Mark Dixon, founder and CEO of £3.6bn-valuated International Workplace Group – formerly Regus – discusses the company’s bold franchise direction, global domination, and the fall of WeWork
GF: IWG has been going for around 30 years, why the interest in franchising now?
MD: The catalyst for this direction into franchising was the successful deals we’d already done. We had been franchising for a while, but it’s now a priority for our expansion. Fundamentally, we’ve had some very successful franchise operations and partners, and that’s what caused the pivot in this direction.
Currently, there’s an unprecedented demand for what we do. We had to think of a way to satisfy the growing demand for flexible workspace because the demand far outstrips our ability to finance and grow. As a company, we’re investing around £500m a year [to help us grow], but we need to do more than that. If you look at our U.K. operation, we have about 400 locations so far, but we expect to cover the U.K. extensively and to do so we need around 2,000 locations – there’s a huge scope for franchising. I believe there are around 1,400 McDonald’s restaurants and 2,000 Costa locations in the U.K. at the moment – that’s the sort of concentration we hope to achieve.
I see our franchise operations at the forefront of our expansion. We started as five per cent franchised, we’re currently about 40 per cent franchised at the moment, but we see this growing to 90 per cent eventually. We’ll continue down that road and we’re finding fantastic partners. It’s not a question of simply selling franchises – our view is that the better the partner acquisition, the more successful they are. We’re very selective.
GF: What is demand currently like for flexible workspaces?
MD: Work is something that occurs all over the U.K. People can now choose to work where they live due to internet connectivity, but we’re finding that now as many people can actually do it, they lose efficiency and become isolated. More and more people opt to work closer to where they live, so they don’t need to commute an hour or more to an office – that’s a really powerful driver.
“It’s not a question of simply selling franchises – our view is that the better the partner acquisition, the more successful they are”
The strongest demand growth has been in the U.S., but we’re now seeing even more in the U.K., as more and more companies are wishing to adopt this form of business. If you think about people being more conscious about the climate, the job market becoming tighter, and companies are getting more conscious about costs due to the uncertainty in the economy, businesses are looking for a cheaper option. We’re a much cheaper option, and employers aren’t asking someone to commute to the likes of Manchester or London to work. If you can let employees work in Bolton, Barnsley or High Wycombe, it’s half the price and it’s to the advantage of the worker as they save the time and cost of commuting. There are lots of start-ups and businesses working in this way – it’s all about getting the network out there and allowing people to work any way they want to.
GF: Your flexible workplace rival, WeWork, has suffered a sharp fall from grace – what differentiates IWG’s approach to WeWork’s?
MD: WeWork was a really bad execution of a good idea. What we have is a very disciplined approach, excellent backup, superb systems – it’s good old-fashioned systems, process, software, and marketing. It’s all about the basics, which has made us successful for over 30 years in business. We’ve achieved huge returns on capital and consistently done so over that time. WeWork is the opposite – they started off with £10bn of capital and lost it all and had to be bailed out. This is a business that has to be done very well. One thing I’ve learned is that there are no shortcuts.
GF: You’ve just signed master franchise agreements in Japan and Switzerland. Where next?
MD: We’ve just opened in Taiwan and we’re working on a number of deals at the moment. It’s all about the acceleration, growth and getting the coverage – that’s what we’ll do in all of those countries. Our Japanese partner has already doubled the rate of growth. We plan on achieving lots of similar deals – that’s the quid pro quo. We want to become more and more franchised; that way we’re sharing the platform with others, and we get more of the IWG business out there. The profitability moves to the franchise partner, who can make excellent returns on capital. It’s a relatively straightforward business.
GF: What do partners get from IWG in return for their investment?
MD: We help with site finding, design, training, systems process, the apps and software required, as well as customer acquisition – we have a big sales marketing machine. We supply IT and procurement services to make sure they get the supplies required at good prices – it’s a 360 support service for a franchise partner. We supply the connectivity, security, and a whole range of services that allow franchise partners to open up local centers profitably and provide supply to the demand.
In return, the franchise partner brings local skills and can help locate suitable buildings in the area, although sometimes they own their own buildings already – quite a few franchisees have been property owners. We operate in a similar way to McDonald’s, in the way that McDonald’s looks after its franchisees, and it’s up to a franchise partner to supply all of the ingredients to make the business a success. In our case, it’s a lot of detailed activity and services that we provide within the fee, which helps a franchise partner excel.
INTERVIEW BY JAMES FELL
James Fell is editor of Global Franchise