of the first funds to focus on these market segments.

New commitments came from KfW,BIO, Desjardins Group, and the Adolf H. Lundin Charitable Foundation and other private investors.

The AFS was initially launched in June 2007 with a capital commitment of EUR 20m by FMO5, the Dutch development bank, and was then increased to EUR 31m in April 2010 with additional capital commitments by PROPARCO through its FISEA fund6, and by Développement international Desjardins.

The AFS fund has made 13 investments and has realized two full exits and one partial exit. Given the track-record, opportunities and the high impact of the Fund, the shareholders and the Manager of the Fund decided to increase its size and term in order to create a real pan-African Financial Sector Portfolio. The Fund now has the ability to both increase its exposure to promising and fast-growing portfolio companies and to execute a pipeline of new investments.  It makes investments in the range of EUR 1 to 5-million.

This closing comes at a time when many African Central Banks are increasing minimum capital requirements and tightening regulations across the financial sector.

3. AIIM’s IHS Holding Ltd secures $490m to fund expansion in Africa (Africa)

IHS Holding Ltd., Africa’s largest independent telecommunications infrastructure company by number of towers managed, has secured US$490m of equity and debt in its latest financing round.

Existing shareholders contributing alongside new investors are Goldman Sachs, the IFC Global Infrastructure Fund (GIF) and African Infrastructure Investment Managers. Standard Chartered Bank is providing senior debt, for expansion of IHS’ business in Zambia.

This funding round brings the total amount of capital raised by IHS to more than $1.5bn over the last 12 months.

IHS will utilise the proceeds of the round to finance acquisitions, help its customers expand coverage and capacity by building new towers and continue investing in alternative energy and green solutions.  

IHS Towers currently owns and manages over 10,500 towers and has built over 3,500 for its clients in Nigeria, Cameroon and Côte d’Ivoire. In Q4 2013, IHS signed agreements with MTN in Zambia and Rwanda to acquire over 1,200 sites in Zambia and Rwanda.

4. Emerging Capital Partners invests in bottling business, Atlas Bottling Corporation (Algeria)

Pan-African private equity firm Emerging Capital Partners (ECP), has announced a 33% stake in Atlas Bottling Corporation (ABC), the exclusive PepsiCo bottler of carbonated soft drinks (CSD) in Algeria, as part of an $80m investment plan.

Founded in 1995, ABC signed an Exclusive Bottling Agreement with PepsiCo in 1998, and has grown to become one of Algeria’s leading beverage players with a portfolio of global brands including, Pepsi Cola, Pepsi Max, Mirinda and Seven-up.

A mix of growth equity, provided by ECP, and debt, from commercial banks, will be used to increase bottling capacity, build a new production site and give the company flexibility to develop new product categories. ECP will also provide technical assistance to the management team, supporting them in professionalizing business functions such as governance and compliance.

Algeria is Africa’s third largest soft drinks market

5. Fusion Capital acquires stake in REMU Microfinance Bank (Kenya)

Private equity firm, Fusion Capital, has completed buying a 25% stake in REMU Microfinance Bank, in a move that will see it inject working capital and divest its ‘debt only’ portfolio to focus on providing pure equity and real estate financing to mid market companies in East Africa.

This is in line with Fusion’s current strategy to invest only in private equity deals between US$1million to 5 million targeting this segment.

REMU is a Microfinance Bank that offers deposits and credit services to small and medium size enterprises. Presently, there are eight regulated microfinance banks in Kenya.

The partnership will see the bank implement its new strategic plan to grow and expand its branch network and widen its product offering to include mortgage and housing products and electronic banking.

The banking sector in Kenya has seen more than a decade of rapid growth, as institutions aggressively moved to bring people who were previously excluded to using banking services. It is estimated that over 30% of the population remains unbanked, offering opportunities for further growth, according to FinScope Survey report 2012.

6. PIC invests €19m in Phoenix Capital Management’s West Africa Emerging Markets Growth Fund (Cote d’Ivoire)

South Africa’s Public Investment Corporation (PIC), the largest asset manager in Africa with assets under management of about US$150bn, entered into a strategic alliance with Cote d’Ivoire-based financial services group, Phoenix Capital Management (PCM) S.A.

PIC will, on behalf of the Government Employees Pension Fund (GEPF), invest an initial investment of US$30m in the West Africa Emerging Markets Growth Fund (WAEMGF), the Private Equity (PE) fund sponsored by PCM. PIC will take a 30% shareholding in PCM Capital Partners (PCP), the Fund Manager.

This dual investment reflects the group’s developmental strategy for sub-Saharan Africa, which revolves around investing some 5% of its assets under management on the continent.

The partnership envisages potential co-investment opportunities between the two groups and will give PIC a solid channel for any investments in the ECOWAS region.

7. PROPARCO extends US$10m Loan to Central Africa Building Society (Zimbabwe)

PROPARCO signed a 5-year loan agreement of US$10m with Central African Building Society (CABS) to support its growth in Zimbabwe.

With total assets over US$575m, a strong mortgage asset base and a range of financial service offerings, CABS ranks in the top three of Zimbabwean banks.

PROPARCO’s loan will allow CABS to finance the development of its credit portfolio and extend the maturity of its financing for Zimbabwean businesses as funding is only available on a very a short term basis.

8. Swicorp lists paper producer, Sotipapier, on the Tunis Stock Exchange (Tunisia)

Swicorp, a leading investment banking and asset management firm focused on the MENA region, listed Sotipapier on the Tunis Stock Exchange.

Sotipapier manufacturers paper for industrial use in North Africa.

Swicorp acquired a strategic stake in Sotipapier in May 2012 through Intaj Capital II (Intaj II), a private equity investment vehicle managed by Swicorp.

The listing, which covered 9.5 million shares representing 40% of the company’s shares, was oversubscribed nearly 10 times, with demand for the shares exceeding TND400m  (US$ 250m) for a total expected market capitalization of TND120m (US$76m).

Sotipapier is poised to drive further growth in the coming years, by investing in expanding its production capacity and geographic footprint, while continuously improving the quality and performance of the products it manufactures.

The deal demonstrates the compelling investment opportunities that the MENA region, specifically Tunisia and Egypt, provides to private equity investors with in-depth insights into the region.

9. Anjarwalla & Khanna enters into a strategic relationship with ATZ Law Chambers (Tanzania)

Anjarwalla & Khanna (A&K) has entered into a strategic relationship with ATZ Law Chambers (ATZ), a law firm in Tanzania. Shamiza Ratansi and Amish Shah (both formerly of Adept Chambers) set up the new firm in March, shortly after Fred Ringo of Adept Chambers was appointed Head of the Fair Competition Commission in Tanzania. Shamiza and Amish are joined by substantially all of the other Adept staff members.

The increasing number of Tanzania-Kenya cross border deals makes a tightly knit strategic alliance between A&K and ATZ valuable to each firm. The new connection will allow for seamless interaction on deals, sharing of know-how and the exchange of lawyers between the firms.

Tanzania has a rapidly evolving market with exciting developments across multiple sectors. The relationship will allow the firms to help clients to take advantage of the new economic opportunities in Tanzania.

Practical tips for success in Africa

Financial services group reveals the secrets to successful investing.

Mark Tunmer, CEO of financial services group, Imara Holdings, shared with us the secrets to the company's success. The BSE-listed company operates in nine African countries.

What factors are driving the growth of your company at home and on the continent?

Our growth as a financial services group rooted in Africa is underpinned by a range of positive developments, including the growth rates achieved by many economies in sub-Saharan Africa, often above 5% a year, growing liberalisation of most  economies, the growth of the middle class, growing disposable incomes, growing demand for consumer goods and financial services, growing liquidity on some markets, growing share values, and the development of African institutional investors such as pension funds, insurance companies and asset management firms. Another factor is growing awareness among ordinary Africans that provision has to be made for the future through savings, pension funds and other wealth-building instruments such as shares.

Growth can be quite dramatic. For example, in the year up to our fifth annual investor conference in Zimbabwe in early June the market capitalisation of Delta, Zimbabwe’s biggest brewer, rose from US$836-million to US$1.7-billion. Over the same period, the market capitalisation of the Econet telecoms group was up from US$677-million to US$1.1-billion. In the same period, the Zimbabwe Stock Exchange has registered gains of 39% in US dollars.

Gains of that magnitude indicate growing participation by equity investors in African listed companies and explain growing international investor interest in our markets. Rates of growth and levels of sophistication vary tremendously across Africa. The South African and Zimbabwean stock exchanges have been in place for over 100 years while a stock market has only recently opened in Rwanda. Varying levels of development obviously affect the rate of growth of our own business and the prospects in individual markets.

What problems did you overcome to find success that you are enjoying in other African markets?

The fundamental challenge relates to education. At an individual level, it takes time to develop a proper understanding of the need to save and invest. Our offices in all markets engage in on-going shareholder education and commit to constant communication. At a corporate level, you do also confront a similar educational challenge. For a financial services business like Imara to grow, we need instruments in which to trade, meaning market liquidity has to grow.

For this to happen, more private companies need to list on the stock exchanges. However, family owners traditionally grow their businesses out of their own cash flow or borrow money from a bank. The alternative is to issue equity or raise cheaper long-term finance. This in turn means a commitment to transparency and full reporting to shareholders or new partners. This involves a seismic shift in the mindset of owners who might have held total control of their businesses for generations. It is a slow process. Patience is required. Education takes time.

Where do you see future growth for your company coming from, and how do you intend to leverage on these opportunities?

There are specific opportunities relating to developments in certain markets, for instance, the plan to open a stock market in Angola and, hopefully, the opening up of opportunities in financial services in Ethiopia. But, the strategic opportunity for future growth relates to macro-developments such as the realisation in many of the world’s financial centres that Africa represents the last great opportunity, from a low base, to achieve sizeable growth for decades to come. This realisation will tend to support the growth in foreign direct investment and in portfolio investment.

Clearly, oil and gas discoveries in East Africa and other parts of the continent will have sizeable impact, but we also see potential for substantial growth in the non-oil economy across sub-Saharan Africa. The growth of the African middle class will deliver knock-on benefits across the financial services industry as families save, contribute to pension funds or drive the continued growth of listed companies through growing demand for consumer goods and services.

We see this as a 20-year journey. Being well placed on the ground across Africa will enable Imara to identify opportunities at an early date and then offer appropriate solutions.

What do you look for when deciding which countries/markets to enter?

The criteria we use to decide which countries to enter differs from case to case. However, there are some common themes such as political stability and some evidence that government has launched programs to liberalise the economy or has made a firm statement of intent to begin the process of reform.

We also scrutinise the regulatory and legal framework within which we are expected to work. A key factor is the presence on the ground of good potential partners. The search for credible partners may take two to three years. We are firm believers in the need for deep understanding of local conditions and will not enter a market unless we have a strong local partner.

How do you compete and interact with foreign companies in Africa?

Our competitive advantage that has put us ahead of our foreign competitors is our presence on the ground. Every Imara professional, with only two exceptions, lives and works in Africa. Imara has direct representation in eight African countries and has strong links in another two through enduring relationships with local partners. Our researchers do not depend solely on desktop research. They take a bottom-up approach and speak regularly to the executives of African listed and unlisted companies. They visit factories, speak to the local banks and have first-hand knowledge of the markets they study. This level of understanding and our direct, local representation bestow a sizeable advantage versus foreign competitors.

What tips would you have for companies that are interested in the African market?

The need for patience cannot be stressed enough. Coming in as a total outsider can be challenging. Invest time in finding the right local partner. You can’t achieve success from afar. A foreign investor looking to make a success of their investment should visit Africa, take time out to visit companies, speak to executives and local professionals and build a personal understanding of specific markets. Personal relationships count for a lot in Africa. You need to look people in the eye and make personal assessments for yourself.

Once you have developed better market understanding, commit to the long haul. Africa has boundless potential, but it will take time.

Click here to access Frontier's database of investment and business opportunities in financial and insurance sectors in Africa.