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 Franchise spins quiet revolution in local courier industry

 

 Richard Robinson describes his company’s strategy to starting and building Fastway Couriers in South Africa as akin to that of spiders: they are predatory, never heard and seldom seen, but for their fine webs glittering when they happen to capture the light.

His company, called Isicabucabu Franchising after the Zulu word for spider, has been spinning an intricate network of franchised courier services across South Africa. In the process, he says, they are quietly turning the courier industry as well as the franchise sector on its head.

Richard, a 48-year-old businessman with a background in corporate law and development finance, formed Isicabucabu Franchising in 2007 when two business associates asked him to help them bring to South Africa, Fastway Couriers , the first franchised courier business in the world.

Since then, the trio have set up nine regional franchises across South Africa, which in turn has helped build a total of 185 courier franchises – owner-drivers who hold the exclusive rights for Fastway pick-ups and deliveries in a certain area. In the last year, the Fastway network made three million freight movements, and has posted annual growth of 50%, 100% and 400% over the last three years.

Five years ago, Richard was heading up a Southern African private equity development fund when entrepreneurs Mark van Niekerk and Murray Duncan first discussed their idea of buying the Fastway master franchise for South Africa.

The business case was compelling. Fastway started in New Zealand in the 1980s and soon revolutionised courier services in Australasia with its low-cost, high-volume service driven by self-motivated courier franchisees who sell pre-paid deliveries in the form of books of labels to businesses and individuals – rather like prepaid airtime bundles for cell phones.

With its steep volume discounts and transparent pricing, Fastway is able to slash the cost of a same-day local delivery from what used to be the industry standard of R130 to as little as R30. No hidden additional charges!

The opportunity of bringing Fastway to South Africa was made even more enticing by the geographic similarity of South Africa when compared to Australia and the online-shopping revolution, a major driver of the need for delivery services in markets like South Africa.

One factor that Richard and his partners did not foresee was the 2008 financial crisis, which broke the world economy just as they were undergoing their training as master franchisors at the company headquarters in Australia. “It was the best thing that could happen to us,” says Richard. Everywhere, people were desperate to keep their services levels but reduce their costs. “That’s where we came in,” he adds.

Even with such unforeseen events, Richard is very proud of the fact that his initial financial projections for the first two years of Fastway in South Africa was out by a mere R6 000. “Such accuracy shows the sheer hard work that went into their planning,” he says.

His corporate business background must have helped, as well as his MBA at London Business School . Richard comes down firmly on the side of doing an MBA in the growing debate around its value, especially for owner-managers. He says if he had to choose, he would give up his Oxford law degree any time in favour of the MBA, which changed the way he thought about the business world.

Other aspects of their planning throw an interesting light on South African society. In their projections they were concerned about theft and hi-jacking in line with the country’s perceived scourge of crime. They also anticipated resistance among South African clients to the idea of buying a bundle of pre-paid deliveries. Both predictions turned out to be unfounded.

What did surprise them, says Richard, was the extent of the lack of finance for their courier franchisees. A Fastway “run”, as they call the territories that local courier franchisees operate, costs only about R300 000 to set up, but prospective franchisees have found it very difficult to persuade South African financiers to back them, despite the franchisor’s track record.

This is in sharp contrast with Isicabucabu Franchising’s own experience. Setting up the business required R5 million. The entrepreneurs put in R3 million and sought finance for the remainder. Richard said they identified an appropriate financier in Business Partners, who took a gamble and decided to back the start-up with equity finance.

Today, Business Partners still owns 26% of Isicabucabu. Isn’t this expensive finance? No, says Richard. Given the risks at the beginning of the venture, 26% equity is a fair deal. They’ve been a great partner to have with us.

Apart from the upheaval that Fastway is causing in the courier industry, Richard believes they are also busy with a quiet revolution in the franchising industry. Unlike the typical South African franchise arrangement, Fastway’s agreements with their franchisees are permanent, and not subject to periodic renewal. He believes it is unfair for a franchisor to renegotiate the deal when a franchisee has built up value in the business through his own hard work. “There are no franchise fees or advertising levies payable,” Richard adds.

One of the most important functions of the master franchisor is to recruit the right kind of franchisee. Richard says more than other franchise networks, the Fastway franchisees are dependent on the quality of service rendered by their fellow franchisees because many deliveries span across territories.

The National Master’s efforts were recognised in 2011, when Fastway was named runner up in the annual Franchise Association South Africa (FASA) Awards in the two main categories – Best Franchisor and Best Newcomer Franchisor.

This year, they will be doing a lot more recruitment as they enter the Port Elizabeth, East London, Witbank and Nelspruit areas, quietly and quickly spinning their web across the whole of South Africa.

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