Lessons from Dragons’ Den, week 3: Franchising – the Bannatyne Blueprint
Bannatyne’s investees will soon learn how to create a successful franchise model
In this week’s Dragons’ Den, fancy dress shop owners Peter and Michelle Hart secured £100,000 from Duncan Bannatyne, despite baffling all the other Dragons with their franchise model. Bannatyne saw potential in the Harts’ vision to create a nationwide chain of outlets sharing their Fun Fancy Dress brand, and was willing to overlook their dodgy grasp of financials.
Bannatyne’s decision was based on previous experience; he has already backed one franchise business in the Den, and that business, Razzamataz Theatre Schools, is now enjoying international success. Having taken a 50% stake in Fun Fancy Dress, Bannatyne is sure to use Razzamataz as a blueprint for his new investment – but what changes is he likely to put in place?
Here are the top five tweaks we think Bannatyne will make – each one should resonate with anyone looking to build their own franchise-based start-up.
1. Get real
In their pitch last night, the Harts suggested they would charge franchisees between £20,000 and £40,000, plus an ongoing licence fee on return of 8%. In return, the franchisee would receive access to the brand, discounted goods from the Harts’ suppliers, and a fit-out for their premises.
As Theo Paphitis pointed out, this doesn’t constitute particularly good value. Any discount a franchisee would receive on their stock would be offset by the excessive franchisee fees, and the Harts appeared to be placing a high value on the shop fit-out – based on their valuation, a prospective fancy dress entrepreneur could probably secure a better deal on their own.
By comparison, Razzamataz charges a franchise fee of between £8,500 and £9,500, plus VAT, with a 10% management fee and 2% marketing fee due each month. Given that Razzamataz is now an international brand, this fee seems reasonable; it certainly seems far more realistic than the fees the Harts were quoting. Given the popularity of the Razzmatazz model, Bannatyne may well encourage the Harts to bring their Fun Fancy Dress fees down.
2. Understand the model
Perhaps the shrewdest bit of advice offered up to the Harts last night came from Hilary Devey, who told them to “go and read up on franchising.” The Harts didn’t seem to have the first clue about the type of business they were trying to pitch; Peter didn’t even know what ‘gross profit’ meant.
Bannatyne will ensure that his new investees get organised – and surround them with the best possible people. Denise Hutton-Gosney, owner of Razzamataz, believes that watertight organisation has been key to her company’s success:
“I had already started franchising the business before I came on Dragons’ Den, so I’d already engaged a solicitor. We’ve continued to follow best practice, and get a good team around us. We’ve got a great franchise solicitor and get a good franchise consultant, and we’re members of the British Franchise Association (BFA).”
Hutton-Gosney believes this meticulous approach is essential for anyone looking to create a franchise-based operation. She says: “If you’re going to franchise, do it properly – you need a franchise solicitor, and you need to join the BFA.”
3. Tighten the belts
It goes without saying that one of Britain’s top investors is good at getting value for money – but Duncan Bannatyne is really, really good at getting value for money.
Hutton-Gosney says that, as soon as he invested in her business, Bannatyne put her in touch with his financial team, and adds that “he’s really tightened the belt as far as spending money is concerned. He’s tightened up on things like advertising and marketing budgets, and put us in touch with his merchandising suppliers to secure cost-effective supplies.”
Anyone who wants to create a franchise business has to be able to deliver genuine financial gains to their franchisees as well as themselves, and this can only happen when every notch in the supply chain is as tight as possible.
4. Set big targets
With his Razzamataz experience behind him, Bannatyne will be expecting major gains from Fun Fancy Dress in double-quick time. During her pitch in 2007, Razzamataz owner Denise Hutton-Gosney said she was targeting 50 new schools within three years. And she almost delivered on this daunting objective – by August 2010, she had opened 40 new outlets. And the numbers have just kept getting better; in 2009-10 she increased profit by 75%.
If they want to build a positive relationship with Bannatyne, the Fun Fancy Dress team should set their sights similarly high. They may also want to consider deals with major leisure brands; Razzamataz has won contracts with Thomson and First Choice, facilitating expansion into 14 different countries.
Razzamataz has also done a deal to provide dance classes for Bannatyne’s own chain of health clubs, and there could be similar tie-ups involving Fun Fancy Dress somewhere down the line. Hutton-Gosney claims she’s “now going to get in touch with these guys [Fun Fancy Dress] in the hope that we can swap tips and network, as we already do with some of the other Den successes.”
5. Think local
While pursuing challenging objectives and pushing for constant expansion, Fun Fancy Dress will also be encouraged to monitor each franchise closely and ensure the highest standards are maintained by each outlet.
When asked to give her key tips for a successful performing arts school, Hutton-Gosney said: “The school might have a good reputation, but if it is part of a franchise make sure that your local branch is up to scratch. Find out about the teachers and make sure they are really enthusiastic about what they do.”
This lesson applies to all franchise businesses, not just schools; if you want to create a sprawling empire of success, you have to go down to the tiniest, most parochial detail in search of quality. Bannatyne, with his chain of health clubs, is no stranger to managing a nationwide brand, and he will surely seek to instill the highest standards into every corner of the Fun Fancy Dress empire.