Many entrepreneurs work hard to establish a brand and a business model that brings success, only to find they’ve hit a plateau where further expansion seems difficult. One solution that merits serious consideration is turning your operation into a franchise-focused business.
Before you get that far you should be familiar with some of the basic pros and cons of franchising your business.
Franchising usually offers growing businesses four distinct advantages:
1. Better talent.
Over the last five years, franchises have grown by 2.6 percent – much higher than overall business growth. Franchising tends to attract ambitious, hard-working people. Managing their own locations and employees, and the opportunity to grow their own business, gives them the incentive to succeed. Qualified and capable people will prefer to invest in their own earning potential rather than a regular paycheck. Franchising will bring you more dedicated, motivated people than you would from hiring internal staff.
2. More capital.
Selling franchise opportunities is an excellent way to obtain quick capital for other expenses. You can grow the number of locations under your brand as far as you wish, and profit from their success without a big expenditure of your own. This is a cost-effective way to grow your business without having to make sacrifices or seek out lenders with high interest rates.
3. Minimal risk.
Investing in company outlets means more inventory, real estate, and hiring more employees. A franchise can be set up with very little expense beyond your time and trouble. Typically the franchisee signs an agreement on income expectations, operations and advertising, and then pays the franchisor for the materials to get started. You only need to mentor those who buy your franchise to accelerate their growth – and your profits.
4. Franchising success.
Franchising is expected to reach a value of $552 billion to the US economy. Consider Lawn Doctor, which began by selling an automated lawn care service through hardware stores in the 1960s. By the 1980s, the company was operating as a franchise system with it’s improved, patented equipment. Today, it’s one of the most successful franchisors in the US.
1. Less control.
You can’t control the way franchisees work the way you would with in-house employees. They are independent business owners. They may also have different ideas and objectives than your own. This can create conflicts and even legal trouble if they step outside the franchise agreement to pursue their own clients or methods in pursuit of profits. These differences could compromise the brand you’re trying to establish, and lower its value.
2. Weaker community.
Franchisees are much more difficult to monitor and hold accountable. Whereas managers in a company must work together, franchisees may compete with one another even when there are defined territories. They may decide to pass up participating in marketing campaigns such as discount coupons in order to maximize their own profits. When franchisees decide to break with your system, but still use your name, it’s not only bad for business but you may have no recourse except to hire an attorney to enforce the franchise agreement.
3. Barriers to innovation.
You can implement changes within a traditional business as you like, but it’s more difficult with franchisees. Even the faithful ones are working along the methods and training they were given, and may be resistant to changing their own operations. New materials, software, and processes may not be welcomed. This is especially true if they see it as cutting into their own productivity, rather than improving it. You may find yourself in an uphill battle to get franchisees to adapt to industry changes. That lack of innovation could leave you falling behind competitors.
Quiznos is a perfect example of a company who failed to innovate. A decade ago, when Subway released its five dollar footlong campaign, Quiznos began to lose market share. During its time to respond it failed to release a competitive pricing strategy or marketing campaign. This eventually led to the company’s downsizing and eventual bankruptcy.
There are a large number of factors to consider when franchising. You should do an assessment of the risks and consult legal experts before making the decision. But if it seems to you that the benefits outweigh the potential issues, franchising is a proven way to grow your company.
Cameron Johnson is a business consultant and social media expert. Over the course of his career he has conducted case studies on both social media optimization and non-profit marketing. Cameron has also had the opportunity to speak at international marketing conferences and was recently recognized as one of the world’s top 100 advertising experts to follow on social media.