Gennady, tell us how many franchises have you sold in Russia and many plan to sell in the near future?
— First of all, if you’re talking about franchising, it is impossible to plan.
— Because we are not actors, and franchisees — entrepreneurs who come to us. We can’t for the entrepreneur to say that he planned. We don’t know. He is a completely independent entrepreneur. We can predict, to predict, to build any guesses, but to manage the independent entrepreneurs we can not, in contrast to those companies that are building their own business: they have plans, resources for these plans to comply, but in franchising we have nothing.
Can we speak in this case about the complete lack of planning?
Planning exists, but has a completely different character.
Planning not normative and indicative planning. We can say that now, judging by the situation that is developing, a certain number of people will come to us and buy a franchise.
There were times when we sold a year 200-250 franchises. Not now, now in the year we sell 30 franchises.
Do you connect this with the negative economic trends? What is the biggest influence on the decline?
— The activity of our entrepreneurs. We talk a lot about entrepreneurship, but entrepreneurs are still very firmly clamped. Although, judging by current developments in franchising, as the area in General, there is some progress in this matter. A large number of Russian franchises. They were held in those areas in which foreign franchisors do not come. If you’ve been at session of the Moscow international forum on franchising], there were two, I think, wonderful franchise — a “Baby club” and “CHempionata”.
Such a thing as “CHempionata”, is unlikely to develop in Europe, because there were completely different conditions, but in Russia it will go, I’m sure.
As for the “Baby club” if you ever heard a performance [of the founders Eugene] Belonoschenko, they would have become fans of this man. This is a wonderful entrepreneur who has created a very good network. This network will develop in breadth and depth. Is the concept of entrepreneurial activity, which we long time simply did not exist.
Now, entrepreneurial activity appears? Or, on the contrary, is on the decline?
— Appears. In business, much depends on tradition. At one time you are aware of the revolution (the October revolution of 1917 — ed.), these traditions were artificially just broken. Broken was dynasty, broken family business. The family business was not welcomed anywhere. If there was nepotism, she pursued administratively. Now treat this a little differently. We have a tradition. I refer you again to Belonoschenko. It is entirely in this business: he and his wife and children are probably there, but they are still too small.
Not all businesses it is. When people come to us from abroad, they bring their ideas, but they will never bring the national tradition. It should educate us. We do have to do. I am, overall, very positive about the development of franchising in Russia, although there are some wrong interpretations of what is happening.
If you listened to the speeches at the sessions, we constantly heard the word “scaling”. Do you know what scaling?
Depends on the context. Still it is better to interpret you.
The word “scaling” to us it’s in Russian language from German. Means “image of the object to scale in a specific size”. This is a technical term that has existed for many years in the Russian engineering community. You can scale the glass to portray him more or less. Scaling is an image, not a real object.
When a business is the concept of “development”, “extension”, “conquer new territory”. It has nothing to scale. If you create a franchise system, all that you have created outside of your personal business you sold. Each of these enterprises have no relations to you has not. It is an independent enterprise. They work according to the contract, on the model that you allowed them to use, but they are building their own businesses and receive their own profit, using any sources that also don’t belong to you. Possible options, but the franchise is not expanding your business. You create an independent business, owned by another person.
About the same story, as I understand it, is relevant for Subway? The main business of the franchise?
— If you take global Subway, it is not your own point. Once he had, because it was necessary to build a model and prove its viability. Now this vitality is proven and it is not necessary to have its own point. Subway improves the model by watching other franchisees.
Business Subway is not a sandwich. Business in the big Subway is the sale of franchises and business Subway franchisee is selling sandwiches. This duplex business. And when you make a franchise and build a network here this business, it is fundamentally different from the business of selling sandwiches.
I guess I’ll ask the question that You have repeatedly asked here on the Forum. Tell me, how much is a Subway franchise?
— To do this, go to the Internet and everything is written. Usually, when asking such questions, you know that the cost of a franchise is the initial payment. Nothing of the sort.
— Nothing royalties do not have. Royalty — a payment for the use of the model, but in order for you run a business, you should invest some funds. If you take the entire investment package associated with the launch of a franchise company — here it will be the cost of the franchise.
And can you tell how much this investment package will cost the owner?
— Our franchise is worth approximately 100 thousand dollars. The second will be slightly less, third even less, because some of the stages will be passed and any subsequent movie franchise is based on the previous experience and investments made in advance.
Quickly pays for itself whether Subway franchise?
— Very much depends on the specific project. May be the projects that pay off from day one. New projects will require accustom the audience to the use of this product.
You have to understand one more thing, if you want to deal seriously with this subject. A franchise is an economic phenomenon of the XXI century, even though it appeared a very long time. The Americans have discovered that the first franchise contract, if you look at the legal content appeared in China in II century BC. There was already a relationship that can be called franchisee.
Very long time it was thought that the singer was the Creator of the franchise. When analyzed the contracts that were concluded, it turned out that there is no franchise and there was not.
And the economy of the XXI century in developed countries is a service economy.
What, in your opinion, a distinctive feature of this economy? And how it affects the franchise’s market? Are these two phenomena?
— A product you can manufacture and put on the shelf, he will lie, and then you will use the system to distribute in those regions where the need arises. With this service you can do. Service occurs only in the process, in the moment of interaction between manufacturer and consumer.
What are the consequences of this? The whole economy of the industrial society built on the ideas of Ford and Taylor’s idea of scientific organization of labor, and so on. And in the service economy you can’t produce the service for the future. It does not work scientific methods of organization that existed in the industrial age.
You produced a million cars. With them what to do? They need to distribute, to sell. You start working with the product. Then you sold the car. They need to serve, but you can’t maintain the cars until they are insured. No company will take on maintenance of the vehicle that have not undergone a process of adaptation of the product to the market. All we’re talking about — it just is the service.
In order to sell the product that you mass produced, you have to realize a service system that will allow you this product to use. And this system of services should be such that at each point in economic space all of these services were the same, because you have the same products. You need this car to work according to a certain standard of service. Who is watching this? How is it all organized? Here and there the franchise.
Franchising is a method of organization in a postindustrial society services for those goods that were produced before. That is a system of economic organization of services. Whether we like or not, if there is a massive need and the more it is distributed geographically, we have to create a franchise system. Without a system of franchising, you will not be able to standardize the service.
We slightly digress on the theoretical aspects, let’s talk about Subway. What’s your franchise different from other franchises market leaders?
— Franchises such as Subway, on our catering market is not. We are the only system. We have 44 thousand enterprises operating in a hundred countries around the world.
Is the concept of range control. In management science there is a postulate that for the range of controllability should be 7-12 people or organizations. One person cannot control the number of people more than 10-12. If more, then chaos begins, starts inoperable. Therefore, in the army platoon are ten people, ten platoons is a company, and so on. This element exists in all organizations, bureaucratic cycle, but at Subway 44 thousand enterprises, each of which is not subject to administrative companies. They are all independent businesses, though they are less than entrepreneurs. Entrepreneurs only 20 thousand.
Each entrepreneur on average more than two franchises. So all these 20-something entrepreneurs (or 44 thousand points) are managed through only one level. There are independent businesses, each of which organizes small-scale production. Above it there is a level of agents in the development of these agents for the development of territories is the headquarters of Subway. All.
Subway — this is a small company in the home country. Each agent on the development of territories is a small businessman. The headquarters — also a small enterprise in the USA. There is, of course, has its own peculiarities. In the U.S. it is believed that a company with 500 employees is too small business depending on the industry.
Subway is such a hierarchy of small businesses. So when Subway came to Russia, the American government immediately offered him insurance, because the Subway was carrying to Russia the ideology of small business. We continue to do this and I think we are doing the noble thing in Russia. We give birth to and train small businesses in our country.
How many of you entrepreneurs and restaurants in Russia?
— In Russia we have about three hundred entrepreneurs and 550-600 existing restaurants, but sold a lot more franchises, because franchises are small businesses, they have their own life cycles and plans. We had entrepreneurs who were engaged in Real Estate ohms, and that in periods of low market decided to go into the restaurant business. But when Real Estate got back on their laps, they said our main business is Real Estate, we will return to him.
We had entrepreneurs who have traded oil, or came from the financial sector. One time we were the owner of the best lawyer who was fired from the big law firm.
This environment of small business a life of its own, because each of the owners has another business, he engaged them, and his plans include the combination of several companies in order to develop their business.
Since we’re talking about the life of a small business is, say, a foreign franchisee from Russian?
— Americans, for example, a graduation. They have such a category — Life Support Business. I call it “business to support the pants”. People do business in order to ensure a certain standard of living for his family, to children to give to school, to College, to have a certain level of entertainment. Business they do not in order to build Microsoft. People that live, it’s their lifestyle.
In Russia, as perceived by the business, in your opinion?
— Still hard, but we will get there, because this ideology allows you to create a middle class. He’s in business not because you need to build a Microsoft, Apple or open Google. These people do business because they want to live because their neighbors are just like them.
By the way, for example, in the U.S., franchisees are pensioners. In many countries there is a limit — 60 years old, you retire and give way to youth. But the person who is retired, is still active. Not all, but in many countries there is an option — you can either receive a pension a little bit each month, or to retire from the whole piece. If you receive a pension piece, you can invest it in the opening of your business and then have to live by it. While you continue to socialize. For example, you opened a Subway in his native village, you all go, everyone knows that you have the best sandwiches, you communicate with customers every morning. They know you’re an honorable man, you know all the neighbors. It’s a completely different lifestyle.
We have people retiring. Our people, when retiring, can not open their own business.
Photo: Victor Witulski
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