When Franchising Might Not Work For Franchisors

Over the years, franchising has gotten pretty a bad reputation, mostly due to some franchisors trying to squeeze as much money out of franchisees. On top of that, some of these “bad” franchisors aren’t sufficiently prepared for franchise expansion. Or even worse, not knowing what they need to prepare and have in place at all.

While you may be running a successful business and had perfected your operational processes, it takes more than that to go into franchising because creating a proven business model is one thing, teaching another party to have a go at replicating that same success is quite something else.

So how are you as a franchisor? Are you fulfilling your responsibilities and doing all you can to help your franchisee? Or are you doing something that makes you a “bad” franchisor, whether knowingly or unknowingly? Because all these would determine in some way whether franchising could turn out to be a hit or miss.

Related: The Fundamentals Of Ethical Franchising - Part 1: Elements & Part 2: Practice


Does Not Have A Proven Business System

People invest to make money, and they want to buy something that works. If the franchise opportunity you're offering does not consist of these two basic elements, what exactly are you selling? If the answer is something like "hopes and dreams" and "believe in the business", you’re coming out looking like a scam. And that goes for your franchise too.

Provides Minimal (Or None) Franchise Support & Training

For the payment of franchise fees, franchisees will be receiving the initial support and training required to successfully replicate the original operations of the franchise. Naturally, when you structure your franchise fee, you should also include the costs for providing the related necessary support and training to franchisees, and maybe even include the cost of selling that franchise. So it’s a deal now, you get your money and the franchisee gets what they paid for.

But if you don’t plan for sufficient support resources and don’t structure an effective training schedule for franchisees, how will they be able to gain the necessary knowledge and skills to make the business work? In this case, the possibility of them messing up and enraging customers is very real, leading to a negative impact on the franchise brand. Is this really how you want your franchise brand to be represented, by parties who have no idea what they’re doing (not because they didn’t listen but because you performed a slipshod knowledge transfer)?

And if you’re thinking you can blame it all on your franchisee and legally pursue this, think again because it was you that didn’t perform your part in the first place. And when push comes to shove, franchisees will defintely remember that particular part of the franchise agreement that wasn’t realized.

Provides Minimal (Or None) Advertising & Marketing Support

Unless your brand is spectacular enough that people rush through the doors to make purchases (think Apple), the need for advertising and marketing to be competitive in today’s sea of competition is now more apparent than ever. Even the fruit-named technology company still invests in regular advertising and marketing campaigns. So what’s your reason for not placing advertising and marketing efforts high on your list?

And if you do collect some sort of advertising fund from franchisees, you’ll need to account for that expenditure — stating why there’s a need for the collection and how it’s going to be appropriately spent.

Does Not Offer Exclusive Franchise Territory

As a basic guideline, and depending on the business and location, a franchisee’s territorial rights could be anywhere from 2-4 square kilometres (or more). In other words, territory exclusivity provides protection for franchisees from over-saturation of a certain location with the same brand. But when two franchisees from the same franchise system are competing for the same group of customers, it really doesn’t seem like they are on the same team anymore. What happens next could be an all out fight for survival.

Does Not Use Royalties To Improve The System Or Fund Support Resources

Franchising entails not just providing support at the initial phases, but at an on-going rate too. However, providing reliable on-going support comes at a cost, with some common expenses coming in the form of additional hires, traveling-related costs or even development of teaching material. Furthermore, franchisors are also expected to continually improve the system. It could be a new product or service that may potentially boost profits, or it could be a new operational process that is more efficient and effective.

If you’re not allocating royalties collected to either improve the franchise system or fund your support resources, how are you going to fund these actions? Or is all that money going straight into your pocket? Because that’s what franchisees will be thinking.

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