"Franchising works by combining the drive and energy of the entrepreneur with the experience and expertise of the franchisor."
This wonderfully concise description of franchising comes courtesy of a franchisor from Down Under: Jesters Franchising, purveyor of Jesters Jaffle Pies (all-natural meat, vegetable, and fruit pies) with 50 units in New Zealand and Australia.
Worldwide, franchising is currently riding a wave of global growth unparalleled in its history. And for the right kind of person, franchise ownership can provide the perfect vehicle for achieving financial success. That type of person thrives in a space somewhere between the Lone Ranger and the Corporate Drone. In other words, franchising provides the opportunity to be master of your own financial destiny, while enjoying the support of an established organization and the resources it commands.
Statistics vary widely on the success/failure ratio of franchised versus non-franchised startup businesses, but franchises invariably come out on top. Rather than cluttering the page with numbers, let's apply common sense: Comparing the payment of: (1) an up-front fee to buy into the support, reputation, and track record of a franchise system with (2) the research, development, and startup costs involved in creating your own, independent business, the odds of survival clearly favor franchisees. As the truism says, franchising is about being in business "for yourself, not by yourself."
For those new to the franchise business model, the notion of writing a large check at the outset (the franchise fee) and another every week or month (the royalty) may seem strange, objectionable, or even a deal-breaker. But those fees buy you security in the form of the experience and expertise mentioned above--including a proven business model, a system to make it work, the value of a recognized brand name, and a dedicated team of people whose only job is to help you, the franchisee, to grow and succeed. Why? Because every savvy franchisor knows one essential truth: the more each franchisee succeeds, the more the brand succeeds. In the race to grow and expand the brand, their money is riding on you.
Despite the definite advantages and benefits offered by franchising, nothing is certain in business; success is neither automatic nor guaranteed. Assuming a solid business model, a brand that sells, and proper training and ongoing support from the franchisor, franchise ownership still requires hard work, with results accomplished over time. Otherwise, everybody would hop on board. Franchising is not for everybody.
Franchising, like anything, has its drawbacks. These include lack of independence (no Lone Rangers, please), inflexibility (franchisees must follow the system), and the risks associated with the brand's overall performance. For instance, if some franchisees run a sloppy operation, it reflects poorly on the entire brand; if one restaurant makes headlines for customers falling ill, it can hurt sales nationwide for months or years.
What follows are some of the major reasons to consider franchising. Remember, for both franchisee and franchisor, it's all about fit--not only in financial goals, but in personality, style, and values.
This ranks atop of the many good reasons to choose franchising. The desire to control your own destiny, to build a business for yourself and a legacy for your children, has always been a powerful motivator in business and in life. If that's not enough on its own, further motivation is provided by the never-ending cutbacks in corporate life, not only in job security and benefits, but in pensions and health insurance for retirees. Franchise ownership combines a sense of independence (within limits) with a greater level of security.
There's nothing better for the entrepreneurial spirit than being rewarded directly for their effort. That usually is not possible in corporate life, where bonuses (if any) are based more on salary or employment level than on individual merit or performance. Hard work may be its own reward, but it's even better when the income directly reflects the output.
New ideas are great. They're what makes business and the world go round. From new restaurants and retail stores to products and services that make life easier, innovation is a key ingredient in success (as is consistency). But, as noted above, new businesses are prone to failure, and most new ideas take time to catch on. Franchising allows entrepreneurs to plug into a proven, successful idea and operating system, and focus their efforts on running the business, rather than on adjusting it in midstream. The wheel's been invented, perfected, branded, and marketed. As a franchisee, it's time to roll.
Franchisors want franchisees to succeed. In fact, they need franchisees to succeed. That's why intensive training is included in the franchise fee. It can take days or weeks, depending on the brand. Prior to opening for business, franchisees are trained in all the brand's specifics, from cash registers and point-of-sale systems to brand identity and culture, sales and marketing, and everything and anything that makes that brand unique. They also benefit from instruction in business, technical, financial, and management skills.
After opening, any franchisor worth its salt will provide not only ongoing technical training (new haircutting styles, new tax rules, new equipment, new technologies, etc.), but also mentoring and career growth opportunities for its franchisees. This can include resolving daily problems, marketing more effectively, and hiring, training, and retaining employees. Franchisees and their managers also benefit from business coaching and training--lifetime skills that are transferable to any other franchise or any other business.
To grow, franchisors must add new franchisees (but not at a rate too rapid to support their existing ones). If a franchisor finds a qualified candidate, it's in their own best interest to help get them on board. Yet for a startup, financing a new business can prove difficult, even with the weight of an established brand name and track record behind them. While few franchisors offer direct financial help, many are glad to provide referrals to known sources favorably disposed toward the brand, and thus more likely to view the candidate in a favorable light.
For retail concepts, finding the best site (or sites) is do-or-die. Independent business owners often think they've located the perfect site--only to discover they've overlooked a key detail that a more experienced set of eyes would have spotted. Established franchisors have been through the site selection process hundreds (or thousands) of times before, and have access to extensive databases, demographic research data, and their own years of experience. Many have in-house site selection and build-out specialists, or work with national real estate consultants and local agents experienced at finding the optimal sites for their franchisees.
Competitive pressures are fierce in any business. Independent business owners can join local business associations or trade groups to network and discuss common problems--but who knows more about your business than someone who's also doing it? Peer support from fellow franchisees is an invaluable benefit of franchising. Since each franchisee has an exclusive territory, cooperation is not only possible, but is built into the franchising business model through annual conferences, regional meetings, intranet sites, and daily phone calls where franchisees can share tips, ask for help, and gain from the experience of older franchisees.
You can spend months thinking up a clever name, logo, signage, uniforms, and the exact look and feel you want to attract customers to your new business--but you won't know if it's truly effective until you open for business. But if you hang out a sign that says McDonald's, Dunkin' Donuts, Subway, or Midas, everybody knows your name. Whether it's locals or strangers passing through, you have a built-in clientele. As noted, franchisees pay, sometimes dearly, for the right to use a brand name. But that investment is quickly repaid, many times over. The power of a well-known brand? Priceless!
One of the sometimes contentious hot spots in franchising is the cooperative advertising fee, which can shave a couple of percentage points off your top or bottom line each week or month. The payback comes in the value of a national or international brand identity, national and regional advertising campaigns, and online access to promotional materials that can be personalized and tailored to your local market.
Franchised businesses frequently have a pricing advantage over independent, non-franchised competitors. Whether the brand sells a product or a service, or is retail- or home-based, the greater the size of the franchisor, the greater its bulk purchasing discounts and economies of scale--which creates a competitive advantage for franchisees scrapping for market share within their territory.
Another thing your franchise fee buys you is the right to an exclusive territory, designed to provide a sufficient number of the right kind of customers for your investment to succeed. Franchisors generally are reluctant to award territories too large for a franchisee to serve adequately (and because they want to sell as many as they can, within reason), the smarter ones will err on the side of awarding territories that give their franchisees the best chance of success.
Then there's the final advantage: pride of ownership. Even within a franchise brand, units or territories owned by franchisees do better than units run by corporate managers. Having a stake in the outcome of the operation, knowing that you will be rewarded directly for your efforts (versus pulling a salary), gives franchisees additional incentive to go that extra mile every chance they get.
Yes, franchising has many built-in benefits and advantages, but it's not for everybody. Some people thrive on the challenge of being out there on their own, inventing a new wheel each day, making all their own decisions, answering to no one but themselves (and their customers and creditors). Others crave the structure, reduced responsibility, and perceived security of a day job they can forget about as soon as they punch out or close the door behind them. And others still thrive on the challenge of climbing the corporate ladder, being an integral part of a team.
As with all things, priorities and values change, depending on one's station in life. Age, marital status, parenthood, and more can point a person in a new direction. What's yours?
There are many clichÃ©s in franchising--all of them true. Let's wrap up with one more: "Making it on your own doesn't mean making it by yourself."
1.1: What is Franchising?
1.3: The Strength of Franchising
Issue III, 2016