Cuts company that just grows and grows

WHAT does a franchisor do once he has a network of almost 175 outlets across Australia and New Zealand under his banner? Head to India, of course.

"The 300 million middle-class population loves brands," says Denis McFadden, the founder and chief executive of the hairdressing chain Just Cuts. "They're all watching cable TV and they want what they see."

The country is ripe for what Just Cuts has to offer, McFadden says, with options at either end of the wealth spectrum, but not in the middle. "In India they cut hair in the roadway with a mirror, or you're getting a haircut in a hotel spending a lot of money, and there's nowhere in between."

Heading to the subcontinent might seem like a strange move for a service provider whose outlets are found mainly in shopping centres and main streets in the suburbs. But McFadden is no conventional chief executive.

The 61-year-old fell into hairdressing after his time at school was marked by learning difficulties caused by dyslexia - a problem that still afflicts him today - and he wanted a career that involved minimal reading and writing. He did an apprenticeship with a Sydney hairdresser then trod the well-worn path of baby boomers heading for London.

Next was a two-year stint on board a P&O cruise ship as the vessel's stylist.

On returning to London in the late 1960s, he bought his first salon in Marble Arch, and stayed there for 10 years.

Fast forward to 1983, when McFadden, who had since returned to Sydney, spotted a gap in the market for good cheap haircuts that did away with appointments and price confusion. And so Just Cuts was born.

The move towards franchising happened when one of McFadden's employees, just 21, decided she wanted to set up her own shop, using the Just Cuts brand. Through her father, the aspiring franchisee asked McFadden the tough questions. Store manual? Sure. Franchise agreement? No problem. Corporate guidelines? Fine.

McFadden had none of them, really.

For reasons that are not entirely obvious, the tradition of small owner-operator hairdressers remains strong in Australia. Just Cuts, one of the biggest players, has a market share of only 2.7 per cent.

McFadden says his target for Just Cuts is 5 per cent, although he says growth will come through attracting more clients to existing salons rather than significant additions to the 150-salon Australian network.

"We've tried to bring monitoring and motivation and key performance indicators to an industry that's untouched by big business, at least in Australia."

For McFadden, the key to successful franchising is systematisation. While McFadden cringes at the thought, it's possible that the chirpy scripted opening "Have you washed your hair in the past 24 hours?" could become as ubiquitous as the inquiry about the desire for fried potato to be added to an order at a popular fast-food emporium.

Systematisation and other tools such as mystery shoppers help the company achieve consistency across salons and protect the reliability of the brand.

"It's possible some of them have a bad day," he says. "That's why you've got to systematise it. But I can't systematise a smile, that's why in the recruitment phase you've got to find people who like people."

He compares his franchise to the musical Phantom of the Opera, on the basis that at any given time there might be three or four productions of Phantom in different parts of the world, but each is almost identical.

McFadden says recent economic uncertainty has had no noticeable effect on the business. Like many brands at the middle to lower end of their respective markets, Just Cuts is well positioned to withstand any downturn as customers cut back on extravagances.

The intimate nature of the service also means it is almost immune to many of the forces of a globalised world. Neither imports nor technology are a threat. "Hairdressing might be the only thing where someone's going to touch you," McFadden says. "No machine is going to cut your hair."

India is the second foreign market for Just Cuts after its 1998 venture across the ditch to New Zealand, where it now has 23 salons. Its connection with the South Asian powerhouse began with an export trip for Australian businesses keen to break into the market.

Two visits later, McFadden had signed a master franchise agreement, and the first Just Cuts salon, in a New Delhi shopping centre, is just a few weeks from opening. McFadden says the salon will be the first of 250 to be opened over four years.

Doing business in India has its challenges, including the Indian traits of tardiness and a failure to follow through on verbal agreements, McFadden says. He also expresses frustration at the poor state of the banking and legal systems.

In Australia, the franchise arrangement means that despite the salons generating turnover of about $75 million annually, just $3 million makes its way to McFadden's private company, generating a profit of about $500,000 last year. He has toyed with the idea of listing the company, perhaps on the ASX's "little brother", the Newcastle Stock Exchange.

He sees big opportunities for growth overseas, having just returned from a franchising fair in France where he had some nibbles from Europeans keen to establish the brand there.

In a business environment dominated by MBAs, McFadden stands out from the crowd. Since finishing school in London aged 16, he's never returned to formal education and is instead a rabid reader of self-help books. He says the skills he uses are not readily taught in the classroom. "I don't think I could do it," he says. "It comes down to being street smart, and some of those very bright people do not have street smarts, and I'm not sure you can be taught street smarts."

And his dream for the company? "Ten master franchises, all around the world."