Franchising

Are you an entrepreneur looking to start a business but you just don't have that "great idea" yet? Then franchising might be for you. Franchising offers you the opportunity to join an existing business model and, in many cases, to align with an established brand. Franchising can present tremendous advantages to individuals who do not want to enter the entrepreneurial jungle alone, giving them access to the proven ideas and established resources of others. I work with franchising on a daily basis, and listed below are what I have found to be the top five advantages of franchising.

#1: The Hardest Part is Done
The most difficult part of any business is coming up with a model that works. With franchising, this part is already done for you. Assuming you have done your due diligence and verified the success of the business model, franchising allows you to step into an organization that is already achieving the things you hope to achieve. If you are more of an "execution guy" than an "ideas gal," then a franchise can provide you a wonderful opportunity to profit from someone else's creative vision. Franchising means you don't have to have a great idea; you can borrow someone else's great idea.

#2: The Automobile Is Already Invented, You Can Focus on Learning to Drive
Any good and reasonably established franchise will have systems in place for you to follow. As a franchisee, you do not need to create your own operational systems, training programs, or supply chains. The franchisor and other franchisees have taken the hits for you. You are paying a franchise fee and royalties for, among other things, other people's trial and error.

#3: You Can Open a McDonald's... or a McDowell's
In a crowded marketplace, the power of aligning oneself with a strong brand cannot be understated. Take note of John Amos' character in Coming to America who tried to align himself (illegally) with the strength of the McDonald's brand by creating a knock-off restaurant called McDowell's. Of course, most brand names do not carry the cachet of the McDonald's name. However, if the franchise has a decent geographic footprint (or, if new, growth rate), ask yourself would you rather enter your marketplace as Sylvan Learning Center or Jim's Tutoring Pros?

You chose Jim's - congratulations! By the way, I wanted to let you know that a Sylvan Learning Center is going to open across the street from you three months after you open and that there will be six more Sylvan Learning Centers with a Co-op doing television and radio advertising in your area within two years. Still feeling confident about the Jim's Tutoring thing?

#4: Economies of Scale and The Resource Advantage
When a franchisor creates a new ad campaign, it does so for 300 or 700 or 3,500 stores. Franchisors are able to spend a lot more on creative because they are amortizing that cost across a whole network. Compare an ad for McDonald's with your local restaurant's cable ad. Enough said. The bigger the franchise, the more it can invest in top flight marketing creative, real estate analysis, customer research, and product research, to name a few. The list is virtually endless.

Like military wars, business wars are as much about resources as about strategy and tactics. By aligning yourself with an established franchise, you are able as a small business owner to reap the benefits of large company economies of scale. Here are a few examples to demonstrate how important the resource advantage can be.

• Supply Chain - I recently met with a small business owner who was ordering a product online. I was ordering the same product but was getting a bulk discount negotiated through one of my franchisors - she was paying over triple what I was for the same product.
• National and Co-Op Marketing - Face it, Jim's Tutoring Pros will never be able to afford a full page ad in Working Mother magazine (nor would it be a wise investment for a local store such as Jim's) - Sylvan should be able to. Many franchises also form regional Co-ops, particularly in major markets, that give them the ability to afford ad campaigns and raise brand awareness past what an individual store can do
• Research and Development - Large companies can afford R&D that can have a direct impact on market share and unit level profitability. For instance, market research, ad testing, product testing, and retail placement testing are just a handful of the many research areas where the resource advantage plays out. Also, the sheer data generated by a network of stores provides business intelligence to which sole proprietors could never have access.

#5: Two plus Two Equals Nine, The Network Effect
In many franchises, the network of franchisees and area/regional developers can be as powerful a support mechanism as the franchisor itself. In franchise networks (or geographic areas within franchise networks) where franchisees work together and help each other out, you can learn valuable lessons and best practices from people who are on the ground and have faced the same challenges and opportunities you will face when you open your franchise. Network best practices may be one of the most powerful tools that give franchise operators a competitive advantage over their non-franchised counterparts, and one of the advantages that people outside franchising fail to realize the power of.

As you can see, franchising provides some strong advantages. However, one must always bear in mind that, while the above benefits are present in most strong systems, not all franchise opportunities possess the above characteristics in equal amounts (or even at all). In my opinion, the above advantages give franchisees a huge competitive advantage over sole proprietors in like businesses. Franchising, when it is done right, cannot be beat.

How do you know if it's being done right? Start by doing your due diligence. If you are interested in learning more about franchising and its potential disadvantages, please see the post on Potential Franchising Disadvantages at my blog.

Copyright 2011. IntenseFence Management Solutions, LLC.