Pros and Cons of Becoming a Franchisee
By Michael Seid, Managing Director, MSA Worldwide
It's often said that franchising offers a surefire method of expansion for business and a safe investment. While a properly designed and executed franchise system can be an exceptional method of expansion, hastily designed or cookie-cutter franchise systems that are not well managed are not. This is true for any business format, but in franchising, the operator of the system (i.e., the franchisee) is relying on someone else – the franchisor – to develop the business program.
Before deciding whether becoming a franchisee is right for you, consider the following:
Pros of Becoming a Franchisee
- Brand Familiarity: The most readily apparent advantage to opening a franchised location is the opportunity to associate with an already established brand. The franchisor has already developed a brand standard that the public is aware of and associates with a certain level of quality. Each location promises a consistent experience with regards to products, services, menu items, etc., that the customer already knows and can rely upon in deciding whether or not to patronize your store or a competitor’s. Whether a company’s product is superior or mediocre, if its locations are successful, the secret for its success will likely be in its consistency.
- Opening Experience: The process of opening a privately owned business is extremely complicated and can appear daunting at times, particularly for anyone getting into business for themselves for the first time. In contrast, a franchisee is able to immediately benefit from the franchisor’s experience and tested operating system for opening that specific type of store, from advance training, documented standards and procedures, to opening inventory levels, to grand opening marketing strategies. Additionally, the franchisee is able to take advantage of the network of other franchisees in the system who have gone through the process of opening one or multiple locations.
- Operating Experience: Being part of an existing franchise system also provides a multitude of advantages for the franchisee once their franchised location is up and running. The existence of multiple franchised locations within the system allows for increased purchasing power, which can result in a reduction of costs for supplies, inventory, and other goods for each individual location. This purchase power can also have an effect on advertising, where an increased regional or national ad campaign can draw a bigger customer base to each individual location. Lastly, a franchise system has a greater ability to try new things, through test-marketing new products or making adjustments to the system at specific locations to see the impact on a limited scale before rolling it out for the entire franchise network.
Cons of Becoming a Franchisee
- Loss of Independence: Becoming a franchisee means giving up a significant measure of control over the business decisions of your franchise location. Franchise systems are structured in such a way that the franchisor sets many of the rules; the franchisee is required to operate the business according to the franchisor’s manuals and procedures. For many who consider themselves “entrepreneurs,” the franchise model may prove to be too rigid and therefore not a great fit. Decide if you're truly cut out to be a franchisee.
- Over-Dependence on The System: This loss of independence can also cause problems at the other extreme, if a franchisee finds themselves relying solely on the franchisor or the franchise program to make every decision. Franchising succeeds when financial and emotional risks motivate franchisees. When franchisees rely totally on the system for their success, their over-dependence can cause problems. There must be a balance between the franchisee complying with the brand standards through the franchise system and the franchisee’s own business and management skills at the local level. For instance, if a franchisee exclusively depends on national advertising in lieu of any local marketing, they are likely to be minimally effective at developing a strong customer base.
- Existing Franchisees that are “Bad Apples”: The basic principle behind the franchise model is the public’s perception of a consistent quality of product and service at each franchise location - the 'brand promise.' Of all the potential lunch stops on the road, the consumer already knows what to expect from the franchised burger joint, while the local diner may be hit or miss. The other side of this coin is that one poor experience at a franchise location can sour that consumer’s perception of the entire network, whether or not that one location was an outlier or not. Moreover, media coverage of poor service or subpar facilities at one franchise location can irreparably impact the entire brand, leading to public sentiment that the problem exists throughout the system.
Only you can determine whether becoming a franchisee is right for you and your family. It’s a personal decision – take the time to do your due diligence before making a life-changing investment.
Franchise Evaluation Tool: Making the Franchise Decision Workbook (free download)