Is Franchising The Best Way To Expand Your Business?

You want to expand your business and you are wondering whether or not franchising is the best way to do it. To help bring some clarity into this question, this article will attmept to simplify this topic. When you think of expansion, you need to keep the following three points in mind:

  • You want your business associates to use the name of your business (your brand),
  • You want to dictate to them how to operate their businesses; and
  • You want them to pay you money now and on an ongoing basis.

If all of these three conditions are present, the law says you have a franchise. Some people find that the cost of franchising a business can be steep and try to use a different name for their network such as: an agency, a license, or some other form of business opportunity. But as they say: “If it looks like a duck, swims like a duck and quacks like a duck, it is probably a duck.” So, no matter what you call it, if it has all three of the above conditions, it is a franchise. If you call it something else and are challenged, you are going to lose, and will most likely have to pay severe penalties depending on what the dispute is about or where in the country it arises.

On the other hand, you may meet the definition of franchising as it is set in the franchise rule and may have the desire, resources and energy to franchise your business, but there is more to this decision. There are more questions you need to ask yourself, such as:

  • If you had to pay someone a royalty fee, would your business still be profitable?
  • Do you have marketing, administrative and operational systems in place?
  • Can you easily teach these systems to someone else?
  • Will you offer value to your franchisees, not only in the first year, but on an ongoing basis for the life of the franchise agreement?
  • Do you have a “secret sauce”? That is: Do you have a significant competitive advantage that allows you to stand out from yourcompetition and that will do the same for your franchisees?
  • Do you have the resources (time and money) to devote to the franchising efforts?
  • Do you want to change what you do now to the business of franchising which includes recruiting, training, and supporting franchisees as well as making sure that your company stays ahead of the competition?
  • Are you using technology in your business now to the fullest advantage? Are you willing to invest in future technology for communication, marketing, management ease and efficiency purposes?

If you answered “no” to these questions, franchising may not be the best answer for you at present. You need to get some things in place first before you consider franchising your business. Other articles will explore the conditions you must have in place before you franchise your business. Make sure to stay tuned to this information.

The History of Franchising – The Creation of the Franchise Business

The franchise business has been around a long time, in fact they go back as far back as the 1850’s. The notion of selling off a business or a part of a business in order to expand into new areas usually came from the lack of investment funds from the business owner. Through their creativity they were able to keep the business alive by selling franchise opportunities to would-be entrepreneurs.

While the business of franchising has grown over the years it all had to start somewhere. The concept of franchise businesses began with none other than the sewing machine manufacturer, Singer.

The Singer Franchise Business Opportunity

In the 1850’s the Singer Company produced sewing machines but didn’t have enough capital to actually pay their salesmen salaries. Instead, they created a network of dealers. These first franchise owners paid Singer a fee to work in a particular territory and earned money for each sale of a sewing machine they bought from the company and resold.

Their significance in the start of the franchise and the opportunities it created came from the creation of the contract that is still used today between the original business owner and the new entrepreneur. Many feel the contract was what really sparked the creation of franchises in the future as it allowed business owners to keep some control over how the franchisees were run.

The Coca-Cola Company Franchise Business Opportunity

When Coca-Cola was originally created, it was only sold as a fountain drink. In 1899 two men obtained a short 600-word contract and the permission to bottle the soda.

Thomas and Whitehead soon realized that even though they had a great idea, they couldn’t afford to actually create a bottling company. As an alternative, they created a franchise company selling the right to bottle the product to individual bottling plants.

The KFC Franchise Business Opportunities

One of the most famous start-ups in the franchise industry was Kentucky Fried Chicken. The franchise opportunity began when Harlin Saunders, or the ‘Colonel’ was about to go under. His business started to fail when a highway was created seven miles away from his restaurant. With his business going under, Sanders had to find new ways to get his famous chicken to people.

When Sanders finally lost his business, he went practically door-to-door to sell his chicken recipe. His popularity improved with time and within a few years he had restaurant owners coming to him. He set up franchises and today there are over 10,000 KFC restaurants all over the world.

Companies Leading The Way For Franchise Business Opportunities

The establishment of KFC and others like it led the way for businesses to expand all over the world. It also gave the opportunity for new entrepreneurs to find the path to success. Many of KFC’s first franchise owners became millionaires. People who joined in with similar companies like McDonald’s also found success.

Thanks to these companies, we now have the opportunity to share in the success of other businesses and business owners have the opportunity to expand their dream. By reaching out to others, they can build a franchise empire out of a business opportunity.

Franchising Isn’t for Every Business

A successful franchise venture requires the right leadership behind the business and at the helm of the franchisor. There are many aspects to franchise development that in some ways seem obvious and are possibly more tangible in nature such as systems, technology, processes and franchise marketing systems, but what is lost on many entrepreneurs is the responsibilities that fall on their shoulders as this transition from an operator and “doer” to a franchisor and “teacher” happens.

Generally, these types of qualities and traits can be determined prior to franchising in order to save time, money and heartache for all involved. The importance of true self evaluation is required to make this determination as an entrepreneur considering the franchise expansion model.

For one, franchising requires intense levels of patience and the ability to coach people who haven’t had experience as business owners. Some entrepreneurs have a difficult time working with people they may see as being weak or inept and are unable to see things from the new franchise owners perspective. If a business owner’s skill set lacks patience and the willingness to mentor people, franchising may be the wrong path to take the business.

Next, franchising requires a certain degree of selflessness. Great franchisors are continuously looking for ways to help, support and drive profit to franchisees. Poorly performing franchisors cut corners, look for ways to gouge and have a singular mindset for their own gain. These are the franchise systems you read about where lawsuits take place and franchise brands fall apart quickly with poor management decisions driven by greed and short-sightedness.

Additionally, when you franchise a business, the returns are not short-term. Franchise development is an effective way to build a brand quickly and grow the company into new markets rapidly. Unfortunately, franchising is not very profitable for the first 1-3 years of growth due to the nature of the business and needing to reinvest in the business model, marketing and infrastructure needed to support the growth. Entrepreneurs considering franchising who either need or are driven by short term cash flow are most likely better off finding alternative growth channels.

Then, a good franchisor is someone who has a strategic mindset and has vision for where the brand and business model will go. Vision is not a trait that can be taught, you either have it or you don’t and as the leader of a franchise network, you should be able to create energy around your ideas, have new strategies that are relevant and an unending commitment to your brand and what it stands for. These are reasons why franchisees not only invest in a system, but continue to invest and believe in their commitment to a franchise. If you lack the leadership and ability to convey your vision’s opportunity and how it will benefit others, franchising will be a short-lived venture with frustrating results.

Do your due diligence and understand whether you are a match for the franchise growth system.