With all the talk about franchising, it’s easy to find yourself wondering what the big deal is. Why franchising? The question is really two-fold, as it asks why anyone should bother to franchise their business and why anyone should bother to become a franchisee of that business. Let’s begin by answering the first part.
Build, Conquer, Expand
Franchises follow a simple but effective plan. Once a business concept proves its viability in the marketplace, franchising becomes an attractive means of expanding that concept. Franchisors can use the franchisee’s capital, human resources, and day-to-day management skills to grow new locations for their business without as much of an investment on their part. The ease of expansion furthers the cause of the business by providing brand recognition and convenience.
Consumers believe that shopping at a brand name store provides them with a quality and consistency of a good or service that they couldn’t achieve elsewhere. Many times, they are correct. There is a point at which the prevalence of a brand name causes the assumption of success, drawing in even more customers than might otherwise be willing to shop.
Franchising a successful concept requires only the willingness of the owner and the viability of the product or service for quick expansion and independent ownership. It is such a well-proven concept that it consistently accounts for over one third of American retail sales.
The Franchise Advantage
And now for the answer to the second part of the question! The concept of franchising isn’t just beneficial to the franchisor. There are a multitude of reasons why any savvy, business-minded person may choose to become a franchisee. This section will include most of the major advantages associated with joining a franchise system.
1. Startups and the Learning Curve
According to the Small Business Administration in 2006, 1/3 of startup businesses with employees fail after 2 years and 56% don’t survive to see their 4th anniversary. The numbers for startups aren’t as bad as was previously thought, although still much worse than the U.S. Department of Commerce numbers in 2004 for franchise units at only a 9% failure rate over a 7-year period. The reason is the learning curve. The learning curve is the period of time it takes a business owner to learn what does and doesn’t work in their industry. The business owner steadily gains in knowledge and experience while making mistakes and recovering from them. In a start-up situation, this process often outlasts the funding of the business. Franchises have already gone through the learning curve and incorporated their experience into their business plan and operating procedures. As such, a franchise is usually a much safer investment of your time and money.
2. The Long Embrace of the Franchise Family
Being a franchisee makes you part of a family that is larger than the singular business you’ll operate. Although you pay for the privilege of joining a franchise, you will receive many benefits including an operating manual, training, site selection, store design, lease negotiations, and discounts on equipment or other contracts to name a few. In addition, you have the resources of the entire franchise family to rely on for purposes of advertising, branding, point-of-sale marketing literature, grand openings, and other expensive reaching out programs. Franchises are on the cutting edge of the latest strategies, technologies, products, and operating systems. Further, you should look at royalties and other pooled funds you must pay as good aspects of the business; as long as the franchisor is sharing in your profits, he is a partner that cares about your success. Also, with the power of all the franchises combined comes the ability to generate a reach that can compete in local markets with established businesses and even other large, well-known chains. The embrace of the franchise family is long indeed, stretching to help you succeed long after the contract is signed.
3. A View to a Franchise
Unlike most other businesses, franchises have the distinction of being almost fully researchable. It is possible to learn and understand the franchise opportunity in which you are interested to a greater degree than is normally possible. Franchises are required by the Federal Trade Commission (FTC) to disclose certain information about their business. This disclosure usually takes the form of the Uniform Franchise Offering Circular (UFOC), which among other information, gives the capital requirements, recurring costs, bankruptcy history, litigation history, obligations of the franchisee, obligations of the franchisor, and territory conditions. Also notable is the section listing the addresses and phone numbers of other units currently in operation. You should use such information to conduct interviews with as many franchisees as possible —probing them for any chips in the franchise’s facade. You could even get a job at an existing store in order to learn more about operations! Through a combination of enlightening interviews, research, and a critical viewpoint, you should be able to determine which franchise opportunities are wise choices and which are unsuitable.
4. Second Chances, New Beginnings
In addition to all of the above advantages, franchising is like a new beginning for many people. It affords many not just the opportunity to earn money, but the opportunity to take a new direction in their lives. There are thousands of franchises to choose from. Taking your time and selecting an opportunity that matches an industry you’d like to work in gives the franchisee the ability to change careers.
5. Many Happy Returns of the Investment
Getting involved in a business is an investment of time, money, and energy. The return on investment, or ROI, is the amount of money you make from an investment, usually expressed as a percentage. For example, if you invest $10,000 in the stock market and get an ROI of 10% a year, it means that you earn $1,000 from your investment each year. The truth of investing is that if you want a guaranteed rate of return, it will be small, and if you want a high rate of return, it will be risky and/or expensive. Franchising tends to be expensive in terms of time, money, and energy invested, so you should expect a high rate of return. A franchise as an investment is also beneficial because it enables you to use more than just your money to affect the rate of return. Your personal business and human resources management skills can contribute directly to the growth and success of the franchise. This puts you somewhat in control of your ROI, which is another huge advantage to the franchising concept.
Too Great to Ignore
The success of franchising is a testament to its brilliance. It is one of the few business concepts that works well for all parties involved. Franchising does not, however, imply success. Both the franchisor and the franchisee must work hard to make sure that success is attained. But its advantages are too great to be ignored. Franchising will continue on throughout the foreseeable future as a model that helps many in their path to dominance over and fulfillment in their own lives.