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What is franchising? My personal definition!

Written by: Jim Coen

Article Overview: Working in the franchising community for 25 years, I have come to define the concept of franchising, based on my personal experience.

What is franchising? My personal definition!

Having had the good fortune of working in the franchising community for 25 years, I have come to define very personally the concept of franchising. When trying to define a term or concept it is important to understand what it is not.

Franchising is not an industry. Too often I hear people talk about the industry of franchising. It is like referring to joint ventures as an industry, or subsidiary operations as an industry. Franchising is not a guarantee for success. No business can guarantee a successful outcome. Franchising is not a “get quick rich” scheme. It is a business that requires patient capital. So if that is what franchising is not . . . what is it? What is franchising? Franchising is a method of growing a proven business model into a brand name. My personal definition of franchising includes five key elements.

1. Franchising is a business of numbers. It is about creating dominance in the marketplace. The fastest way to develop a brand in a particular market area is with number of units. The more units the greater brand recognition and market dominance prevails. The synergy created by each franchisee contributing to developing the brand returns value to each franchisee participating. The greatest advantage to franchising is that it can accelerate growth, develop a brand faster than almost any other method.

2. Franchising is the business of consistency. Consumers develop an appreciation for the product and service and learn to have confidence that the product and service is consistent through the chain. The franchisor develops a system to deliver that product or service consistently; it looks to each and every franchisee to implement that system. A successful franchise system is constantly seeking ways to improve the consistent delivery of product and service the consumer has grown to expect.

3. Franchising is the business of risk minimization. Since the prospective franchisee is bringing their capital, time and effort to an already proven business model, success is much less risky than when that franchisee trys to do things on their own.

4. Franchising is the business of mutually beneficial relationships. All parties must participate in the fruits of their labor equally. Franchisees must generate sufficient profits and returns on their investment to continue to develop and grow their business, Franchisors must do the same to be able to continue to invest and grow the numbers and brand, and Consumers must get value for the products and services they receive.

5. Finally, franchising is a lifestyle. Someone who goes into their own business is different from someone who wants the protection of a well-established business which employs them.

Franchising represents a more viable approach to business ownership. For a price, the franchisor teaches its proven business methods to the franchisee who shoulders all operating and financial responsibilities of the outlet.

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Related Forum Posts
Any franchising horror story? - I am always writing about the benefits of franchising in this forum. Although I don't own a franchise I do believe in franchising is a great business model. Do any of you have horror stories to share about franchising?
Re: STARBUCK - Licensing vs Joint venture - [quote="bmueller47":czemqiul]I often come here to learn something, therefore I would like to know what is the real practical difference between licensing and franchising. I might have an answer, but you are at the forefront with your knowledge.[/quote:czemqiul] Very good question. Although I am not an attorney, I will do my best to highlight what I believe are the main differences between franchising and licensing. First, here in the US, franchising is very regulated buy the Federal Trade Commission. Not anyone can franchise, you have to go through various steps. Licensing doesn't come with as much regulation. The franchisee can expect to have a very close relationship with his franchisor. In most cases, the franchisor will offer training, and on-going support. The franchisee will be able to use the franchisor's copyrights, trademarks, logo and so on. The franchisee is like the public face of the franchisor. This is I think the high value of franchising. Also, a franchise agreement will most likely define territories. The relationship between the licensee and the licensing company is much looser. In most cases, the licensee won't be able to retain the rights to trademarks, company name, etc and will have to establish his own identity in the marketplace. Licensees rarely get a protected territory which means you next door neighbor could be your competitor... Obviously, franchising is more expensive than licensing because you get a certain "safety". Again, franchising is highly regulated whereas licensing is not. There are many other differences between franchising and licensing but I think these are the main ones.
Re: Has the poor economy hurt or improved your holiday shopping? - Well I've got to say I was impressed by the amount of discounts being had around my local shopping malls. I was able to spend only 75% of my projected budget for the holidays. I used the excess money to indulge in a high definition television. Wooohooo! I am not planning on doing any additional personal shopping for the next few months, so it better last awhile!
Franchising is not a "no-cost" expansion model - Don's point above was right, and, if he only lost $5,000 getting into franchising, he got off very cheap. Getting into franchising is a serious business. We estimate that you need [u:32pu99ec]at least [/u:32pu99ec] $50,000 to do it right -- and it can cost five times that much for an aggressive expansion plan. Jim was right on. If you choose to franchise, you are getting into a new business -- the business of selling and servicing franchises. Mark
Re: Welcome New Moderators in Addition to Our Fine Team! - Hi Folks, My specialty is franchising. I have sold franchises for a living for quite some time. (I even sold one to a relative!!) I currently own a franchise consulting company. We match people up with the franchise that fits the business model they are looking for. Hope to contribute to the forums here. If anyone has questions about franchising let me know. I like helping others. Talk soon, John .


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