 This is Sonali. Thank you all for coming out some time for attending today's webinar on the episode 15th of the Business X Learning Series, Invest, Scale, Value and Inset. Today's topic is on scaling up through franchising. To all the attendees out there, please type in any questions you might have in the Q&A section and we'll try to answer as many as possible at the end of the session. I would now like to welcome our speaker, Mr. Gaurav Mariah, Chairman and Founder of the Franchise India Group. A very warm welcome to you sir. Thank you Sonali and welcome friends and welcome to another edition with Business X. Business X is a part of Franchise India Group. The company which specializes in helping startups raise capital and also we work with companies we are now looking to exit. Today is a special subject very close to me because I've been more known for franchising than any other part of our business and I've been involved last 23 years in franchising through our company Franchise India. And lately we've been using franchising as a great scale strategy for startups because early stage companies today find it very difficult to sometimes attract capital which is through private equity or I would say or even venture capital and franchising can be very very strategic for their growth cycle. And especially in India where debt is very difficult to get, one you don't get kind of debt and equity is also sometimes difficult. So the sloth early stage companies find it difficult how to scale. So franchising can become a phenomenal strategy. It is not a strategy which has not been done recently but it has been for decades and decades early stage companies have used franchising as a great scale strategy. But before I go in I'll just explain you what is the difference between a growth companies and scale. Growth are companies which would grow in their performance, market share, financial performance and they have to proportionately put resources which means that in the financial classic style I'll have to open up more offices, hire more people then I will get to the level. How can I grow my brand or my distribution or my top line without putting the equal number of resources without deploying the same kind of a capital in proportion. And that's something businesses to me are scale businesses and similarly technology businesses are great scale businesses because they don't deploy the same number of resources and business multiplies in different markets. Franchising is also like that. I'll start with giving you an example of a company called Subway. If you really see Subway they have only one company on store, one company on store and one training center in US, a very simple business model, a business which is very predictable, a business which is very standardized, a business which has a strong business, you know, kind of a business modeling which creates value for franchisee, value for customer, a value for a franchiser. And if you're able to get that kind of a business model right now the company is in 45,000 locations and spread in multiple continents, over 100 countries, and the valuation of the business is phenomenal. Now how can you really see that your business can also be another Subway. And that's where I feel that there is a lot of good companies and I can tell you India also we have done a lot of work. We've worked with about 8,000 different brands in different sizes. Most of them I would say are early stage companies, you've taken companies like the funds and peters of a flower shop company and now 350 stores. We have taken some smaller bakery companies, one single store, took it to multiple locations and many examples. Even the recent example was a company which was a technology company, started an offline store, Lenscott, they were a technology company, started an offline store, franchises and they worked with them the early stage in their franchising. Now they bought a thousand store. So, and most of these companies really go deep down as used franchising as their scale strategy. But franchising also is a more careful capital because now the investor you're getting is not like VCs and VCs have their own problem. They are very high hyper growth demanding structure. So when we see your private equity enters a company, they would like to see three to four years hyper growth. They are more driven from driving what I call the company's equity. So they want to really see quickly the company valuation going up because they won't see that multiple of their valuation going up. But franchises are different. They are investors who want return on capital. So they're very clearly written on dividends. They want really the businesses to perform. So it's a very different strategy here. One side you're getting somebody to invest with you. You continue to maybe make lose money. But by the time you can demonstrate to this investor and say, look, I'm improving your equity, your valuation is going up. They are fine because they're not interested in the dividend. They want to look at how they entered at X value and they know at X plus Y value versus franchising is a different strategy. When a franchisee invest in the company, he wants return after three months. He wants to see his business has been profitable and in two to three years he gets his money back and then he starts making money. Now fundamentally, how do you design the business model for both strategies is very different. So if I would say a business which cannot make money for franchising in a short term, then I would say it would not work for franchising would not work for them. So it's very important. You need to really see that you might not make, you know, I've seen companies which have not made the money themselves. A lot of companies which were VC funded or backed by a large capital, you know, funding and these companies when themselves not making money, but they made sure the franchisee make. Then Scott was a classic example. For three, four years, they were not making money as a company, they were not making money, but they made sure that the each of the franchisee they had made money. Right. So how do you really design the business model? How do you make sure that the franchisee, every single franchisee which is coming in have relatively not having too much of patients franchisee comes with that three, four, five year horizon. And in these three, four, five years and you have to return the capital and also you need to really give them some kind of profitability on the business model. And then if you are able to demonstrate that, then there is, there is so much to be really brought in and you can attract so much of capital through these franchises. It's a responsible capital. That's where the starting point would be. So three things which you need to be ready before you even think about getting into franchising and using franchising as your scale strategy or your capital raise strategy. I would say three things you need to come in mind one is a performance. How do you make sure that every single franchisee which comes to your network performance and that's something which you need to really do that is the business model ready for performance and commercial success and that's something which is very, very important. Second is resilience. How do you make it the business model ready for any adversity, even in a period which are not so performing, even like things like this, how do you make sure that the franchisee is able to survive these kind of low periods. How you make that thing and third is adaptability. How do you make the business model adaptable to different markets and different structures. And that's something which is very extremely important and I've seen more and more companies even funded organization look at oil. You know started with, with creating these technological, I mean through technology aggregation of hotels and later they went into becoming an hotel management company and then used franchising as a strategy of growth. All their hotels which they started taking on over which was having a franchise contracts. Now this is a, this was a great strategy for them to not only expand in India but actually to go to about 50 plus countries. And today I was talking to somebody very senior in oil and they were saying that fortunately for them because they expanded franchising and use franchising as a scale scale up strategy and went to multiple countries. So India business was not performing their India business was very low. They still trading at a 10-15% for the China business, which is trading at 50-60%. So they're able to really compensate because they're spread in different markets. This is also another thing which franchising gives you. It hedges you because you are in multiple markets even the one market is not really responding in that manner. The other market would compensate you. So this is also another area of advantage when franchising gives you an opportunity to really go to multiple markets. So I'll now spend maybe next 25 odd minutes in terms of giving you a few things. One, how do you really plan yourself and strategize yourself for getting into franchising that we will talk about it. Then I'll talk about 10 things which would make a franchising work. What are the 10 things if you really want to get into franchising? What is it? One to 10 things you need to really make sure that it works for you. Third, how do you attract capital from franchises? How do you really get franchises and invest with you? What are the cycle and how do you define these cycles? When you're an early stage company, how do you attract that? And what kind of mechanism would work? What do you bid several and your new mature level? How do you really do that? And third, last point which I will take because most of the startups early stage company when they come to us and when we talk about franchising, they say, would it be right to franchise? Is it going to be attractive enough for the future investors to look at it? Is my valuation going to increase, decrease? What makes franchise companies more valuable? And this is true. Actually, franchise companies are much more valuable and I'll talk about it. I'll give you about 10 things which are must to really look at when you're building a franchise network and you're also building your company for a future valuation. What are the 10 things which you need to keep that? But before we start, also, I see a lot of people already started writing in Q&A box. Please go out and write and introduce yourself on a Q&A box. What is the background? What do you do? I mean, are you looking to scale through franchising? What is the business model you have? Any industry you want to talk about? And any questions you have for me, just keep writing. In the last five, seven minutes, I'll take all the questions and we try to answer as many questions you have. So before I start jumping into franchising, I'll give you a little bit. What do I mean by scale? And I divide scale into five by definition. S stands for the strategy. Franchising is a long-term strategy. It should not be looked at a short-term strategy. You cannot start because you're not able to attract a sophisticated capital and you start franchising just to cover up this. That's not the way it's done. Even if you get five franchises, ten franchises on board, you have to live with them for next ten years. So it has to be a long-term strategy. It's not an interim strategy. It's not something which you really think that you can get into that. Other things you need to really see is what is the timing for right for franchising? Are you really ready to get into franchising? Is economic position in the country or the industry you are participating is right at that moment? Is the consumer behavior and you have captured the predictability of the consumer behavior that your business model currently is running next two to three years, not significantly going to change in the consumer behavior? And if yes, have we accommodated that change in our business model itself or we will be able to accommodate it because franchise businesses, it takes a lot of effort to change after once you've gone in, right? Imagine now for KFC to say that, look, we don't want to be a same brick-and-mortar store. We want to be a dark kitchen and things of that. It's not easy because they're already invested into the conventional classic design. So how do we really make sure that business model is ready for future inventions? And these days, this is a disruption market. Almost everything changes very fast. So how do you really create and define what is going to be, how a consumer is going to buy it next two years, three years? So it's a long-term strategy. It needs a very careful planning on that. And a couple of things in strategy is very important. When you're talking about franchising, you need to really see how you are, how you really differentiate your offering. What is your differences in our offering? I see a lot of me to businesses coming in and they start franchising. And there is no clear advantage or a clear differentiation they really bring in. Clarify and define your core values and purpose. That's very important because franchising, you are not only taking your product and writing, but you also bring in other partners who will run these businesses in different levels. For example, I was a hyper-local brand, hyper-local in any kind of services I'm doing. What is my core values and where is my approach and how I'm differentiated on that? That's very, very clearly to be defined. Define your core customer also. You cannot go everywhere. Clearly, you need to have very strong customer base defined and very strong focus target group defined. That's very important. And at least three to five years, clear defined strategy has to be placed. So this is where your S would come. So out of the scale, SI would define the strategy, which is long-term, and pick up these differentiation of your product. Define your values and the larger purpose while you're doing it, and define your customer base. Go into very target group, very, very sharp target group and stay there and stay focused. The C stands for the culture. Unless and until if you're getting into franchising, you need to define your culture, what you really are as an organization. And also make sure that every single franchising which comes in, understand that culture. Creates and connects with that culture. Because this is a lot of independent entrepreneurs who are going to join with you. Unless and until they're syncing with the culture. And this is what I've seen with the good franchise organization. They're able to pass that kind of culture experience to the new entrepreneurs which are coming in. Almost every company in US which has been very successful and I've been fortunate to at least work with about 100 of them. Almost every company would insist that you spend 15 to 20 days with them in their headquarters and go through the whole process. And that process is not just for training you. It's actually getting you in the culture of that organization. Because future investors don't like, you know, I've seen YUM as a culture. McDonald has a culture. Subway has a culture. And they can be very different to each other. YUM is very different. YUM has very different belief systems. McDonald has a very different belief systems. Subway has a very different belief system. But there is a certain culture. When you are a part of it, you will have that kind of a culture flowing in. So they really invest on that. They put 15, 20, 30 days sometimes in bigger programs. It is a three month training, a four month training. McDonald has six months training for a regional owner. Minimum six months training before they even put that. This is only the thing which they want to do is invest into the culture. Second is what is your competitive advantage? You need to really see competition and dating and you need to spell out very clearly, communicate that very clearly. So that your franchisees also start communicating further on that. What is your competitive advantage? And also define your core competence in terms of what we, where is your core competence really? And it has to be very clearly demonstrated to franchisees. Third, you need to create a very actionable plan and set accountability. A stands for actionable plan. You need to have a very strong actionable plan, very clear defined roles for as a company for you and also for your franchisee. That has to be very clearly with the timeline. You need to know that first four quarters, how it is going to spell out. I call the three stages of franchising. Dependent state where franchisee doesn't know anything, is completely dependent on you. Then you call it interdependent and then independent. And all these three stages, the strategy would be very, very different. So how do you really create the C stands for culture, competitive advantage and core competence. And third point is setting accountability and also actionable plan. The fourth point is essentially about the L stands for liquidity. It's very important. And I feel that the franchising, the biggest problem I've seen in last, especially five years for a lot of franchises going down was I think capitalization at both at the franchisee and a franchisee at the end. They're not a capitalizer. Business models are not designed in a manner that they are having adequate liquidity. And especially now I've seen a lot of companies already troubled and they've failed in the last six months because of the liquidity issue. They was no liquidity. I mean, franchises ran out of their working capital. They don't have working capital. Now they need fresh working capital to bring those businesses back. And the franchises are also doesn't have a liquidity. So a lot of chains would collapse in these times because they're not able to really get that. So how do you really predict your cash flow situation and how do you create your reserves to pass through these difficult times. And finally is execution. E stands for execution. It should be seamless. It should have intact your consumer experience. You need to bring in last mile control and you need to also create overall impact in the market. So how do you do and define these five things by definition of scale, strategy, culture, actionable plan and accountability, liquidity and execution. So that's how you will be able to, you know, build your broader long-term strategy for your franchising goal. Now let's get into the second point, which is about the 10 things which you would need to have to make your franchising work. You know, first is business modeling. How do you really put the business model in place? What is your business model, which would have a clear forecast for next 10 years and also would have been having enough room to change also while you make a business model, which would run on the core principles for next 10 years, you also have ability and flexibility to bring few changes in the product order size because this is not a time where anybody can, nobody, no business in the world can take 10 years. This is going to be same. The consumer would react in the same manner. Answer is no. But how do you recreate nimbleness in the business model that you can change also, but you still need to have bring a predictability. Right. You need to have a broader understanding what you stand for. Right. So like for example, for instance, a good example started with flowers. Very clearly, big focus on flowers. Flowers was largely gifting very small portion on self-consumption and they thought that this is what the business is. They never thought that they're in the business of flowers. They thought that they were in the business of gifting. Anybody who wants to send a gift, send somebody greetings, they would use flowers as a medium. And suddenly they started seeing the people asking for now cakes for them. Now they want the business model and actually first they integrate cakes within ferns and petals, which is the flower shops. And they started using cakes and they were using external vendors to source cakes and give cakes also because people want flowers and cakes to be given. And now they've rather, they've created another company called FNB cakes, which is also now another 100 stores. And that business came absolutely complimenting to that. A lot of their existing franchisees actually became the franchisee for cakes also because it was very clearly complimenting. So by the time the company stayed very tuned to understanding what they stand for. They were standing for any time you want to gift somebody and wanted to be delivered in a new city, you will use ferns and petals. And anything you change, and tomorrow this change from cakes to chocolates to chocolate to something else, they would continue to evolve. So by the time they stay true to what they stand for. So understand your business model, what is the larger purpose you have and define your business model around it. Second is define roles very clearly. This is one of the areas which gets confusing at times. Who's going to do what practice, what is your responsibility as a brand owner, what is the responsibility franchisee. And it has to be absolutely defined and also communicated in a very transparent manner to the franchisee. So the franchisee understands what is his obligation and what is expected out of him. And he also knows what he can expect from the brand owner also. That's very clearly defining roles. Third is creating this overall, what I call interdependence. I see a lot of models after some times there is no reason why a franchisee sees that I have any reasons to stay with the company. So the whole dependability is not there. So is a franchisee dependent because technology he needs, customer acquisition he needs, supply chain he needs. Whatever that critical point is, there is a time where a franchisee would see no value to continue with the company. And I've seen a lot of companies collapsing because there was no interdependence. So how do you really define that there is always a connecting point? Like in Subway, anywhere in the country you go, it's a supply chain is centralized, you have to get everything from Subway. And so well designed that the franchisee, even if it tries to go outside, would never be able to do that because you'll not get the proprietary product. So a lot of proprietary products are supplied just by the company. So you have to really seek carefully. It can be your vendor selection, vendor blocking game, it's your technology, customer acquisition, your supply chain, any critical parameter of that which creates interdependability so that the franchisee is always with you. The fourth point is capability development. How do you build your organizational capability to support franchisee? And it has to be very strong and simple. You don't have to be a confusing organization. You have to be rather simple. I call it a nucleus, create a small nucleus so that it can show a strong, you know, sport to the franchisee but other franchisee doesn't have to go multiple places. It's a single window clearance for franchisee and also a more proactive approach to drive the network rather than be reactive on the network. Now the fifth point is process development. How do you really develop your process and bring standardization to everything you do? I think the simplest thing in the business of franchising which works to me is how do you make it idiot-proof? If you're able to make the business model idiot-proof, it is scalable, it can go into other markets. So spend a lot of effort and energy in the initial days to make the business model idiot-proof. So you don't need a specialized people to run it. It can be easily taken, easily learned and easily duplicated. The sixth point is how do you do franchisee profiling and also do the micro-market analysis? So profiling is very important, very sharp profiling. You need to really know who really want, what kind of, we call four fits, strategic fit, financial fit, operational fit and marketing fit. All these four fits are very important but there is a critical fit. If I was fashion brand, I would say strategic location is a fit for me. Very importantly, location is very important. But if I was in say operationally heavy brand like a food or anything else, then I need operational fit. Somebody has to have a lot of time to put in and it doesn't mind putting in 14, 15 hours in the business. If I would have a large investment business, then I need a financial fit, somebody who has a strong financial commitment towards the business. If it was a business which needs a lot of go-to market, it's a concept which needs a strong go-to market, then I will put up maybe a marketing fit. So depending on where all four are important but one is a critical fit, how do you really use that? Then seventh point is capitalization and forecast. I see a lot of companies talk very well. I can give you a little example. In the last four or five years, we've seen great startups coming in and we're able to take them through franchising and the first one or two years were good. As the network starts becoming more demanding, they need more money to support in marketing, they need more money in the people management, large teams structure and so on and they lack capital. And I come down to why it happens but they lack capital and they will not be able to support and the whole network starts collapsing. So you need to really see what stage you need capitalization and where it is going to come from. Only selling franchisee might not bring in, you need to constantly also raise capital to support the network. But you need to forecast what kind of capital or what stage you need to know because as your network becomes bigger, the support to the network also will need to be a bit bigger and at a certain stage, you might have to spend a little more to build the brand equity, your marketing spend might have to increase. So you need to really see what is your capital requirement for supporting these franchises. Eighth point is always do alpha beta test. Do a natural market test, get to a natural market, start a couple of franchises there, test it out and do another market which is a little distant market for you and try to test that, right? For one of the companies, we are now doing one opportunity in a metro and one we've taken out of tier three city and we're testing it both and we've seen that how the business product makes everything would change and learnings from that, we will try to bring in the business model and then go and scale the business. But first do your alpha beta test before you can start scaling up. Don't go out and give 100 franchises, do first three or four franchises, take a learning from them and then go into the next level. Ninth point is before you scale, you have to scale but also consolidate. Continue to do that. Every year go back and consolidate some parts of it. You might have entered wrong market or you've not gone in the right structure or you've not got the right franchisee. At that time you need to really see that are you able to really go back and visit and consolidate your position. You might have to give some exits, some franchisee have to go out of the market. So continue to do scale, consolidate, scale, consolidate and also do deeper penetration. So franchising is all about like 711 runs 27,000 outlets only in Tokyo. That's what really matters to me. In franchising that's where the real value has been built because here you are able to create a strong entry barrier. 27,000 outlets of 711 only in city of Tokyo. Out of the 60,000 hyper local convenience stores, this would run about 30% of that which means almost every third Japanese living in Tokyo because everybody has to go to these stores is actually coming to 711. And that's where the strong value creation really happens. So we see in India sometimes people spread thin. They don't really create these strong clusters. They don't create the entry barrier. There's one company which we're very proud of in Chennai. They started Salon called Naturals and only in the city of Chennai they were having 200 salons. Only one city, 200 salons only in one city obviously would create a strong entry barrier. The last point on the 10th point for me is audit, innovate and implement. You need to continue to audit on a regular basis every two months or three months. Understand what is a consumer asking for, what is a consumer not getting from our services and if that is need to be changed, then bring innovation, bring new product categories and also then go and implement it and go back to test and measure and then go back and implement this and that. So that's the cycle. So 10 points just to summarize again, invest on business modeling, define roles and obligations, create an interdependence between franchises and a franchisee. Do your capability development as an organization. Do your process development and standardization. Define your franchise profiling, very, very clear profiling. Capitalization and forecast. Alpha beta test, test it in two or three markets before you start scaling up. Scale and consolidate and also deeper penetration and finally is audit, innovate and implement. Do it in this cycle. So this is what I would call the 10 points of making your franchising work. Now let's understand how the ways of getting into franchising. Franchising would have different models to go in the market. Currently we have unit franchising. Unit franchising can further be divided into franchisee owned, franchisee operated and it can also be franchisee owned, company operated. In cases where company feels that I want to be in control of that because say healthcare or education where you want really the controls to be with you, then brand owners are choosing to do what I call franchisee owned, company operated. But this is also can be dangerous strategy if you don't have organizational capability to operate everywhere. A lot of young companies are attempting to do that because they feel that they just need different answers who would come and put money and they would operate the business. But it is asking for a very additional responsibility and sometimes I think there are a lot of challenges happen and they are not able to do that. One of the companies I invested and we had the strategy of doing franchisee owned, company operated and the founder which I invested on was not ready to really support that. So we actually had to convert few of the stores to franchisee owned, franchisee operated and franchisee owned, franchisee operated actually started doing extremely well and all the stores which were run by the parent company which I was invested on, they were not able to do well. So we had to take a call to start two stores because they were not able to manage well. So one has to really see what kind of your management capabilities then only you need to take a strategy of franchisee owned, franchisee company operated. On the overall other side if you feel that you need a much bigger territory penetration and you need somebody who is able to develop your region for you then you need to choose between area franchise and a master franchise and we call the area developer also where you get somebody who would develop the region. So you need to really see how you were able to define that. So franchising also there is another few areas which when you start doing franchising as high as 40% of your money which you get as a franchise fees would be gone into just acquisition of a franchisee and then you have another 40, 50, 100% being put on the sport to a franchisee. You actually don't make any money in selling franchisee and this is a mistake a lot of people do. In the early days when you get sell franchises you just think that a franchisee selling franchisee is actually making money, actually no. If that was a business model sooner or later it will collapse. Sooner or later you run out of gas because your cost of acquisition and cost of service would take away almost everything from you. Good companies in the initial stage make sure that they come out of that cycle and as their franchisees start performing their acquisition cost would come down and the mature level it will come down to even further. Today mature companies don't need to spend that same money to acquire that and then you will have maybe a little bit margin on your franchisee but the real money comes from the royalties or the supply chain margin which you have. You make money. I know a school chain which now runs about 1200 schools. The money they make is not really selling franchisee. They make money out of the supplies to the school. Every kid who joins in and out of 1200 schools with about 100 kids everywhere. So it's a lot of kids available in that thing. Every single year they need to buy a new pack and that pack would make a lot of money. So ask yourself what is your recurring revenues which are going to come in and how soon this would restructure really. So at the early stage I see the companies might do well but really on the value really comes in bills when you hit the maturity. When you have a business which is creating a residual income for you. Now let's understand a lot of mixes in the market that if you franchise then investors don't like it. The value is not built. You don't get the same kind of valuation. On the contrary it's other way around. You get much more valuation and I'll give you some answers on that and this is upon the principles of investment but there are other things which are very important which sometimes investors don't see and that's why they don't appreciate franchise business. So I'll give you about 10 points again. If you really want to start franchising as a long-term strategy for you and you also want to build your value in the business these 10 points are very important. Some are inherent to franchising and some you need to really focus on and design it in a manner that tomorrow when you're sitting across a big investor you're able to demonstrate that why your business is so valuable and why they should invest with you. So first point is asset-like. You are asset-like company. So asset-like is the buzzword which every investor likes. Franchising is an asset-like business. You don't put your own capital. It works on OPM principle, other people money and people put money in your franchisees but actually sell your brand. So your brand is expanding everywhere. So Subway is a 45,000 restaurant company but just owning one restaurant of their own. So it's an asset-like model. It's a phenomenal model. Everybody is having Subway Sand which is globally but actually they own one single store. It's a good model. So asset-like is a fun structure. Second, it becomes a better bottom line. Fundamentally because you have lesser cost so everything really comes to you as a good bottom line especially if you are a big royalty generator you have a very strong bottom line company. So people like good bottom line. Most valuable businesses are businesses which are more profitable. And this only definition of building value in any company is profitability. There is no other way. There is no other way. There is no other match. Eventually sooner or later the only denominator for the great valuation per company is the profits you generate. So the profitability is much better in this business. Third is predictable revenues. If you are able to show predictable revenues over next five to 10 years that this is the kind of revenues which would continue to come, investors love it because that's where real value has been built. The problem happens in a lot of franchise companies which don't have predictable revenues. They are not able to build that. And some models are wrongly designed and the models don't give you that. Some models are great. I have seen models which have fixed royalty structure. They get small royalty but the fixed royalty coming in and this is automated structure. They pick up the royalty every seventh or eighth from the franchise and there is a control mechanism which is very, very divine. So if you are able to show predictable revenues which would continue to come you are more valuable. Your market penetration again if you are spread thin and that's not interesting if you are penetrated very well in a particular market that you've created entry barrier then also business becomes much more valuable. So you need to really be a mongenies in Bombay where you are very, very clearly penetrated market you have a certain market share. So a lot of good companies have done that well. So they are franchise businesses but they have gone and created huge market entry barriers and that's where the value would really be strong for them. Dr. Lal Pathlab, the penetration in Delhi was very, very strong and that's why it created a great value for them. Your contractual structure as with the franchise this is very careful because end of the day you would be sitting on hundreds of contracts and any investor which comes in can get complexity if the contracts are not well defined or they are very complex in nature or there are multiple changes in that or this doesn't have assignment rights tomorrow if I want to sell the business can I know we need this entire business to somebody else. All that is very clearly to be defined you need to really see that you are not contractually complex because end of the day is you have hundreds of relationships and which are binded by contracts it has to be very solid and it has to be well defined so that when anybody really evaluates your business is able to see that this is contractually well structured. Finally scalability, you know any franchise business which really wants to value should have a scalable business model it can go to not only one market but can travel to multiple markets and that brings in a great amount of future valuation being discounted so if I was say today at 200 stores and I can demonstrate that this 200 stores can become 2,000 stores and I can travel to multiple markets then there is a greater value to be done then constant improvement and margin and bottom line that's very important in next three to four or five years as your franchise network would continue to grow how do you demonstrate to your investors that your margins are going to grow better and that's something which also is very important you know so how do you really improve the margins over the time and what are the changes which needs to be done over three to four years which can demonstrate better margins and profitability for the business model and that's also very important and next step is brand equity and upkeep sometime when you expand through franchising and if you have kept the brand intact and the upkeep of the brand is also very strong the consumer experience at every single franchising is intact and well controlled that also is a part of valuation I've seen again a lot of investors at a last have declined investing into businesses because they said that the brand was not very well and it started declining and their experience and the ratings and everything else also have gone down so how do you really keep that intact that's very important and it's one of the reasons why some companies don't franchise because they feel that the quality would not be intact actually the truth is they have no mechanism to really audit and control that quality how do you really bring controls over your network is very important part of it second last point is how do you have a proprietary product and stickiness of a franchisee to stay with you sometime I've evaluated businesses and I feel that there was nothing which tells me that the franchisee would stay with you the franchisee maybe at a certain level would leave the network what is the stickiness how do you demonstrate that you have something which franchisee would always have to ask from you what is the proprietary value and what is the proprietary product which you have and which brings in a huge amount of stickiness and finally the leadership team and the team ability to continue to build the network as a founder if you are a founder of the company and you build some team which you know when the investment comes in you're able to clearly see the kind of leadership team you're building great examples are companies like NIT, AppTech strong leadership teams so whenever the company's early investors came into the business and the company got listed and all these times they saw a very strong foundational teams they might not be the you know the business business had its ups and downs a lot of changes really happened but the team was so strong and so capable so they were able to put the values up so franchisee companies can be strong valued if you are able to maintain these 10 points and continue to really work on that and then you will be much better off in terms of presenting it to a potential investor so this was a strategy for today and idea was to share with you how franchisee particularly in these times can be a phenomenal strategy for scaling up your business and it is also a good strategy to raise capital and continue to fuel your growth but it is a careful strategy it's a responsible strategy you need to really think through that franchisee comes with a short term mindset now do you be able to deliver him profitability within that period and also overall sustainability of network is there so over to you Sonali for any questions you see for me and then we can thank you so much for another wonderful session Gaurav sir and for sharing valuable insights with us so we do have quite a few questions lined up with us the first question is from Kiran the question is my name is Kiran from Metphile we are into hospital management system and lab management systems and I want to go into franchisee model I am presently in Hyderabad and would like to move to other tier 2 and tier 3 towns across India absolutely I think a very very good segment and very good niche of building very strong category to really get into that specialized services and very clearly be to be a kind of franchise model and India lacks these kind of franchise models very scalable, highly profitable very strong predictability as I said it's a very contractual once you get few contracts with hospitals and you are there and so I would say anything which has a B2B supply and a long term contractual valuations is a good business very very good businesses and you should really franchise the business another follow up question from Kiran itself is how can I work with franchise India for my business as well as doing my franchisee I would say grow franchising first just park a little bit raising capital at this moment because I feel there is an immediate requirement before even you franchise you need to raise capital to set few things then is a different case but if you are at this stage only looking for growth and franchising is a good way don't liquidate dilute your activity at this moment go to a reasonable size try to create contracts directly with you should be done by the franchisee with you and at that level when the business has certain size and share and you have say under hospitals 150 hospitals under management and then raise equity and raising equity is also very important a lot of people want to raise money but they don't have a very strong reason why you want to raise how much you want to raise where you want to deploy because capital raising is also a responsibility the first question anybody would like to ask what are you going to use with my money and how fast you want to use it to create returns for you and for me right so that's what the question people don't get answer on so capital wants to be spread out faster you need to spread out fast even if you use that fast and create returns for all stakeholders but that reasoning has to be very important for you absolutely so the next question is we are into organic biopesticides manufacturing and marketing companies since 1997 but we are not able to scale up we want to scale up and exit please guide it's in bio biopesticide so manufacturing company so we need to really see biopesticide if you want to scale up through distribution or you want to set up these OEMs which are also manufacturing franchises and that's a good opportunity to really set up these smaller franchise businesses where you would get license to produce and distribute that can be a good model to be done but I would like to really go deeper into your business model and then I can advise you right the next question is from Mr Vinod he says as a founder how can I market our product at the local level yeah you can obviously this question is a generic in terms of how you can market but there is another question yes we do have another question from Mr Vinod he says I'm in food business we are planning for it so apart from selling franchisee we are going to sell or supply masala packets for our product I'm trying to understand but I'm not I'm not a manufacturer so doing packaging of masala and to sell the franchisee how does it work do I need to get any manufacturing certification or set expiry date for our masala packet yeah you don't have to do that for OEM you would contract manufacture your masala and just for your information there is no food company I know which has their own manufacturing for supply chain they always contract with big leading companies like the biggest supplier for McDonald's is a company called Vista Foods now Vista, Veba Foods and then there is Kremika these companies are big companies for Heureka and they are big time and strong contracts with McDonald's they share proprietary recipes so the recipe they would have for McDonald's and then supply their franchisees so you can do a very strong vendor contracts you can go to any masala company create your own proprietary masala which is only limited to you and to this applied entire thing all the licenses and all the FSSI and all the other packaging rights have to be done by the OEM who is supplying you so it's a big mature market now but yes you are right if you control that product supply and then you are very successful right and Sheetal Sagar asked how Westerns do valuation of a business so Sheetal this is the perfect question for our next session so our next session will actually be on business valuation and everything revolving around it so if you are interested to know more about that so please join us next Saturday at 3pm for this session the session is actually on valuation so we do four sessions invest, scale, value and exit so we talk about investment how do you invest in two different businesses asset class and so on and so forth we talk about scaling up today we took a special topic which is closer to me franchising but we talk about scaling up otherwise how do you scale your businesses and we talk about valuation which is the next week and then we talk about exit if you want to sell your business and you want a good exit or you want to exit for profit or you are distressed at an asset and you want to come out of it how do you really plan your exit so I think with this we will just wrap up our Q&A session so Gaurav sir if you can my email id if anybody has questions especially on a franchise side if you feel that anything I can answer for people or anything else which you feel you have suggestion on please reach out to me directly so gm at gauravmaria.com thank you so much Gaurav sir thank you for another wonderful session and for always you know helping and guiding our members for all topics related to invest, scale, value and exit anything you would like to say in the end no no good I think it is a good session sir as I said it is closer to what I do and this was simple franchising it is a simple topic for me you can wake me up at 2 o'clock in the night before all I can do thank you absolutely thank you so much sir thank you to all our attendees for your time and we really hope you were able to add some value to your life through this session and we will see you next Saturday at 3 p.m. for another session which will all be about business valuation and how to value your business how investors determine the value of your business so if you are interested please join us