Is franchising a viable alternative to expand your business? I’m sure you’ve heard about problems with quality control, control over the daily business operation, problems with franchisees and ongoing legal squabbles. The publicity and discussion around franchising are overwhelmingly negative, so why is franchising so popular and so successful?
Franchising seems to solve most of the location and partnership problems confronted by businesses looking to expand, but what’s the reality?
Franchising business models are different to other business models and require and entirely different set of skills to develop and an entirely different set of management principles. Think of it this way; your business is a benign dictatorship, whereas a franchise is a representative democracy.
Add to this the establishment costs, quality control issues, management and compliance and legal costs and it can all seem ‘a bridge too far’. The reality is this, what enterprise is free of these problems? Business partnerships, sole proprietors and corporations all have their negatives. Franchising is no different. The trick is working with experts, such as those from DST retail who can guide you through the process.
When properly executed franchising can be a fast track to business expansion, increased revenue and greater profitability. To understand the benefits of franchising, you need to examine the common issues faced by every business looking to expand.
Franchising and management
Who makes a better manager? Someone whose resume looks good or is it someone similar to yourself. Someone with an entrepreneurial spirit will to invest their personal time, money and future in the business. These people are attracted to franchises.
In all other forms of expansion, you have a list of rules and procedures for each location and hope that you can enforce them. In franchising you have a written agreement that demands compliance. Once again, the person willing to invest their own time and money into the business is more likely to maintain the quality of the product, service and the franchised location.
Expanding from a single location with five employees, to ten locations and fifty employees can be a logistical and HR nightmare. People problems don’t expand in a linear manner, they increase exponentially. Why not let your franchisees handle their own withholding, wage administration, sick leave, jury duty, and the other employment issues. Franchising let’s you focus more on the big picture and ‘outsources’ much of the administration.
Let me see. How can I put this so it doesn’t sound insulting? Do you look forward to investing your own personal capital into 15 locations where you are at the mercy of the local management and employees, or do you think it makes more sense to let someone else provide that capital (and assume the local headaches)? There is no other way to say it. We could discuss dozens of areas where the existence of a personally involved, emotionally committed, entrepreneurial-minded franchisee is the better of almost any option you can propose.
Aristotle Onassis, one of the 20th centuries most successful entrepreneurs built his empire using a model he called OPM (short hand for ‘Other Peoples Money’). Franchising uses a similar principle but solicits an even greater commitment than just money from franchisees.
Franchising is also an attractive investment model from potential investors, as it offers a scalable business model with a lower investment and risk model.
Why Aren't You Franchising?
If franchising is the grand solver of expansion problems, then what about it discourages many? It’s easy to blame irresponsible franchisors that expand too rapidly and thereby fail to provide the services they promised to franchisees. These are the ones who let the system get away from them. The resulting failure to help and failure to communicate, inevitably leads to breakdown and lawsuits.
Franchisors that develop their system slowly, that control growth to permit the provision of full franchisee services and meaningful communication, rarely have these problems. If you are among this group, you realise that the real value of a franchising system lies in contented, prosperous franchisees that submit an increasing amount of royalties month after month, year after year. You know that their success is your success.
Those other guys, who think that initial franchise fees are the answer, fail the basic principles of franchising. Franchising is about managing expectations.
Why are Franchises a popular business model?
If you stop to think about it, the same things that keep you from becoming a franchisor are the same things that keep people from starting their own businesses. They are uncertain how to accomplish the goal. That is why most people would rather invest in an existing franchised business, than take a chance on their own. The statistics demonstrate that there is a much greater chance of a business surviving under a franchise model than there is for a stand-alone business. Franchisors act as mentors for their franchisees.
Is Franchising the right Business expansion model for you?
Like many things in life, with franchising ‘the devil’s in the detail.’ Franchising is unlike any business model you have encountered. If done well, the rewards are almost limitless and your business becomes infinitely scalable (and so do the rewards). If you feel franchising is a business expansion model you would like to explore, it is not something you should explore without a qualified guide. The team at DST retail have decades of real world experiences working on developing franchises and working with franchises. Call today to arrange an obligation free discussion. It might just be the start of something amazing.