Thoughts on the franchising business model

Users who viewed this discussion (Total:0)

Joined
Dec 17, 2017
Messages
34
Likes
23
Points
8
Hi Warriors,

Just curious about your thoughts on expanding your business by using the franchising model.

Some background here: As I set up my service-based business and all of its systems I think about how I would take it to the next level(s) and gain more market share. To me, i guess the two avenues would be:
  1. grow organically, market well, grow demand and just add offices and employees, sales people etc. in new territories as I get them. This way I would own complete control of the company and all its profit/loss.
  2. grow by franchising out, as in selling licenses to people to allow them to operate under my business name and brand. The biggest advantage I see is that your franchisees would be doing the lion's share of marketing for you, and could be a quicker way of gaining new territories? correct me if I'm wrong on that one...
It seems to me that the franchise option has some pros and cons and would love to hear some feedback on it as a business model.

Thanks
 

Edvin

MVP
Member
Top Contributor
Joined
Oct 2, 2017
Messages
331
Likes
307
Points
63
These are great questions Steve.
I've wondered about this myself; but, have dismissed it since it doesn't apply to me today.

Before reading this article, I assumed that an owner needs to have several location before they start to franchise. I'm not clear on the intricacies of offering a franchise and am not sure what would entice someone to consider a new franchise as appose to one that is more established and has better support structure.

However, with franchising you can expedite expansion because the 1) franchisees come with their own capital, 2) are vested to work as hard as you.

Also, it is worth pointing out that these two options are not mutually exclusive and you will see that many franchisers do indeed have their own locations as well.
 

JohnHolling

Serial entrepreneur, Investor, Mentor
Administrator
Moderator
Member
Joined
Nov 1, 2016
Messages
66
Likes
62
Points
18
Hey @Steve41, great question! You and @Edvin are both right: There are many pros and cons to a franchise model, and the advantages of franchising are that your franchisees help fund the business and have a vested interest.

A couple of considerations you'll want to think about: 1. There is a ton of legal work to be done to create a franchise company. There are specific laws around franchising that will need to be navigated by a franchise attorney, and that becomes costly. 2. From the position of the franchisee, a franchise is typically expensive and restrictive in many ways. This can make it a challenge to sell franchises, unless you can show a clear path to substantial profits.

Another option that I've had experience with and love - especially for a service business - is the distributorship or dealer model. A great example is Invisible Fence - the pet boundary company. They have a product and a service (installation and maintenance), and the people who sell in specific locations are distributors, not franchisees. This allows for a greater number of distributors to come onboard, while still allowing the company some control over territories, etc. The downside for the parent company is that you have far less control over how they run their business, but a solid vetting process in the beginning can help ensure you have people who are representing the brand well.

Hope that helps some. Best of luck to you!

-John
 
Joined
Dec 17, 2017
Messages
34
Likes
23
Points
8
Hi John, thanks for the reply and a great one at that!
I figured that it would be a costly move to go the franchise route, I haven't looked in to the legal aspect as there could be a rabbit hole there and I want to concentrate on developing my business systems first.

Perhaps if the business gets big enough and I'm at a crossroad I can make that call then.

Cheers
Steve
 

JohnHolling

Serial entrepreneur, Investor, Mentor
Administrator
Moderator
Member
Joined
Nov 1, 2016
Messages
66
Likes
62
Points
18
...I want to concentrate on developing my business systems first.
Steve, it seems like you have your priorities straight, which is awesome. Too often, people rush into expatiation before they're ready. Keep us posted and post any questions along the way.

Cheers!
John
 

Edvin

MVP
Member
Top Contributor
Joined
Oct 2, 2017
Messages
331
Likes
307
Points
63
Steve41, do you have anything you can share with us?
...As I set up my service-based business and all of its systems ....I want to concentrate on developing my business systems first
Do you have any systems procedures in place that you think have worked-out for your business? And what other elements are you actively looking implement/improve?
 
Joined
Dec 17, 2017
Messages
34
Likes
23
Points
8
Steve, it seems like you have your priorities straight, which is awesome. Too often, people rush into expatiation before they're ready. Keep us posted and post any questions along the way.

Cheers!
John
Thanks again John, and will do. I have many questions and so far the responses in these forums have been helpful, honest and respectful. I will start other threads to ask them tho.
 
Joined
Dec 17, 2017
Messages
34
Likes
23
Points
8
Steve41, do you have anything you can share with us?

Do you have any systems procedures in place that you think have worked-out for your business? And what other elements are you actively looking implement/improve?
Edvin, I am still in early stages and I haven't even officially launched yet so I cant say what has worked well just yet. I am working on designing a few things in the background such as:
  • The sales cycle
  • Feedback loops
  • Contact Management System
  • Hiring criteria
I can go on and on, there is a ton to do. Also Iv'e never done things like this before so I'm just feeling my way around using google and forums to figure things out. I have a basic business understanding (no expert by any means) so I understand the principles of these systems, but designing them to fit into my company's operations is another thing.

I will post to this thread when I implement and prove out a system as mentioned above.

Cheers
Steve
 

Small to Feds

MVP
Member
Top Contributor
Joined
Jul 2, 2017
Messages
147
Likes
231
Points
43
Do you have a Franchise Disclosure Document and a Franchise Contract to offer clients?
If so, how have your prospective clients reacted to buying a franchise?
In short, you may not be ready for franchising and a broker could run off with your intellectual property without a tight contract. A franchiser assumes many responsibilities and image concerns for multiple locations.

You may wish to consider alternative packaging of your services, such as consultations for a fee to owners who set up an independent business. Industry partners can play a role in such endeavors.
 

Edvin

MVP
Member
Top Contributor
Joined
Oct 2, 2017
Messages
331
Likes
307
Points
63
Great tips @Small to Feds
Can you offer more specifics to market to such individuals...such as myself!

For example, I've decided to "not" go with a franchise in learning/tutoring center industry. I will be partnering with vendors like Pearson to offer digital curriculum. But, this does not mean that they are able to direct me to consultants within the industry.
My research through franchisers and discovery has been instrumental in my business plan; but, I wouldn't mind finding a consultant with specific insight in the business.
 

djbaxter

Administrator
Moderator
Joined
Nov 10, 2016
Messages
1,652
Likes
788
Points
113
Being very clear about the terms of buying a franchise - and your subsequent obligations, what you can and cannot do, etc. - is critical.

As an example: I used to know a couple who owned a grocery store franchise. Their marriage was not the happiest and at one point they decided to separate. They discovered that the terms of their franchise would not permit that - if they separated they would lose the franchise, which was their livelihood. So basically, happy or unhappy, they had to remain a couple in order to keep the franchise and without the franchise they could not afford to separate (they also had a child).

Maybe that was eventually a good thing for them - maybe they were able to work out the issues in their marriage. But at the time I was frankly astounded that the franchiser had that much power over their lives.

An extreme example perhaps.

But to me it underscores the point that most entrepreneurs strike out on their own because they want to be their own bosses, to own their businesses and to make what they think are the best decisions for their businesses. If that is indeed your motivation, the franchise model may not be a good fit.
 

Small to Feds

MVP
Member
Top Contributor
Joined
Jul 2, 2017
Messages
147
Likes
231
Points
43
Great tips @Small to Feds
Can you offer more specifics to market to such individuals...such as myself!

For example, I've decided to "not" go with a franchise in learning/tutoring center industry. I will be partnering with vendors like Pearson to offer digital curriculum. But, this does not mean that they are able to direct me to consultants within the industry.
My research through franchisers and discovery has been instrumental in my business plan; but, I wouldn't mind finding a consultant with specific insight in the business.
Teaming is best way I have found to achieve the objectives you have specified.
SMALL BUSINESS FEDERAL GOVERNMENT CONTRACTING ("Smalltofeds"): SMALL BUSINESS TEAMING IN GOVERNMENT CONTRACTING
 
Joined
Jul 19, 2018
Messages
46
Likes
48
Points
18
As an example: I used to know a couple who owned a grocery store franchise. Their marriage was not the happiest and at one point they decided to separate. They discovered that the terms of their franchise would not permit that - if they separated they would lose the franchise, which was their livelihood. So basically, happy or unhappy, they had to remain a couple in order to keep the franchise and without the franchise they could not afford to separate (they also had a child).

Maybe that was eventually a good thing for them - maybe they were able to work out the issues in their marriage. But at the time I was frankly astounded that the franchiser had that much power over their lives.
What a precarious situation, given the actual owning of a business is so complicated it can literally change the dynamics of your marriage. In my case, my husband started off working with me and developed the worst case of debilitating OCD. He cannot work in the store at all because he is paralyzed until he finishes a completely unnecessary task that stresses everyone else out (like reorganizing the shelves and teaching people where he moved it all to- ok, now he can help a customer), lol. He made new rules, for which he wanted me to type SOPs, every 20 minutes. At one point he was physically preventing my contact with employees and service areas because he felt he did it all better! And at home he had been accustom to ALL my attention and became quite lonely and bored (my work doesn't go away). He has completely removed himself from operation so all is peaceful now...

Needless to say I can see how that can cause the very problem for which you are now stuck together.
 
Top