The remoteness of Western Australia has proved a great incubator for many small businesses, but growing interstate has many pitfalls.
The remoteness of Western Australia has proved a great incubator for many small businesses, but growing interstate has many pitfalls.
The same issues apply to successful franchisors, according to the experts, who acknowledge that distance is a big hurdle and often leads mistakes in the way a franchise is structured.
Franchising consultancy Franchise Alliance director John Brown says studying the differences in demography and spending habits between regions is critical to successful growth.
“The number one issue for any expansion program is understanding the environment to which you want to move to…and what variations there might be in consumer habits,” he said.
“While we’re all Australians, it’s very different from one state to another and one part of a state to another.”
“It is critical that people do their research...they may have to use different entry strategies than may have been used in another state or region.”
Mr Brown says geography becomes a significant issue in expansion and unforeseen problems can occur, costing thousands of dollars and lost opportunities.
“In most businesses, time is money, and if you’re going to expand into a new region without research or understanding your environment, you’re going to encounter problems that become very expensive to fix because of the tyranny of distance and the cost of travel,” he said.
Mr Brown says growing a franchise from WA can be very expensive and time consuming, and people should have realistic expectations of the pace at which this can be achieved.
“The other critical mistake we see people make is they expand on a fragile financial base. Businesses get off the ground in one state and spend money they don’t have trying to expand in another state or region when they should be consolidating in their home state,” he said.
Mr Brown said businesses should expand only on a firm foundation of profit, although some tried to expand prematurely.
“One of the pieces of advice we give is to go to the closest state first. The closer you can be to home to learn expensive lessons, the better,” he said.
Another important consideration for franchisors looking to expand is whether to appoint a master franchise to oversee subsequent businesses.
Franchise Council of Australia WA chapter president Steve Hansen says that, in his opinion, master franchises can undermine the important relationship between franchisor and franchisee.
“The master becomes pretty strong in their own right and the relationship between the master and franchisee takes away from the franchisor,” he said.
Mr Hansen said that, as franchisor of food outlet CHOOKS fresh & tasty, he had decided against adopting a master franchise structure, given anecdotal evidence of many franchisors eventually purchasing their master franchises back.
“The relationship must remain between the franchisor and franchisee,” he said.
Australian Franchising Systems director Alan Franks says franchisors must consider whether their business suits direct management or an area manager to administrate.
“I think from a WA point of view, especially because we’re so remote, all WA national franchisors in Perth need to consider what structure they have,” he said.
“If you have a business where you need to contact franchisees regularly to give them jobs in a territory, you may need a master franchisee though…it’s not always the right way to go.”
Mr Franks provides advice to businesses looking to expand interstate, and says that local success is a good measure of future outcomes.
“Our intention would be if a system is…proven and works in Perth, we will always look at other markets,” he said.
