Congratulations! You and your business have reached a point that many entrepreneurs dream of, and few attain – the possibility of franchising. By all accounts, the fact that this is even feasible for your business is an accomplishment in and of itself. However, just because it is a possibility does not mean that it is the right decision for your business. In fact, it can be argued that franchising could be exactly what you do not need at this given moment. But more on that later.
If you find yourself uncertain about this whole thing, take a breath and consider the words of motivational speaker and author Brian Tracy: “I found every single successful person I’ve ever spoken to has a turning point. The turning point was when they made a clear, specific unequivocal decision that they were going to achieve success. Some people make that decision at 15 and some people make it at 50, and most people never make it at all.”
After you realize that standing pat in your uncertainty will literally get you nowhere, you can begin to immerse yourself in all the factors at play when it comes to franchising your business. Truth be told, there might be more to make sense of than you expect. But the good news here is that you will not be on this journey alone. We have assembled a few business leaders to weigh in on the impactful question of, should I franchise my business? To make reading these a little more straightforward, we have broken them down into pros and cons. Without further ado, let’s get to it.
Pro #1: Franchising can help eliminate much risk
How long have you been running your business now? The answer to that question is likely the amount of time you have been most worried about finances at any point in your life. If not, it is a close second. Simply put, running a business puts money on the line and that is stressful. When it is your money on the line, things become that much dicey. But, what if it was someone else’s money on the line and your brand at the front? That is franchising for you.
“Expansion is always one of the more appealing things to the head of a company, but money usually stands in the way of this,” said Yusuf Shurbaji, Co-Founder and Managing Partner at Prismfly. “Franchising will allow you to hurdle this because you receive money transactionally rather than via a loan plus interest.”
But it is not as if this relationship dies once the brand-new franchise location opens its doors for business. Generally, some percentage of profits made by the new location are given to the franchisor. This is not small peanuts either – many companies can handle portions of their operational costs with these payments. So you can see across the board, your level of risk drops.
“The idea of ‘two is better than one’ applies in many areas of life, especially franchising,” said Christy Pyrz, Chief Marketing Officer at Paradigm Peptides. “If a business strategy has been shown to work once, why not replicate it?”
Con #1: You must willingly give up some control
For the uninformed, allowing another entrepreneur to become the franchisee of your business gives them some level of say over the brand. This is put in writing too so it is pretty binding. It could be they get creative freedom in advertising or something else entirely. For some people, the idea of willingly giving up any amount of control of the brand they worked tirelessly is abhorrent. For others, the pro mentioned above is too strong an argument.
“Striking an agreement with someone who wants to franchise your startup is stressful but fruitful if you handle it right,” said Michael Baghoomian, CEO of Muscle MX. “But you have to accept that your company won’t be the same after the fact.”
This is not the only way in which the lack of control will affect your business. For one, your brand has a higher likelihood of being sued. Not from any fault of your own though. See, when franchises come into existence, they naturally have a larger footprint i.e. two is bigger than one. In this reality it should be apparent why your chances of being sued go up. Are you comfortable with all this moving forward? If not, franchising might not be for you.
“Franchising certainly is not for everyone or even every business,” said Alex Novak, CEO of SexLikeReal. “If you shrink away from the idea of another person having legal right to your creation, it’s probably best to stay away.”
Pro #2: The bigger the business the bigger the audience
We could spend the rest of this article listing all the companies you are aware of simply because they have a widespread presence. But, that would be boring and would not accomplish anything close to what we are trying to do here. Instead, consider the franchising of a specific company – McDonald’s. How many of these locations are there? Whatever that number is, it is higher than whatever it was at the time of this writing. With more locations equaling more accessibility for potential customers, you can see why some companies chose this route.
“Assuming your business model is solid, giving others the opportunity to franchise it could be the best move you make,” said Eric Elggren, co-founder of Andar. “If anything, a second location indicates success, but there’s much more at play here.”
This fact can be especially true if the person you are franchising to has an established base of clients ready to rock and roll. Ideally, they will take what you have in place and run with it to the full letter of how it is intended. From there, the hope is that their work, paired with yours, will create a lucrative reality for both of you.
“Franchising is like bringing in a partner in crime—someone who does what you do, just in a different location,” said Harry DiFrancesco, CEO of Carda. “Provided you’ve selected the right partner, your business stands to make further upward progress.”
Con #2: You might be willingly giving up profits
As stated earlier, there is a regular fee paid to the originator of a franchise by the party operating it. This is known as royalties. In this scenario, your company would be known as the parent company while the purchasing party is known as the subsidiary party. While sitting back and letting money roll in because of the work of another is a great outcome, is this worth the money your new franchise is pocketing?
“Franchising does not mean you get all the profits from the new location that opens up, as much as you might want it to mean that,” said Marcus Hutsen, Business Development Manager of Patriot Coolers. “It’s the cost of doing business, really.”
Depending on the royalty fee you are willing to offer or the potential profits on the table, it may be worth your time to open up this second location all by yourself. If you find yourself in a position similar to this, it is time to do a little research. Is the new market as profitable or more profitable than originally communicated to you? If so, you might want to set aside the franchise talks for now.
“If your end goal is to create an immensely profitable company, franchising isn’t for you,” said Mina Elias, CEO and founder of Trivium Group. “Your desire requires a little more risk, and franchising does not meet those needs.”
Pro #3: A more hands off approach to business
If you have made it this far in the reading, it is safe to assume you are more serious than most about franchising your business. So what is it about franchising that is so appealing to you? If you are like the flocks of people who have gone this route, it is the idea of someone else running the business while your bank account grows. Truth be told, there really is not a stronger benefit than this.
“Franchising should not be seen as ‘free money’ because of the amount of work it takes for people to launch their company,” said Cesar Cruz, co-founder of Sebastian Cruz Couture. “But if there was free money in business, this would be it.”
It is not just the creation of the retail space, inventory management, or inter-business relationships you no longer have to meddle in. The most difficult part of running a business, managing employees, now falls to another. That includes the hiring process as well. This aspect alone could very well make franchising worth it.
“If you do decide to franchise your company, it’s likely that you will have a lot more free time,” said Kyle Clements, CEO of Quipli. “You won’t have to spend the hours you typically would dealing with the minor details of employee management.”
The question of should I franchise my business is one you can go over and over again in your head until you are sick. Until you make a final decision on what to do, this will continue. To aid you in this process, author J.K. Rowling once said, “It is our choices that show what we truly are, far more than our abilities.”
