Kieron Bain explains the business benefits for both franchisor and franchisee
If you’re still in the early stages of researching franchising, you might wonder why a successful business decides to use this model to aid their business growth.
What are the advantages for the company? What does it gain by giving so much away and why does it do it? What is the unseen side of the arrangement that makes franchising so attractive for everyone involved?
Where’s the catch?
This is probably the point in the conversation where you’re asking: let me get this straight, if a company has such a good business idea, why are they letting other people in on it? Why don’t they simply follow through their own idea and make all the money for themselves? Where’s the catch? Surely, if it sounds too good to be true, then it usually is?
You’re right, franchisors are giving away a large amount of their potential profits to generate revenue for their franchisees. But what are they getting back? You might be surprised at the advantages for a business to franchise. The best way to illustrate this is to take a look at a hypothetical growing business.
Let’s paint a picture of a business that’s currently doing rather well. It has a profitable enterprise that’s exceeded targets and is now looking at growing into new areas and perhaps even taking on new locations. What’s the best way to go about this?
The business has two options:
- One way to do things is to move from a company into a corporation. The directors bring in investors to help raise capital and the business owns everything and controls all of its outlets and offices around the country.
- Alternatively, it could simply restructure the company, improving its current processes by offering a franchise. Rather than finding investors, the company has to find franchisees who are happy to take on the responsibilities of running their own section of the business.
And this is the key to why some businesses prefer franchising. It might not appear obvious at first, but whichever route businesses decide to take, they have to employ people to run their enterprise.
In the first example they even have to share the decision making process with new leaders in the form of shareholders, who suddenly have the ability to influence board decisions and, in certain cases, overrule their judgement.
That’s not all. These companies also have to rely on new people to carry forth their vision. Managers are installed in new locations.
Can every single one of these individuals be relied on to carry forth the brand with the same energy that made the original venture into such a success? This is where franchising wins as a business strategy for companies looking for growth.
Franchisees are owners in the business, without the same rights as shareholders, but with the same passion for working hard and achievement as the people who set up the company.
This offers the franchise a number of distinct and highly attractive advantages:
- Franchisees will work harder for longer and provide better service for their customers than someone who is employed.
- Because franchisees buy their territory from the franchisor, the company is free to use this money to set up the new business, rather than having to seek outside investment.
- Companies that adopt the franchise model are able to grow more rapidly than those that try to handle everything themselves. This is very important when launching a new product or service and fast, aggressive expansion is required to take market share from a competitor.
- Franchising often dampens the risk involved for both parties. The franchisor does not expose itself to a capital risk, while the franchisee does not have to allocate resources to sales and marketing.
- Franchisees often help develop the brand. Due to their involvement and desire to see the company grow, they can help further develop and refine products and services.
Workforce for success
You’re now probably wondering why more businesses don’t franchise. Franchising gives businesses the workforce they need for success. It gives them access to leaders who are prepared to invest both financially and emotionally in their companies. It gives them access to leaders who are invested in every sense of the word. What business wouldn’t want that?
Now I hope you understand why businesses are prepared to give you the opportunity to become part of their growing enterprises, with such clear and obvious benefits on both sides of the arrangement. And why you should find a franchisor that wants to invest its time and resource in you.