The Essential Guide to Franchising in Indian Education
The education sector has opportunities for new businesses all the time. But starting up a business from scratch can be hard work. In such cases, franchising is a great option. Franchising is getting the right to use a firm’s business model and brand for a period of time. The owner of the brand (the franchisor) legally gives another person (the franchisee) the right to use these through a contract. Whether the new business is an exact copy or has some changes depends on the contract. For example, McDonald’s in India uses the same logo and layout as the brand in the US. But they have several dishes on their menu made for the Indian market (eg. McAloo Tikki).
Worldwide, franchising became popular after World War II, although the history goes back further. In 17th century England, franchisees had the right to sponsor markets and fairs. It was in the 19th century in the US, however, where the growth of franchises exploded. Coca-cola, which is a household name today, was one of the first successful franchises. John Pemberton, the inventor, licensed people to bottle and sell the drink. Until the 20th century, the franchisees were mostly only licensed to sell products. In the 1960s and 70s, the modern day form of franchising became popular.
Franchises are usually one of three types:
- Product distribution franchise — This is the oldest type of franchise. In this setup, the franchisee agrees to sell the franchisor’s products. They may sell only the franchisor’s brand and not any others. In this type, the franchisee typically has more freedom. Eg. Ford Motor, Coca-Cola
- Business format franchise — The franchisee takes on more of the franchisor’s business practices in this format. They sell their products and services under their trademark and brand. Their way of conducting business is also followed. All of this is formalized in a legal contract. The franchisee gains access to the franchisor’s name, goodwill, product and services, etc. It is the most popular format. Eg. Krispy Kreme, KFC
- Management franchise — It is a form of service agreement. The franchisee provides the management expertise and procedures for the business. Eg. Hilton Hotels
Why Should I be a Franchisor?
- Money — Businesses often do not have the cash to expand. With many of the start up costs of a new branch covered by the franchisee, businesses do not worry about costs.
- Trained management — Business owners do not have time to train new people. In franchises, managers become owners. They are usually more invested in the success of the branch. They are likely to stay long term and become better managers with experience. They will also take better care of operations, train their employees better, and invest in innovations.
- Smaller staff — Money spent on staff decreases as each franchise hires its own staff under the franchisee.
- Growth and profits — Franchises help the company to grow faster. The company can become a market leader, outperform competition and make more profit.
- Reduced risk — The franchisee is responsible for investment, hiring employees, and many other things. Any legal action (consumer or employee issues) would also be taken against them. The franchiser has less risk.
Why Should I be a Franchisee?
- Finance — Borrowing money will be easier as the reputation of the franchise will help reassure banks.
- Reduced risk — The reputation of the franchise is already proven. The franchisee does not have to convince customers.
- Indirect advertising — Any advertising put out by the franchiser benefits you with no cost to you.
- Relationships — Relationships with suppliers are usually already established. You can also get support from the franchiser and other franchisees.
- Training — In some cases, the franchiser will take over the responsibility of training employees. This saves the franchisee both time and money.
Franchise vs. Start Up
It can be tempting to start up your own business instead of following on someone else’s. There are certain factors to compare before choosing a path.
- Innovation and creativity — In a startup, you can use your own ideas and products. In a franchise, you have to stick to the ideas of the franchisor.
- Professional freedom — You can work anytime, anywhere and with almost no limits to your growth in a startup. A franchise has limits to its growth, and you are responsible to the franchiser.
- Failure rate — 25 percent of startups fail in the first year, while 50 percent fail within 5 years. A franchise, on the other, is more likely to succeed due to brand recognition.
- Cost — A franchise requires entrance fees and ongoing licensing costs. A startup requires only the capital you choose to put into it.
Opportunities in the Education Sector
- Early Education
Daycare and preschools are a growing business as more parents go to work. There are several franchises already operating in this sector. Kidzee is one of the fastest growing chains with over 900 schools in 330 cities. It has already been declared Franchisor of the Year in 2010. They have established their required investment as 5–10 lakhs. Treehouse Playschool is another big chain in this sector. Economic Times has declared them the fastest growing chain in Western India. Their investment fees is also below 10 lakhs. Both chains are highly regarded in the country by parents.
- K-12 Education
Kindergarten to high school education is another large industry. Research has estimated this market to be worth Rs 20 billion in 2010. Billabong High International School, part of the Kangaroo Kids family, is a growing franchise in this sector. This premium chain has 20 years of experience and more a 100 schools across India, Dubai, the Maldives and Doha. They are known to guide franchisees through every step of the process. The Indus World School, in 25 Indian states, is also a well established franchise. The investment costs for these, at Rs 1–2 crores, are considerably higher due to the exclusive nature of these schools.
- Higher Education
Private universities and colleges have become more popular as of late. Institutes offering courses such as IELTS and TOEFL, which are needed for overseas enrollment, are also good opportunities. The Stanford English Academy, based in Bombay, is one such institute. It teaches English language skills needed for higher education and requires 10–20 lakhs in terms of investment.
- Vocational Training
Vocational training involves teaching trades such as blacksmithing, metalworking, etc. For those looking to learn skills with their hands, this is a good option. With more people moving away from academia, this industry has grown.
- Coaching and Tutoring
With tougher entrance exams and an intensive curriculum, coaching and tutoring centers are seeing a boom. Unique Shiksha, which provides coaching for civil service exams, is expanding due to this. Hoping to expand to nearly every state in India, the initial investment is mid-range at Rs 30–50 lakhs.
- Education Consultants
Many graduates are confused about the next step to take. Consultants for undergraduate and graduate colleges are thus seeing a rise in their business. These consultants help students decide their interests, narrow down colleges and apply to them. National Award winning Brain Checker Techno Institute, already based in 23 states, is aiming to expand further. Investing in their franchise would come to Rs 2–5 lakhs.
- Education Supplies
Notebooks, textbooks, stationery and other educational items are always necessary. New innovations in this field, like e-libraries, are also seeing some growth.
- Remote Education
Remote education has become a good option for many kids who live with globe trotting parents, have special needs, or live in rural areas.
How Do I Franchise?
- Establish goals
The best way to establish your goals is with a business plan. Gather information and research the market. Once you have that, write down what you hope to achieve with your business. Examples are:
- You want to establish 2 franchises in 3 years.
- You want to build good customer relations.
- You want to earn a certain amount of profit in 5 years.
You can then calculate your estimated investment costs and projected returns. This business plan will not be only helpful but can convince the franchisor and banks of your dedication to the venture.
2. Shortlist sector/space
There are several sectors of industry to choose from. In this case, you have obviously chosen education. But even in this sector, there are several sub-sectors. You may want to establish yourself in any of the following:
- Early Education (Daycare & Preschools)
- K-12 Education
- Higher Education
- Vocational Training
- Coaching & Tutoring
- Education Consultants
- Education Supplies
- Remote Education (Online & Distance)
3. Shortlist franchisers
Each sector will have its own set of successful franchises. For example, Kidzee and Little Millennium are well known preschool franchises. You may pick your franchises based on your budget and goals. Researching their profits, growth and other business milestones can also help you pick a few franchises to approach.
4. Negotiate
Once you have a few franchisors in mind, you may begin to approach them to make an offer. After an offer is accepted, the negotiation process begins.
a) Documentation and contracts
The contract will contain the legal matters of the relationship i.e the fees to be paid, the responsibilities of the parties, etc. It can be helpful to have a professional look over these. These documents will serve as proof of your role as franchisee.
b ) Permissions and licensing
The required permissions and licenses need to be obtained. These include the licensing to use the franchise’s name and branding, but also the licenses that, for example, allow your location to serve as an educational institute.
c ) Training
If your franchiser has a training program, it would help to enroll in it. In these, you usually learn the policies and business practices of the franchise. When it comes to your staff, your contract should have stated who is in charge of training employees. If the franchiser is in charge, it would be best to have the training commence before the opening of the franchise.
5. Monitor
Even after your franchise is open, you must carefully monitor all the factors that make your business a success or a failure. Profits, growth, customer satisfaction, and other results can tell you where improvements are needed. Making your business successful requires carefully going over your books and speaking to employees and customers, among other factors.
6. Exit
Every business should always have an exit plan. It is best to set a fixed period of time, eg. 5 years, as a deadline. If, after that period, the business is still making losses and cannot be improved, it is best to shut down shop. Ensure that your contract leaves you free to exit without too many losses.
Best Educational Franchises
In India
Around the World
Conclusion
Franchises are an easier way to start your own business, but the benefits and risks should be calculated beforehand. It may or may not work as a business model for you depending on your resources and needs. While franchising makes setting up a business easier, it also gives the individual less freedom.
Education is a recession proof sector. Once you have customer, they are less likely to leave. It is an ideal place to franchise, with lots of opportunities and many franchise options. If you are looking for that middle path between being a maverick entrepreneur and corporate junkie, an education franchise might just be for you!
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