Why Be A Franchisee? Or Why Not?

Last time we asked why some companies choose to franchise, while others do not. This time I’ll reverse the question and ask why some operators choose to be franchisees, while others prefer to follow their own vision.

I know a very successful former COO/CEO of a large restaurant company who’s decided, for his next act, to be the franchisee of a midsize, but growing, restaurant brand. As he’s opened several stores, it’s a position which has allowed him to apply his expertise -- making operations run consistently, predictably, smoothly, and profitably -- without having to focus on menu design, decor packages, or sources of supply.

I know another CEO, a successful former franchisee of a well-known family dining system, who’s adapted some of the ideas he observed and implemented to develop a family concept unlike any he (or I) had ever encountered, and has brought the large system management tools and techniques to build a remarkably successful ten (at last count) unit concept.

What’s going on here?

Becoming a franchisee, at best, exemplifies the slogan we’ve all heard from many sources, including some multi-level marketing organizations. It’s “being in business for yourself, but not by yourself.” For someone who wants to focus on execution, it’s a potentially golden opportunity. The best franchise systems provide access to some or all the following: (1) building design, construction firms, furnishing and fixture suppliers, and even site selection assistance to open your unit; (2) food and materials suppliers, menus, recipes, and training to insure product and service standards; (3) national or regional marketing campaigns to generate consumer awareness; and (4) continuing training and coaching to maintain and improve operations. Sounds like heaven for an operator, right? Just open the doors on time, make sure everyone’s doing his or her job, and success is yours. Furthermore, the best franchise systems have an added benefit: while the franchisor cannot promise this, they generally have sufficient appeal that franchisees who wish to sell their businesses (for retirement or whatever other reason) can find a ready buyer -- someone who wishes to join the system.

Unfortunately, you may have noticed a few key words in the prior paragraph ... while most franchise systems provide access to some of the resources I listed, only the very best, and most consistently successful, provide access to most (or maybe all in rare cases) those resources. Weaker franchise systems may only provide certain of those benefits. The end result is generally a less consistently successful system, in which the stronger, smarter, more independently capable operators may thrive, but will be forever burdened by the stigma of weak operators elsewhere, which lowers the consumers’ (and investors’) perception of the brand as a whole, and diminishes the appeal to would-be franchisees. Some of these stronger, more independently capable operators chafe under such a burden, and often end up like my second CEO above -- by taking what they’ve learned (including, often, lessons on what not to do) as well as the skills they either developed or already possessed to do something better on their own.

I’ll hazard a guess here. If a few systems consistently offered each of the resources I noted two paragraphs earlier to each of their franchisees -- plus reinvested sufficiently in menu and brand development to stay fresh and relevant in the consumer’s eyes -- we’d see those few brands become national giants, and each would have a waiting list of franchisee applicants. Many would-be franchisees tell me they hunger for that sort of systemic support, and make their decision based as much on those corporate resources as they do on whether the concept sells tacos or coffee.

Even with the sorts of resources offered by franchisors, many operators prefer to chart their own course, and we should be grateful, for the successful among them are the creators of the new concepts that keep this industry exciting.

In addition to the operational assistance described above, there are also economic and legal benefits for franchisors and franchisees, although they come with corresponding costs and limits. In future columns we’ll explore some of these, and include some commentary from professionals in the franchising field. Stay tuned.