Q&A

Q: Is it safe to invest in a pilot operation?

 

NIGEL TOPLIS
Managing Director, Recognition Express, and ComputerXplorers
A: In short the answer is YES. It should be safe to invest in a pilot operation so long as you take some precautions: Investigate the franchisor - what are their credentials? How long have they been in franchising? What's their personal reputation?

• Check with the bfa - what do they know about the proposition and/or the franchisors?
• Determine the marketplace - is there a decent size market? Can you envisage this growing? What's the competition?
• Can you see yourself running this business? Does it meet your own skill set? Is it a market you can see yourself being in?

The advantages of being a pilot operation is that you're in at the ground level and you can help to shape the nature of the franchise. You should be able to negotiate a reduced entry fee and being one of the first in you will get full attention from the franchisor.

The primary disadvantage of course is the uncertainty. We started ComputerXplorers as a pilot operation and ran pilots
for two years, and now the business and the brand is well established with franchises throughout the UK and two in Ireland - so pilot operations can be very successful.

 

ANDREW PENA

Founding partner, Cubism Law
A: The essence of franchising is to reduce the potential risk by offering a business opportunity underpinned by 1) a credible brand; 2) a tried-and-tested system for operating a successful commercial venture. In the case of a pilot, one or both of these safeguards are likely to be missing. This means that there is a greater onus on you to investigate the proposition to ensure that you have properly evaluated the risk involved.

Firstly, you need to start with an assessment of the management team and their experience. Are they credible? Secondly, you need to analyse and understand the business proposition and the level of research and testing that has been already carried out. Is it well thought through and does it make sense? Thirdly, you need to be convinced about the financials - what are the likely returns and how realistic are key assumptions behind those returns? Fourthly, you need to be satisfied about the standing of the prospective franchisor. Is it financially solid and well structured? If, after assessing all these factors, you're still convinced, make sure you get some expert advice to confirm your viewpoint. Finally, look to negotiate a deal which 1) is based on a minimal up-front investment to ensure your risk is shared and 2) allows you to exit with minimal long-term obligations if it doesn't work.