11th December 2007

Franchise Fiasco in Dragons Den

The prospective entrepreneurs are proposing to grow businesses through a franchise network which has no hope of succeeding, warns Tony Urwin, director of Franchise Development Services North (FDS North).

 “Contestants appear to believe franchising is a ‘grow your business quick’ option, with little or no work required,” said Tony. “Probably two thirds of contestants go on with a poor grip on the realities of the business world in general, but even some successful business people who won their funding seem to have no idea about the basics of franchising." The most common misconceptions ranged from not recognising that franchisees would want a good return on their investment to failing to see that franchises needed to be legally sound businesses.

Examples so far this series include a car valeting firm which would deliver a minimal return for an investment costing thousands, an odd job franchise launched by a woman with no skills and a mobile gold plating company with a tiny market. “One of the most obvious mistakes made on the programme was by the waterless car valeting company that planned to expand through franchising,” said Tony. “They wanted an investment of more than £10,000 for a franchise which would deliver a return of just £30,000. “As Theo Paphitis pointed out, it’s fairly easy to earn that as a salary working full-time, without having to invest any money. “A franchise has to deliver a good return for the franchisee, otherwise they won’t want to buy into the company.”

HandyGirl, a proposal for a women only odd job business, was a very clear example of a complete lack of skills and understanding of legal matters, according to Tony. “The business was set up by a woman who had no DIY skills and franchisees weren’t required to have them either,” he said. “One of the basics of a franchise is that the business is established and there is a set of skills which can easily be transferred and that the brand can be trusted, which is not the case here. “Plus she was only looking for female franchisees, which is discrimination and franchises are subject to the same scrutiny as other businesses.”

These two examples were turned down by the Dragons but a third, a mobile gold plating business, did receive investment from Dragon James Caan. “This was a good example of a company which had a good offer but didn’t have a big enough market for the product to support a network,” said Tony. The company was also very dependent on the personality of the contestant for its success, which isn’t easy to replicate in a branch network. “The Dragons themselves have a good grasp of franchising, but most of the contestants need to go back to the drawing board.”

To succeed as a franchise, a business needs:

• A clear unique selling point in a growth market

• An established or pilot business to refine the processes

• A strong, unique brand

• A set of transferable skills

• The potential to deliver a profit for franchisees

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