Five arguments in favour of franchising, from the franchisee’s perspective.
1. A documented, tested and profitable business idea
For the one who wishes to start their own business, most often there is no tried and tested business model. It is therefore difficult to predict how profitable the business idea will become.
Although becoming a franchisee does not guarantee a profitable business, the business idea should be extensively tested and be able to demonstrate good profits from the already established operations. This makes for higher security even if one pays a franchise-fee.
There should always be a a book of instructions that details how to run the franchise. This is called the ‘Manual’. It should give concrete instructions on how the franchise should be run to yield the best results. Such a manual does not exist to the businessman starting out entirely on his own.
2. Support, counselling and education
A franchisee receives support and counselling from the franchisor, both at the start and on a continual basis. This is given in all areas essential to running the franchise. This partly includes commercial support such as:
- Purchasing wares and supplies
- Selection composition
It also includes administrative support and counselling, for example:
- Staff issues, hiring and resignations
- Economic compliance and control
- Contact with authorities, landlords, banks, unions etc
The counselling that the franchisor can provide is adapted to the circumstances of the operation. The fact that the franchisor’s knowledge derives from practical experience in running the same type of business, is a significant advantage. Such customised counselling is rarely available outside franchising.
A franchise chain most often have educational programs for its franchisees.These tend to become more extensive as the chain grows. It is partly education at the start of the franchisee’s company and partly continual education. The education is specially adapted to owners and staff running just the same kind of business as the franchisee. Access to customised education is very advantageous to the franchisee and very rarely available outside the franchising method.
3. Economy of scale
Every company that reaches a certain scale, can often enjoy various advantages related to its size. The advantage for a franchisee is taking part in economies of scale that would not otherwise be available. The most common economies of scale are:
- Purchasing rates and other terms
- National customer terms
- Quality control
- Product and service development
- Testing of new ideas
As the chain grows, the economies of scale become more potent. These kinds of advantages are uncommon outside franchising.
4. Network of other practitioners
To be an independent business owner is often called ‘the loneliest job in the world’. There is rarely anyone else who understands your situation or with its inherit opportunities and problems. A common argument in favour of franchising is that it gives access to a network of colleagues running the same kind of business.
The formal and informal connections that are created within a franchise chain are a great help. The possibility of advice from peers is not to be underestimated. The advisor having in depth knowledge about the business, lends a good feeling even if it only involves confirming ones own ideas.
Many that become independent business owners often possess a well developed competitive instinct. Not surprisingly, there is often a competitive atmosphere between franchisees that many find stimulating.
5. Effective division of labour
To the business owner running his business entirely on his own, the division of labour is quite clear. She has to do everything herself. In a franchise chain however, franchisors and franchisees can divide duties in such a way that one plus one equals more than two.
The franchisor should, as mentioned above, attend to issues that can be done for many at the same time. This gives franchisee more time to devote to issues on a local level. Examples of issues that save time and energy are:
- Negotiations with suppliers
- Negotiations with national clients
- Product development
- Producing marketing material and PR
- Development of the business idea’s concept