What is Franchising?
Franchising is a strategy for expanding a business. The model has appeared in a variety of forms beginning as far back as the Medieval Period, but it wasn’t until the mid-1800s that the concept developed into the model we recognize today.
Here’s how it works:
A franchisor and a franchisee enter a relationship in which the right to sell specific products and services using methods, operations, systems, the brand name and other intellectual property owned by the franchisor is granted through licensing and a contract known as a Franchise Agreement, by the franchisor to the franchisee. In order for the model to succeed, the franchisor also provides training and support to each franchisee they recruit, and the franchisee has to follow the processes and methods established by the franchisor.
It’s a mouthful, but you’ll get the hang of it. Let’s break it down.
Let’s say someone perfects a drink recipe and they bottle and sell it throughout Town and all the townsfolk can’t get enough. Soon, word spreads to Another Town and now all the people there want to have the beverage there, too. The creator of the drink could grant a license to an enterprising businessperson in Another Town, giving them access to the proprietary recipe, bottling methods and even the branding itself, as well as the right to recreate and sell the drink to the thirsty population of Another Town.
The creator in Town becomes a franchisor, promising to teach and support the enterprising businessperson from Another Town, who becomes a franchisee and promises to uphold the standards of the brand and its delicious drink. A beverage franchise has just been born.
But why not just make your own drink?
This question brings us to the real essence of franchising. You’re an enterprising businessperson, so why would you sell someone else’s product instead of creating your own? The answer is surprisingly simple: launching a startup is really hard.
Creating a business from scratch can be exciting, but it’s way more work than just having a really good idea. Before you even set up shop, you have to go through the long and rigorous process of creating a business plan, securing finances, finding partners and advisors you can trust – and everyone who invests their time or money into your idea will have to be convinced that the gamble is worthwhile. Not so easy for an unknown startup.
In contrast, buying a franchise can afford you the lifestyle of being a business owner with significantly less risk. Signing on with a franchise gives entrepreneurs access to a field-tested concept and a proven system in addition to the marketing budget, recognition and operational precision of an established brand. That’s not to say that it’ll be easy – a franchise investment isn’t ever guaranteed to succeed and requires a lot of time and financial commitment. But, it’s likely to help reduce the challenge.
There are actually a couple of types of franchises.
Traditional (Product Distribution) Franchising
- Accounts for more total sales than business format franchising
- Manufactures and/or supplies products
- Generally, products need pre- and post-sale service
- Found more commonly in bottling, gasoline and automotive industries
Business Format Franchising
- Franchisor generally provides:
- Trade name, products & services
- Entire operation system
- Real estate, site selection & development support
- Operating manuals, quality control, marketing strategies
- Brand and business training
- Common route to expansion in over 100 industries
Keep in mind; all of this can vary from place to place.
Different countries – and even different states – define franchising differently. According to the International Franchise Association, a franchise in the U.S. is typically defined by these parameters:
- The franchisor licenses a franchisee the right to use its trade or service mark to identify the franchisee’s business in marketing a product or service using the franchisor’s operating methods
- The franchisor provides the franchisee with support and exercises certain controls
- The franchisee pays a franchise fee to the franchisor
Depending on the state, the laws that define what constitutes a franchise can also include provisions that outline requirements like a marketing plan or that relate to communities of interest.
The most important takeaway? It works.
The reason the franchise model has become so dominant in the global market is that if all players are fulfilling their roles as outlined in their contract, the system works. Take a look at these stats:
90%of franchisees enjoy operating their business
88%enjoy being part of their organization
85%feel positive about their affiliation with their franchisor
80%feel their franchisor operates with a high level of honesty
78%would recommend their franchise brand to others
73%given the option, would do it all over again
So, how do you go about becoming a franchisee?
If you’re reading this, you’ve already started. The first step is doing a fair amount of research to make sure you know what you’re getting yourself (and your family) into. That’s what we’re here for. Once you’re confident that franchising makes sense for you, you’ll have to choose a franchise that suits your needs.
Here's what you need to consider:
- How much capital will you need to invest? Do you have it? Can you get it?
- How much capital can you make if everything goes right?
- How many hours a week will you have to be on-site to ensure the success of the business?
- How many hours can you feasibly dedicate to this venture?
- Will you be able to get to a place where you can be more hands-off as an owner?
- How long will it take to reach that point?
- How long will it take to recoup your investment?
- In what industries do you have experience?
- What do you like? What do you wish you were doing while you’re at work? (Hint: find a franchise in that field.)
- Is the industry stable? Healthy? Growing?
- Where do you want to spend your time?
- Is there a market for the chosen industry in your area?
- Are you willing to travel?
- Is there a brand you already love that you’d love to help grow?
- Are the values of the brand aligned with your personal values?
- How many people know about the brand?
- What’s your perception of the brand? What perception of the brand do others have?
Knowing the answers to these questions, or at least having a general idea, can help you make the right decision about which franchise is the perfect fit for you. You have to find a franchise that meets your requirements and that consistently delivers on their promises – both to their customers and to their franchisees – through diligent reevaluations of the systems and processes on all sides of the business.
Once you create a list of possibilities, make contact.
In general, franchisors have similar paths to ownership, and pretty much all of them begin with a communication of your interest. Luckily, you can search for and make initial contact with your ideal franchise all right here. After that, the process (with some variations and extra steps here and there depending on the company) usually looks a little something like this:
Once you browse the directory here at America’s Best Franchises and find a couple of franchises that interest you, you can fill out a form and we’ll send your info straight to the franchise development teams at those companies. This just lets them know that you’re qualified and interested in helping their franchise grow.
After you send your info to your chosen franchises, they’ll usually get in touch with you to arrange a phone call to get a better sense of who you are, what your qualifications are, where you’re looking to develop and whether you’re a good fit for their brand. Use this step to your advantage – you’re evaluating them, too. Make sure they’re the kind of people you want to work with.
Franchise Disclosure Document
After you’ve both agreed that your feelings are mutual, they’ll send you an FDD (Franchise Disclosure Document). This is usually a hefty document with a ton of information on their brand, including costs, revenue and average volume. Look it over carefully to make sure this is the right franchise for you.
If you both decide to move forward, you’ll eventually travel to the company’s headquarters to meet the corporate teams from marketing to operations to support and learn everything there is to know about the brand and its system.
Signing the Agreement
Once you make it this far, you’ll get to sign the franchise agreement, sealing the deal and preparing you for your new life as a franchise owner. Congratulations will be in order.
Site Selection/ Construction/ Development
During this step, you’ll typically work with the franchisor’s real estate and development team to determine what type of building is best suited to you and your area, and where to put it. If your franchise doesn’t require you to have a brick-and-mortar location, you probably won’t have to worry about this step.
This is where the fun really starts. You’ll be trained in all of the areas pertinent to your role as an owner, often including management, finance, supply chain and day-to-day operations. This is where you really get a taste for what it’s like to be a part of the company you’ve signed on with.
When you complete your training and any construction on your location is complete, you’ve finally made it. You get to open the doors of your own business. Don’t forget to smile. And don’t worry – all the support, training and advice you got during the on-boarding process won’t go away once you open. Most franchisors provide ongoing training and support throughout your ownership journey.