Growth Entrepreneurship: Franchising as a Global Business Strategy
Franchising is a business growth strategy. It is a strategic alliance between two entities: the Franchisor and Franchisee. The alliance is governed by a Franchise Agreement, contractually detailing the rights and obligations of the parties. The Franchisor is the company owner of the concept & intellectual property and the Franchisee is the company that is granted the non-exclusive right to do business using the franchisor’s concept and intellectual property, commonly referred to as the Brand. When done well, it’s an excellent vehicle for a small business to quickly gain market share by increasing its points of service with minimal capital. Franchising is one of the best methods of expansion for an established and successful business looking to grow. The company’s reach & revenue are increased in scale, as is the strengthening of its brand development.
Franchising allows the business owner (Franchisor) to use other people’s money (Franchisee) to invest in the company’s business operations. This lessens the Franchisors’ burdens associated with day-to-day operations allowing the company to strategically focus on growth. Time is money. Franchise models grow fast allowing the business owner to capture market share quickly. As long as the Franchisor has a bank of qualified prospective franchisees and there are available markets or regions that want to purchase its product or services the business and brand will grow quickly. Franchises also benefit by having a bank of highly motivated people with a vested interest (franchisees) that typically originate from the franchisors’ targeted local markets creating a knowledgeable “home field” advantage. Additionally, there are significant economies of scale for the cost of goods purchased enhancing profit margins as well as the pooling of marketing resources to expose and develop the brand. Once a franchise expands from a regional to national scale, growth often manifests itself on an international scale by creating Master Franchises in foreign markets through organic enquiries or purposefully driven through Franchise Exhibitions.
Business owners that want to grow their business by creating a franchise system must create or ensure that they have a successful concept that can be replicated by a franchise community (franchisees). If operating the business is complicated or requires an overly specific skill set the scalability of the concept will be limited due to a small amount of qualified prospective franchisees. The turnkey cost to build the business and other related details must be clearly defined. Your franchisee will want to know what it takes to build, own and operate your franchised concept. The business owner (franchisor) must create an Operations Manual to train its franchisees on how to sell branded products or services to its customers. Consistency is the key to success. As the franchise system grows the customer base grows. Simply put, happy customers are repeat customers paving the way to Brand Loyalty, the cornerstone of the Franchise Growth Strategy.
Entrepreneurs are attracted to franchise systems because there is an inherent assumption that the franchise concept has a profitable proven track-record that has an attractive appeal to a significant amount of customers. The franchisee is putting up the money, paying royalties and is managing the business. The franchisee agrees to follow the franchisors operating system based on its appeal and profitability. Although there are no guarantees and franchised businesses do fail (even the best of them), the franchisee’s assumption is that the chances of success are greatly enhanced, as opposed to creating a business from scratch. As a franchise owner, its essential that your concept generates sufficient income to provide the franchisee with reasonable profits after paying expenses and royalties to the franchisor. The Franchisor must ensure that both sides, Franchisor & Franchisee, receive a fair return considering their time and effort. Numbers don’t lie and any misrepresentation on the projected profitability of the concept will lead to a Franchisor /Franchisee conflict. This an essential component for successfully use Franchising as a growth strategy. The Franchisors growth pains are often off-set by
As an entrepreneur you have put your time and energy in the development of your concept. Your business is a success and you’re loving it and want to grow your business by Franchising! Before making that move, do your market research. Who are our competitors? Is the market segment saturated or scalable? Is the market segment projected to grow, static or in decline? Does the concept have a local, regional or national appeal? Do an honest assessment of your concept prior to launching a franchise business. There are many sources of market information. If you can’t make the case for the appeal of your concept’s profitability and scalability the chances of using the franchise model as a growth strategy is slim to none.
Work with the best
If the Franchising is your chosen business strategy to fuel your growth, be sure to surround yourself with industry specific professionals including a seasoned Franchise Lawyer who will navigate you through the intricacies of developing a solid Franchise Agreement as well as the governance of your franchise community, and hire a proven Brand Development Company, the cornerstones of your business.
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