Small Business Trends

(June 6, 2008) - I have a good relationship with my franchisor, the CEO of the Business Services Center. We share a lot about franchising.

One time, he shared a story that broadened my insight on franchising.

Not all franchisors share the vision of “growing together”. He mentioned that many franchisors think about franchising as a vehicle to rapidly grow their business and assets, that pushes franchisee interests on lower priorities.

He stated that it is his interest for franchisee and franchisor to grow together. If the franchisees succeed then the franchisor will reap the result too; better brand value, awareness, and strong franchise performance, that lead to many opportunities.

Franchising your business is not easy

Franchising seems like a good idea to expand a business, but it’s not easy. He shared that although the cash-flow is admittedly nice (in my case, the royalty fee is 5% of sales), almost all are “vanished” into R & D and marketing campaigns.

He stated that the overhead in franchising is nose-bleedingly high, costs are sky high, and performances could be better. What gives? Mismanagement in the headquarters?

He honestly said that the liabilities here are not only the franchisor, but also the franchisee. “Bad” and uncooperative franchisees slow progress and consume unnecessary resources.

The impact is severe. The other cooperative franchisees and the franchisor suffer the consequences; lackluster support, damaged brand image and value, and focus loss.

How to solve? To “weed out” bad franchisees, he had to splash some money to buy back the broken franchise units. His franchising strategy doesn’t include closing franchise units. Buying them back is more viable, in his opinion, to preserve the brand image.

It’s simply not easy.

If it is not easy, why do you insist on the benefit of franchising?

Despite the problems above, he mentioned that franchising is necessary and a great time tested business strategy.

He took the franchising route, rather than licensing or partnership route, to incorporate the exponential nature of franchising.

Exponential means covering strategic areas fast and outnumbered competitors, hence, achieving better brand awareness and exposure.

Franchising is at it’s best if the franchisor and franchisee can work well together

The power of franchising lies in the ability to agree on a common goal despite all the differences. McDonald’s, a classic story of a successful franchise, became one of the world’s leading francishors due to its ability to work together with the franchisees.

Currently, my franchisor has more than 110 franchise units nationwide.

My benefit as a franchisee? A brand image that is nationwide and a profitable business, thanks to the effort of my franchisor.