Pros and cons of buying a franchise business: Perspectives from an entrepreneur
South Africans Johan Kilian and Lukas Loots had worked together for 30 years at railway company Transnet before deciding to leave their jobs and become Pie City franchisees. The fast food brand manufactures and sells pies, fruit juices and pizzas.
The two business partners developed a taste for entrepreneurship while running a handful of taverns and liquor stores together between shifts at the railway. But Kilian admits the risk of leaving a stable salary to become full-time entrepreneurs terrified them both, as they knew only a small number of people succeed. However, after market research indicated there was potential in the Pie City brand, they decided it was a risk worth taking and in 2002 opened one factory and four outlets.
Today they own 14 stores and two factories in the Pinetown and Richards Bay area, and their business growth has led them to be named finalists in the 2014 Sanlam/Business Partners Entrepreneur of the Year award. In an interview with Kilian, How we made it in Africa finds out more about the pros and cons of running a franchise, and what he has learnt.
How does buying a franchise compare to starting a brand from scratch?
When you buy a franchise, you buy the trusted name as well. The franchise offers you support in the areas where you lack certain skills. This is a beautiful start and a great learning experience. But always make sure about the location.
Does a franchise business have unique challenges entrepreneurs need to be aware of?
Yes. Operating under a brand name tests your patience and communication skills. You, as a business owner, don’t have freedom to sell products or change anything related to the brand name. Your creativity is limited and you should find a way to do all the things that you want to do without overstepping the rules given.
Why did you choose to partner Lukas, and in picking the right person, what advice do you have?
Lukas and I worked together at the railway for quite some 30 years. We found we both can bring something to a partnership that others cannot. Even before Pie City franchises we had smaller taverns in and around Durban. We are good friends but know how to filter between friendship and business.
I believe that the most important part of choosing a partner has nothing to do with a friendship. You have to look at a partnership as a marriage. That means you should know your partner will stay with you. There must be mutual respect and you will be able to support each other even when times are rough. And there must be limitless trust in each other.
Tell us about your worst moment, and what you learnt from it.
Personally, my worst moment was persuading the franchisors to open a shop in an industrial area that I believed would be a flagship to our company. With a lot of determination, I finally got them excited about the small factory Pie City outlet. It started out really well, but as time went by I had to change the shop from a general Pie City outlet to a take-away shop. I once went to check up on their day and got shot in the stomach by robbers!
Basically, the lesson I learned was to listen more to other people. As an entrepreneur I wanted to take the risk and make it work. But I realised that sometimes you have to keep your mouth shut and learn from others.
Which are key factors when choosing a business location?
My past experience has taught me a lot. When choosing a location, always remember who your customers are going to be. This means that you should study and know your market extremely well. Having knowledge about your supply chain will also ease this decision. Location is critical when you own a ‘buying on impulse’ store.
Besides money, what is the best way to motivate and retain staff?
“When dealing with people, remember that you are not dealing with creatures of logic, but creatures bristling with pride and a sense of being.”
This may not be a direct quote, but I have found that this is truly the best motivation technique. Employees react a lot better if the employer is just and fair, gives credit where credit is due, and tries to build a personal relationship with each one of them. It shows that they are truly important and have a role in the entire business. All humans want a place where they feel, and are, important. Why can’t it be at their work where they spend most of their time?
Has being an entrepreneur changed you?
In more ways that I could have ever imagined. From a young age I started with this whole buying and selling of things. I later learned that this is not only what an entrepreneur does. In time I learned being an entrepreneur is only about 10% focused on making a profit and about 90% of inspiring others to do the same. I always thought of myself as one entity, but as the business grew I learned that I am not an entity on my own, but simply form part of the single entity of Pie City.
Any one thing you wished you knew before getting started?
I wish I knew how much admin is part of it. It is really ridiculous. Once again, an entrepreneur doesn’t just buy and sell things. We are actively involved in society. This means everything from charity to court cases. Admin is the only thing standing in your way from being actively involved in all aspects of your business. Learn to manage it, or it will find a way to drive you crazy.
Any expansion plans?
Expansion? Entrepreneurship is like intelligence. Once you have it or attained it, you want more. You don’t see someone studying engineering stop when they receive their degree. So why would an entrepreneur be different?