How The Cash Converters Model Is Focused On Growth
Franchising can provide quick access to capital, which is great if you're looking to grow your business. But the franchising system isn't without its challenges. Cash Converters MD Richard Mukheibir offers some advice for those looking to expand through franchising.
- Player: Richard Mukheibir
- Position: Managing Director
- Company: Cash Converters
- Retail turnover: R500 million+
- Visit: www.cashconverters.co.za
In 1993, a business partner showed Richard Mukheibir a promotional video for Cash Converters, a company that was then showing quick growth in its home market of Australia.
"I was in IT, so I never really pictured myself becoming a second-hand retailer," laughs Mukheibir. "But the more I thought about it, the more it made sense. This was just before the political changes of 1994, so we felt fairly sure that there would be a big expansion of the middle class. We would see much more upward mobility, which could be great for a brand like Cash Converters."
Before long, Mukheibir was on his way to Australia. He liked what he saw and signed a contract to receive a master licence for South Africa. Two months of training followed.
Buying into a brand
"I'm often asked why we didn't simply replicate what Cash Converters was doing in Australia. Why spend so much money on buying into an overseas franchise?" says Mukheibir. "There were two reasons for this.
"Firstly, even though the brand wasn't known in South Africa yet, we liked the idea of bringing in an established and respected brand. At the time, second-hand retail didn't have a great image. It was seen as dingy and somewhat unsavoury. Cash Converters had reinvented the concept and brought it into the modern age. We wanted to be a part of that.
"Secondly, I had an IT background, so I knew very little about the retail environment. It was important to buy into a franchise that would provide the training and expertise needed to set Cash Converters up in South Africa and run it successfully. To me, that is the whole point of a franchise system — it offers a proven business model that you can replicate. If a franchise doesn't offer that, you have to question what the value is. Thankfully, that wasn't the case with Cash Converters."
When money isn't a problem
Another great advantage of franchising is the ability to expand your business without having to bankroll that expansion yourself. In South Africa, Cash Converters embraced the franchising system and has managed to grow very successfully because of it. The business currently boasts 80 stores with another 20 in the works.
"The franchise model allows you to grow relatively quickly, since franchisees help to fund your growth. So, while access to capital is usually one of the biggest barriers to growth, it isn't really the case with franchises," says Mukheibir.
"But it brings with it some other challenges. When money isn't a problem, for instance, you can be tempted to grow too quickly. Just because you have the money to grow, doesn't mean that you should grow.
"There have been many instances where we've decided to slow the company's growth, simply because we felt that the timing wasn't right. We're interested in long-term success, both for ourselves and our franchisees. We want multi-unit franchisees who stay in the business for decades.
"If you grow quickly through franchising, you might raise a lot of capital in the short term, but it could damage the company in the long run. It's not just about the number of stores you have, you also need the structures in place to support your franchisees."
Finding the right people
According to Mukheibir, the biggest barrier to growth for a franchise company like Cash Converters lies in the finding of promising new franchisees.
"Finding great franchisees is our biggest challenge," says Mukheibir. "We are very particular about the people that we allow to join the brand. It's not just about the money, it's also about the skills and energy that a person will bring to Cash Converters. For instance, some level of business acumen is very important to us. We want people who know how to run a business. "Even more importantly, though, are the values that potential franchisees have. It all starts with values. Skills can be acquired, but you can't force your values onto someone else. So, we start off by looking for people who share our values — who will act with integrity and always treat employees and customers with respect."
And how does Cash Converters go about finding these people? The most obvious way is to simply sell franchises to existing franchisees. By setting up multi-unit franchisees, the company knows that it's dealing with people who can make the business model work, and to whom they would need to provide less training and support.
When it comes to new franchisees, Mukheibir and his team treat every interaction with a potential franchisee as a sort-of "interview'.
"We pay close attention to how prospective franchisees conduct themselves. If someone promises to send through a document the next day, does he or she actually do it, or does the paperwork arrive a week later? We try to find out if people are as good as their word. Once again, it's all about values."
Treating franchisees like partners
Cash Converters spends a lot of time finding the right franchisees, because it views them as partners.
"The success of your business depends on your franchisees. If they're not making money, your entire business can collapse. Treating your franchisees like a revenue stream is a sure way to failure," says Mukheibir.
"So, we treat franchisees like partners in the business. We visit stores regularly, and spend at least a day in each one. We also hold conferences where we explain the strategy of the brand and ask for input from franchisees. It's important to us that franchisees feel as if they are part of a bigger organisation. We also believe that the brand is stronger when everyone involved is moving towards a common goal."
To better understand the challenges of franchisees, Cash Converters also operates company-owned stores.
"These stores are a great place to test new ideas. So, we run pilot programmes in our stores, and then roll them out across our network, says Mukheibir. "We also need to understand what challenges our franchisees face daily. Franchises fail when franchisors lose touch with what's actually happening on the ground, which is why we operate our own stores."