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beboss.ru: Interview with Nikolai Alexeyev under "Success Story"

03 июля 2013

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Nikolay Alekseev, commercial director of the Life Franchising Fund

— Nikolay, how do you appraise the level of the Russian franchising market development, in particular, the segment of bank lending to franchising projects — how well is it developed in Russia?

— In Russia the segment of bank lending to franchising projects is in its initial stage. Today several banks are working on special lending programs to finance franchising projects. I believe that in the next two-three years all principal players in the market of small and medium-sized enterprises will have their own lending programs focused on this market. The key difference between such products and a credit on regular business terms will be in the thorough analysis of a franchising system by the bank and its accreditation. In this case the bank, which provides a credit for the purchase of a franchise, will face standard credit risks, commensurate with the risk appetite of each particular bank. The initiator of the project will still be required to repay the credit, irrespective of the project success.

— What is the distinction between the product offered by the Financial Group Life and a credit provided for financing the purchase of a franchise?

— The product of Life Franchising radically differs from a credit. This is not a lending to franchising business, and this is not a bank product. This is investment into franchising projects. What we offer is not debt financing, but investments — participation for up to 90% in the own equity of a legal entity — franchisee. The Life Franchising product does not imply any annuity. We do not demand any guarantees or collateral from individual initiators of the project. We share the start-up risks — we accept the profit or loss risk of the project jointly with its initiator without recourse to such initiator. The key point is that our product is different from any other bank products, and the difference is that we offer complete and successful business-solutions. We are not a bank. The bank will not be concerned about your success and will not be involved in the business development, while we are ready to do it. We offer a set of solutions which really are working.

— What support does Financial Group Life provide on various stages of the project?

— In addition to the co-financing, from the moment of starting the joint effort, we are ready to provide any consultations regarding the development of business, for example, any tax and legal issues, financial planning, interaction with the brand owners (franchisors), and an additional financing, if necessary. Moreover, we provide accounting, IT, analytical and legal support to our projects, thus enabling our partner to concentrate on running the business and give no thought to any auxiliary infrastructure.

— Nikolay, please describe how you work with franchises? What criteria are used for the selection of franchises to the portfolio of the Financial Group Life?

— To be included in our portfolio, the franchise needs thorough analysis and appraisal of business-processes. So, the economic model of the outlet should be practically profitable, the history and achievements of the franchisor company should be inspiring, and the operating system should be transparent and viable. The company should possess recognized and standardized «success drivers». The company shall provide regular training, arrange advanced training to upgrade skills and qualifications of managers and local staff and share best practices with sales outlets, etc. We work with franchisors, who maintain high standards of brand values and thoroughly organize the brand promotion. From the viewpoint of working out the business-concept, we also conduct stress-tests of financial models, we ensure the reliability and make analysis of the management reporting, we provide management consulting and legal consulting services, as well as high standards of other necessary competences.

— How long has your product been in the market, and what dynamics does it demonstrate?

— Life Franchising is a simple and clear-cut solution for the opening or diversification of business on the basis of successful experience of leading business-concepts. We do our best to offer only the most efficient solutions. We have spent significant amount of time to develop the product and a business-platform for its further development. We have started active sales several months before. However, we already have some test experimental project investments, and this is where we draw our experience from, among other things. We see that our product is in great demand in the market. Our client is anyone willing to start a new business, and anyone who want to diversify the current business.

— So, the core client of Life Franchising is an entrepreneur, a representative of the small and mid-sized business?

— First of all, yes, these are entrepreneurs doing business in the mid-sized and small business segment (franchised and not franchised), willing to expand and diversify their business. It happens very often that we are approached by current franchisees or managers of the sales outlets, willing to expand their successful business in the framework of the same franchise, for example, to launch another outlet or buy an additional franchise. However, the current businessmen are far not an only class, having interest in our product. It is interesting to note that we are approached by employees of large companies, having good income and savings which allow them to think about own business. Not necessarily under own management, but under personal control. These are clients having time to conduct or manage their own business. These clients have savings, and they are ready to become entrepreneurs and invest all their time in a new business. Besides, there are quite a lot of phone calls from people who just have some savings. They ask what would be better: to open a business together with us or make investments in any financial instruments? We get a great deal of calls: about 30 phone calls every day.

— Nikolay, what do you think, does the success of the project depend more on the franchisor or the franchisee?

— Both contribute to the success of the project. It is a long and meticulous joint effort. The most important thing, as our experience shows, is the franchisee’s desire to be the best outlet by business performance in the entire system of the franchisor. It is interesting to see that such ambitious businessmen do excellent job! For the franchisor, a good franchisee is not merely a good client, but already a really good partner, to whom the franchisor is ready to open additional opportunities. In his turn, the franchisor tends to get rid of a bad franchisee, and such franchisee is likely to drop out of the franchisor’s focus of attention. Though the best franchisors value their brand, and the brand’s promises are for all partners without any exception.

— And still, Nikolay, what will happen if the franchising project is a failure?

— In this case all shareholders, including us — Co-Investment Franchising Projects Fund — will lose the funds invested in the project. Yet the initiator of the project does not have to return money to the fund. I must emphasize that the chances of failure are extremely small: we work only with tested franchising systems, which proved the success of their business. Financial Group Life is interested in such partners who think how to increase our common investments. We shall make all decisions together as business partners. In 3-5 years the fund will exit the project, and our partner will inherit the accumulated experience and successful business. Therefore it is very important to have the drive for success from the very beginning!

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