Expansion – Franchising is a fad?


Is franchise the business a fad, at the current downturn landscape?  For sure NOT,  it is one of the options to keep the strategy for expansion and make business minimizing investment & risk.

But what does this means? Franchise is not magic… Franchise also means investment   and means preparation. Might this is an extreme example, however I do not consider franchise business the action to simply market a brand and expect close to the fax machine the orders coming from franchisee. That never works.

Which are the key elements that the franchising business entails?:

  • A market
  • A product
  • An exclusivity
  • A (franchise) contract
  • A brand
  • The aim to do business

But the most important is related with human attitudes: both parts must feel attraction, and should feel confident in the other, to make profitable business together.  At the end, it’s clear that there are several franchising models, but the key questions are:

  • There is product? Has sense for my market?
  • Is a recognized brand in its current markets? Has strong potential?
  • Which is the franchise profile (individual, master…)?
  • What the management model will be? How the franchise business and the franchisee will be supported?
  • Who owns the stock (high part of the investment risk)  and when?
  • Who will set, and how, the retail price, the promotion price and campaign, the investment in marketing…?

There is not a unique true, a unique model with guaranteed success. The model is good if it generates synergies between the partners (never better used this word),  a model where rules are clear in a framework of mutual feel of confidence, commitment and comfortability. An agreement which delivers business and profitability in a balanced equation for both parts. Without all of this, no business model is good.

Franchisor should be prepared to deliver what promises. Lot of times this means a change in the mindset, a big change within the organization (company), and I told means preparation: the mostly times to franchise entails be methodologic and explicit the “savoir faire” that is part of the organization, the culture, but is not supported black on white, when from the other side the franchisee is buying that should be tangible.

Franchisees are the “new customer”, whom should not only understand,  feel the advantages of beign part of a brand and a chain; squeezing  the benefits of the proven business model and franchisor’s support in operations. But at the same time, franchisee needs to be flexible, adopting and helping to adapt the business model, the processes, the assortment…

I always say that having a good contract between the parts, where rules are clear; and a supported business model in several aspects such training plans and the set of good manuals (operations, merchandising, windowing, IT…) are key to avoid future discussions… and arguments! How much franchises do you know where franchisor is constantly attending calls or visits for claims and clarifications, instead of investing the time of both sides developing the business?

What do you think on that?

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