Feasibility Report of Franchising the the Courier Industry
Table of Contents
This analysis is to investigate the feasibility of Shippit to enter the franchise market in the Courier Industry. To achieve this goal, this current operating environment will of Shippit will be considered. This will then be compared to industry norms to analyse if Shippit should enter the franchise market and if it can succeed especially in terms of Human resources and Finances.
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Structure and background of Shippit
The start-up stage is defined by the many challenges that it places on a business as one of the most turbulent times in the business life cycle, where even small decisions can define operations, culture and overall success in its lifetime. This is because the business’ product/service is trialled against real markets, putting immense pressure on management and the business’ foundation. How the business adapts and burdens these pressures will ultimately decide whether the business can use their potential for success or if they are destined for an imminent market exit. The following four challenges the business will likely face is a strong determinate of how a business will develop into the future.
- Finance: An integral part of starting a business is how successful the business is in raising funds initially and during operation to ensure that it has enough capital to reach its goal and sustainable. This capital then needs detailed plans to ensure efficient use that benefits the long-term goals of the business.
- Human Resources: Humans are the core of any business and their experience is integral from prototyping the product/service into expanding leadership and recruiting employees. The expertise and experience available during start-up are critical from development, the management team and hire employees. This refers to their abilities and takes into account the founders experience and knowledge in that market.
- Support Mechanisms: Availability of support both in expertise and general business knowledge is an important part of many start-ups and greatly increases success. This could be the finances/expertise of angel investors or on the other end of the spectrum, it could refer to government support programs for start-ups.
- Business environment: The business environment is the specific local and Industry conditions of the standard operations and trends of the business. While tools such as Pestle allow a business to comprehensively analyse the market limitations, legal issues, trends, etc, many business’ neglect current conditions in their industry contributing to failure. This is particularly important as some industries may simply be in a bad current state that start-ups should avoid.
In summary, the challenges start-ups face is straightforward but pose an immense risk to their future. Some are mainly designed to contribute to future growth but failing to endure or react to these challenges is the most conventional reason start-ups fail.
(Salamzadeh & Kawamorita, 2015)
The definite size of Shippit is a relative unknown but using definitions provided by ASIC it can be classified using estimations and predictions. Shippit is a software company still in the start-up stage so it must properly manage its costs so it can be assumed that staff members are kept at a minimal level placing it below the 25-employee limit used by ASIC set out in the Corporations Act 2001. The other definitions are that it must have less than $25 million in Revenue and less than $12.5 million in consolidated assets. The revenue of the company is unreported but can be estimated using interviews suggesting it had grown from below $1 Million in late 2015 to around $1.5 Million by mid-2017. Using these statistics, it can be estimated that in the similar timeframe between 2017 and 2019 that the company would have grown to around or above $2 million in revenue. The asset value is also unreported but is estimated to be well below 12.5 million using the revenue and the general lack of physical assets Shippit would have as a software company. So following ASIC’s definitions Shippit is a small company for at least the short term, it is notable that government agencies tend to use different definitions like the ATO which uses a $10 million revenue threshold and other agencies may have lower thresholds.
(ASIC, 2019) (ATO, 2019)
(White, 2015) (Dias, 2017) (Revenue)
Legally Shippit is registered as a private company. This restricts certain actions of the company but allows the owners/managers to have larger control of the business without the interference of shareholders. The main limitation it faces as a private company is how it can source its revenue as the main source of funding needs to be raised internally through the owners or directly from large investors like adventure capitalists. This obviously limits the amount of revenue a business can raise, however, based on funding rounds Shippit is receiving enough investment to limit the effects. (Baldassarre, 2017)
The business culture of staff inside Shippit would be based on the creative environment they operate in. This creative environment is typically modelled on calm, stress-free environments that allow individuals to thrive. This likely means a relaxed organisational culture especially for lower employees which limits typical work standards but improves quality and decision making. This likely means a democratic or persuasive form of management which will limit their ability to manage Franchises if the business purses them.
Currently, there are 3 main leaders of Shippit. The first two are the original founders and share a joint CEO position. This places William and Rob as the main leaders of Shippit though it is notable that they share very little experience in the courier industry and company management. Their third member Daniel is the chief revenue officer placing him as the leader for all revenue generation process. Unlike his associates, Daniel does have notable experience specifically in his current position increasing his effectiveness. In summary, the leadership team of Shippit shares some managerial positions and limited experience in the courier industry but they still complement their weaknesses from their managerial experience.
The structure in the distribution places them between manufactures/retail (Supplier) and the end consumers (buyer) using a courier service (Distributor). This is a relatively complicated process as Shippit turns the system from a three-step process to a four-step process. Their system is quicker however as they use software to select the quickest courier for the buyer. This is how they gain their revenue by providing a slightly more expensive process that is quicker than the average process.
Overall Shippit is in a good market position for expansion because of its competitive advantages and industry growth. Shippit’s competitive advantage stems from its ability to counteract the last mile, the most expensive part of the courier service. This places it in a good position to grow and connect with other Courier Services. This is reflected in the SWOT as Shippit has a good foundation with vast room to grow but it is limited by its size and business model that makes it replaceable.
The business environment Shippit operates in is less secure with e-commerce drastically reshaping the courier and retail industries. This is reflected in the statistics as while the Retail and transport Industries are growing quickly revenue from physical department stores has stagnated. The political environment is similarly turbulent as government forces try and regulate the internet and environment putting pressure on these factors. This is all tied to the current social changes which are linked directly to Shippit’s consumers and are developing and adapting to create a different world that Shippit needs to continue Addressing. These social and business environment changes are reflected deeply in the Shippit Pestle analysis.
A franchise is an agreement between a business owner and a manager trying to enter the market. In exchange for allowing the Franchisee to use the brand and product to generate separate revenue, Franchisers receive payments from the Franchisee and a share of the profit. This agreement is useful for Franchiser as beside the initial training and setup costs Franchisee act as a separate business except in terms of advertising/branding. This gives Franchisers with a large potential source of income without the risk of expanding into the new market. This model is relatively unchanged for digital franchises just with a much lower physical investment. In this model, the main benefit is that Franchises have local knowledge and connections that Shippit requires if it goes international. This model suits the model of Shippit and grants them the prospect of much faster growth than currently as instead of setting up a physical data centre and connections they only need to support/invest in a Franchisee as they grow. (Business QLD, 2017)
(Refer to Appendix P10-11)
Entering into a franchise agreement is a long, comprehensive, and expensive process. This is because of the requirements set by ACCC. This is the Franchise code of conduct which mandates the process by which a franchise agreement can be established. This process is expensive both for the Franchiser and Franchise as there are many check and balances to ensure legitimate conduct. Notable expenses of this period as a Franchiser are the training cost of the manager and setting up the required practices like a separate bank account. There is also the notable risk cost associated with Franchises as they need to be trusted with both the service and company brand.
(ATO, 2019) (ACCC, 2019)
All these factors need to be addressed if Shippit needs to be addressed if they are to enter into a Franchisee agreement while still addressing the Start-up challenges they continue to face. This will take the form of Human resource and Financial strategies that will address efficiency, compositeness, stakeholder satisfaction and efficiency.
The human resources of Shippit refer both to the personnel of the company and their connections in need to be improved in relation to stakeholder satisfaction and corporate efficiency.
The main strategy for Human resource is extensive training/specialisation. This strategy is expensive and increases the reliance on employees but because Shippit has a limited number of employees it is one of the main ways to expand.
This will likely improve stakeholder satisfaction especially in terms of consumers. This is because the customer service and technology implementation of Shippit will improve. This should lead to greater communication, automation, design and customer retention.
The downside to this strategy is the time and monetary requirements will put a strain on the finances of business though considering the capital available this investment can be absorbed.
The most relevant financial strategy for Shippit is to invest in a franchise agreement. This will have the benefit of increasing its Industry competitiveness and efficiency.
These will be almost direct results of establishing a franchise especially if it grows to a self-sustaining enterprise. The ability to rely on and communicate with each other, to take larger control of the market while still being able to react quickly. This should allow Shippit to be more reactive to market change and adapt these changes much faster than their corporate competitors. The Information available from this different market is a very necessary component when maintain and upgrading software, this raw information should allow Shippit to continue streamlining their process for staff, consumers and their suppliers.
The downside of franchises as identified is their initial start-up complexity and cost for both the Franchisee and Franchiser. This will lead to difficulty and loss in the process to find and properly prepare the Franchisee for market conditions/operations.
Based on the business model and requirements/strategies of Digital franchising it is recommended that Shippit takes this opportunity to expand. This transition could begin with the location and training of a Franchisee in a currently unpenetrated market that is foreign to Shippit. The required assets and support will then need to be supported to this Franchisee so they can begin operations. The form of this franchise agreement is unknown, but a possible solution would be to have it on an Area-based system where they each control their designated section. It is suggested that at least in initial integration Shippit purses a policy of natural growth to increase familiarity and the experience of the Franchisee team.
Following this form of digital franchising is very viable for Shippit because of low maintenance and employee counts allowing relative autonomy. Also because of this the likely hood that the main branch of Shippit will experience increase sales while the Franchises focus on expanding the market share of Shippit.
- Dias, D. (2017). Why Shippit turned down nearly $3 million in its Series A funding round: “It knocked out a couple of investors”. Retrieved From https://www.smartcompany.com.au/startupsmart/news/why-shippit-declined-nearly-3-million-in-series-a-it-knocked-out-a-couple-of-investors/
- White, L. (2015). Courier complaints: $4 billion industry but customers remain dissatisfied. Retrieved from https://www.smh.com.au/business/small-business/courier-complaints-4-billion-industry-but-customers-remain-dissatisfied-20151103-gkpa2q.html
- Baldassarre, G. (2017, May 16). News & Analysis: Sydney logistics management startup Shippit raises $2.2 million Series A. Startupdaily. Retrieved from https://www.startupdaily.net/2017/05/shipping-management-startup-shippit-raises-2-2-million-series/
- Australian Securities & Investment Commission. (2019). Small business. Retrieved from https://asic.gov.au/for-business/small-business
- Australian Taxation Office. (2018). Work out if you’re a small business for the income year. Retrieved from https://www.ato.gov.au/business/small-business-entity-concessions/eligibility/work-out-if-you-re-a-small-business-for-the-income-year/
- Salamzadeh, A & Kawamorita, K. H. (2015). Startup Companies: Life Cycle and Challenges. Proceedings of the 4th International Conference on Employment, Education and Entrepreneurship (EEE), Belgrade, Serbia. 6-7. https://dx.doi.org/10.2139/ssrn.2628861
- Crunchbase. (2018). Shippit. Retrieved from https://www.crunchbase.com/organization/shippt#section-current-team
- ATO. (2019). Franchising and tax. Retrieved from https://www.ato.gov.au/Business/Starting-your-own-business/In-detail/Franchising-and-tax/
- ACCC. (2019). Franchising agreements. Retrieved from https://www.accc.gov.au/business/industry-codes/franchising-code-of-conduct/franchising-agreements
- Business Queensland. (2017). Advantages and disadvantages of buying a franchise. Retrieved from https://www.business.qld.gov.au/starting-business/buying-business/buying-franchise/advantages-disadvantages
- Jeffery, C. (2013). The new frontier of digital franchising. Retrieved from https://venturebeat.com/2013/09/25/digital-franchises/
Works with 90% of top 100 retailers
Algorithms to determine the best courier for a situation
Apps and technology available to streamline the process for the business and provide quick and safe delivery
Quick delivery to consumers and proper packaging with integrated technology to increase customer satisfaction
A relatively small fee and a monthly subscription encouraging consumer loyalty
Reliance on other company’s infrastructure leaves it vulnerable to imitation and potential irrelevance
It is limited by how much other courier services have in abundance making a potential roof
Digitalization of existing sales and customers is quickly increasing potential customers and industry size
Increasing automation provides an opportunity to. reduce costs even further
The last mile is one of the most expensive parts of shipping and if the cost can be lowered and fast there is immense competitive
The recent introduction of Amazon is providing a significant opportunity for partnership
It is located in one of the top ten e-commerce countries giving it a strong base to expand
It is a relatively small business and is competing in an industry with a large business that is its direct competitors and control revenue from multiple industries
The threat posed by natural disasters and uncommon disruptions can seriously affect the time and availability of the service
The current political environment in the lead up to the election is providing a certain level of uncertainty for the laws and funding businesses will receive in the short and long term
The state of the economy is debatable as economists argue over the likelihood of a recession a certain level of uncertainty taking place as Inflation and GDP continue to drop
Socially as a country there is a trend towards ecommerce and delivery. This leads to more potential customers for Shippit and a booming industry
There is also a social trend towards environmentally friendliness which is could put pressure on high carbon emission industries like shipping and couriers
Technologically there is a trend towards automation and efficiency in this industry providing an opportunity for Shippit to further reduce costs and increase their overall service and customers
Environmentally there is a push towards lower emissions which possess a challenge to Shippit as they work with high carbon emission business meaning there will likely be change in either technology used or the overall industry strategy.
Australia is ranked 19 on a rank of ease of business meaning it should be relatively easy to understand the legal requirements of Australia and support provided to ensure legality and quick efficient processes. “Low red tape”
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