San Francisco Coffee House

1. Should Tensek and Pacek consider franchising over organic growth? Tensek and Pacek build their business model for the San Francisco Coffee House as by the book. They analyze almost all aspect of the market before starting to development of the business. This was based on their knowledge and the business know-how which they have acquired throughout the six years they spent studying and working in the United States. The concept model for their coffee house was certainly very much different of what the local, Croatian market was used to. They have spent time and resources in each aspect of their business as that of finding the good location, not only the city, but also the position within the city was.

Also another good approach in their business model was the process of learning how the coffee house were designed, run and operated in the United States in order to build a similar perception in Croatia. Additionally they applied not only the business awareness but also the knowledge on human resources. The selection of staff and moreover their training, remuneration and bonuses or salaries increase for performance achievement was very carefully assessed and put in place in order to sustain the business through the empowerment of their employees also.

Another important aspect was introduction of a wide variety of choices for the products they offered as well as the ambiance created through the offered design and additional services (like the availability of wireless internet).

All together these important facts which were considered and put in place by Tensek and Pacek made their business a successful one with a very high potential for growth. The business expansion was certainly the following step in their desire to grow the business and to seek new opportunities in other markets (locally or regional). At the moment they started to consider expanding the business and leveraging their know-how the environment was not a very competitive one, at least not in the local market, in Croatia. They could base their expansion also on the fact that they achieved a certain brand awareness in the local market. They became known especially to the young people segment as well as to the business people who could help additionally in “spreading the word” about their business model and their products. Additionally, also the way they managed the human resources field was another detail that strengthen their position in the market, as people could look up to be hired but such an employer.

In terms of how and what would be the appropriate mode of business expansion, Tensek and Pacek should run a thoroughly assessment of all factors that could lead to such a decision. Of course expanding the business could potentially bring increase of revenues but could also bring the opposite. Before making such a choice, there are certain questions to which they should answer like: what makes their business a successful one? what products are appreciated more and which are not? what products and services would be appreciated in other markets? What actual markets should they target. Moreover an assessment of the factors of the target markets should be run. They should understand what is the competition in other markets, are they able to withstand a big competitor.

Adoption of a franchising mode of expanding the business could be adopted even in a market like Croatia where there is no large awareness on this type of business and no real sustainment from the banks and from the institutions. As a mode of entry in a market, the franchising has advantages as the low financial risks and the control over the business model. On the other hand a company that uses the franchising model has for sure a lower control over markets and revenues, doesn’t have whole control over the operations and on top there could arise issues between the franchisor company and the franchisee. Another important aspect in the franchising model that has to be considered is the fact that taking on a franchise its strongly connected with the brand awareness in a market.

Hence to be able to franchise they would need to be sure that they have created a truly strong brand with a strong exposure that would  make franchisee interested in and willing to invest. This would also imply that the franchisor company will have to teach the franchisee their business model. Choosing instead to develop the company further through an organic growth would be probably more advisable in the franchising context of Croatian market. However the company has achieved is growth based on their own strengths, hence the next logical step to further increase the business is that of penetration in other markets. Therefore franchising should be a model of business growth that Tensek and Pacek should adopt, but they should somehow find the meanings to adjust the franchise model to the realities of the Croatian market.

2. What adjustments would they need to make for franchising in the Croatian context?
The franchising as a model of entry in other markets was used a manner of doing business in developed countries and its achieving an increased growth of use in emerging markets. We can state that the franchising model is best suited for either companies that want to expend through low financial risks but still maintaining a certain control over the business model or companies that want to enter a certain business but they want to achieve this under the “umbrella” of a well known and established brand.

The Croatian market it is a young market with little experience in the franchising model. The first practice was made in the early 1990’s when McDonald opened their first business in Croatia. However this model has gained more awareness and by 2007 it is reported that in Croatia there are about 125 franchise present in the market, which in relation to other emerging countries puts them somewhere in the center of the ranking done by the European Franchise Federation.

Yet the concept of franchising is new to Croatia and only in the recent years there have been adopted laws and regulations that allowed the country entrance in different trade organizations. Consequently there were established 2 centers for franchising whose objectives were to educate, promote, inform and help local companies to become franchisors. Still the environment for franchising is not yet a favorable one as there are no legal regulations adopted, there is a lack of consultants in franchising (there is no educational model in place to help teach such professionals), banks are reluctant to the idea of sustaining franchising businesses (there is no bank product suited for franchising and the bank personnel is not trained to support and help this sector), the market is small which is seen as a drawback in attracting possible franchisor companies and also the franchising mode of doing business is rather unknown to people in Croatia.

However the perspective of EU membership will definitely help to develop the franchising as a model of doing business, but Croatia will have to also make some efforts to change the legal framework and to sustain more this type of business model.

In terms of what would Tensek and Pacek need to be doing in order to adjust the franchising model to the Croatian context I believe that as a first step they would need to be the ones finding the proper franchisee companies and advertising intensively their successful business model. Also another aspect they should have in mind is that of education and 3. How could they protect their intellectual property and business format know – how?

4. What should be the next steps should they decide to franchise in Croatia?