Did you know that 7 out of 10 preschools fail?*
Your favourite preschool chain probably forgot to mention that! Did it ever occur to you that hundreds of preschools that ‘preschool chains’ keep shouting themselves hoarse over are essentially hundreds of agreements drawn with individuals desiring to start a successful school but not necessarily succeeding in sustaining them beyond a couple of years? These are not hundreds of successfully running preschools. There is big difference between both statements above.
*note - the number is meant to shock you & lull you out of being gullible preschool franchise owners. It is not necessarily accurate and of course, it varies tremendously by location.
The problem with the preschool franchisee industry lies at multiple levels –
“ Franchising is a form of business by which the owner (franchisor) of a product, service or method obtains distribution through affiliated dealers (franchisees) ”
So essentially a franchisee is distributing a mass product or service (rarely a tailor-made product/service for a locality) as conceptualized by the franchisor. But to think of it, are the extraneous market forces at play in imparting education in Kashmir & Kanyakumari the same? Aren’t demographic profiles and aspirations of parents residing in Burdwan, a tier II city in West Bengal & Mumbai, the financial capital of the country, entirely different?
FMCG marketers in MNCs spend millions in market research to understand local consumption behaviours and yet local companies with minimal spend on market research end up gaining sizeable shares across most FMCG product categories. If that’s the situation in fast-moving consumer goods space where, from the consumers perspective, the consumption-cycle of the product begins and ends with a few baths (soaps/shampoo) or a few meals (cooking oil/atta/biscuits) what do you think should happen if the consumption cycle extends to between 3-5 years and if it concerns the education of your child.
In a highly localized industry like preschooling, there is limited scope for a mass product/service. Every successful preschool thrives because of the quality of the franchise operations and the customized service model he or she offers. Period.
If a preschool ‘brand’ gives you uber-cool presentations on anticipated ROI within 12-18 months of operation despite soliciting a hefty franchisee fee of upwards of Rs 6 lacs, and a project cost in excess of Rs 12-15 lacs, be scared, very very scared.
Not that it is impossible. You can have a completely different revenue model in Bandra and Bhayandar (both in Mumbai). But rentals also will vary just as much. So factoring in multiple investments necessary (and not just the franchise fee), it would be tough.
Ensuring Quality in a preschool? Tell us about it!
Going back to our FMCG example, the MNCs must obviously be doing something right? After all, some of them have been around for a century and some even more? One edge that MNCs bring to the table for consumers is sustained & consistent Quality – one that is non-replicable for most local players who are not in a position to derive profits from economies of scale in manufacturing operations and hence rely on lower variable costs & inputs to achieve similar if not higher Return on Capital Employed.
So the biggies manufacture quality products, invest heavily on packaging & promotions & manage to replicate the same product experience for consumers regardless of their geographical location.
Cut to the preschool industry. It is a fact that no two preschools can be the same. Despite the best laid out processes by franchisors with the deepest of pockets, replication of the same service experience across centres is practically impossible. And if that is impossible, well what are ‘brands’ there for?
Business models proposed by preschool chains are typically uni-dimensional. Parents enrol children in your preschool and you expect the numbers to grow year on year. That’s it pretty simple. Given the pre-schooling opportunity in general, that’s a reasonable assumption to make. But how do you, as an investor, maximise your chance to cater to the early childhood education franchise opportunity - one that goes beyond just the preschool? There is a whole ecosystem replete with various stakeholders waiting to be catered to courtesy your step towards preschool education, and here you are waiting for just admissions to increase year on year while you pay rent on infrastructure that you use only between 8:30 am till 2:30 pm.
For the lack of any serious and integrated revenue model that puts your infrastructure and your strengths to good use, you hunt for additional revenue streams around preschool education, trying, testing, blowing some money after some more ‘franchisee’ offers and realising that the program was no good, as it was not practical or it was too expensive. That’s where you begin to realise that your favourite preschool brand could’ve done a lot more.
We would like to re-iterate the only indefatigable truth about preschool success stories. A preschool works or fails to a large extent due to the sincerity & motivation of people handling them besides other relevant factors like curriculum, curriculum enablers, location, pricing & lots of hard work. That is not to say that other factors like an investment into interiors, marketing, brand recall, well laid out processes etc are useless. They matter, but certainly not as much as the ‘brands’ want you to believe.
An association with KidGee (!) will earn 10 times more walk in’s and initial admissions than starting up with Santosh Desai Preschool (completely imaginary and no disrespect meant to any Santosh Desai living or alive!). But when you start measuring a brand’s contribution to sustained growth for a preschool beyond the initial numbers, you would not find merit in the ROI model.
Lastly, there is an inherent problem with a typical franchisors view of the preschool business. There are the mid-to-bottom of the pyramid preschool brands that have established a business model out of selling ‘franchisees’ and not investing adequately to support franchisee operations & in a way adopting a sell and scoot policy. Some out of these brands have an augmented revenue model through ‘royalties’ which bind a franchisee to the franchisor through a tortuous legal document regardless of their own inadequacies as a franchisor.
Some more ingenious brands claim no-royalty, which only helps reduce the stain on their conscience for not having any support systems for franchisee’s who are running a preschool for the first time and will definitely need unlimited support for successfully carrying the venture through. Then there are the top-of-the-drawer brands that burn a deep hole in your pocket and will befuddle you with numbers like a hundred preschool or maybe a thousand preschool under the brand of KidGee or TreeMouse (!).
These numbers are, at the very best, of peripheral consequence to your operations. It does help in furthering the awe factor to a certain extent for uninitiated parents who walk-in to your centre, but the reality is that you are well and truly the solitary preschool brand as far as you are concerned.
Unwittingly, you have been added to the hundreds/thousands of preschools of the brand. The franchisor has gained from your hard work much more than you have gained from them in setting up a preschool.
Lastly, the top-of-the-drawer brands satisfy not just their quarterly revenue targets by way of royalties through your preschool but your success also helps them create a backward linkage of admissions for high schools that they run. So your gain is really their gain, your pain though… well, there are others waiting to start a preschool!
So, our view on franchising in the preschool industry is blatantly obvious but just for the record – Say NO! to franchising with a preschool ‘brand’ and stop investing your time & money into the presumed model of short-cut success. Instead, partner with a good curriculum expert who is in it in the long term for you, because creating your brand is not going to happen overnight, and you would need the help of an expert. But it is a journey you will love and cherish, all the more because there are no franchisee terms holding you back.