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Thursday, January 5, 2017

How Do Franchises Deliver Business Success?

by Alistair Guilliard

 An daring question, I admit. It is almost without doubt a question to raise some hackles with some 'entrepreneurs' who currently run a franchise

Leaving the controversy alone for a moment, it is a question that I have often pondered when looking at why people go for the franchise route when setting up their own business. The merits of a franchise are certainly understandable; creating an independent business where there is an absence of experience determines that for some, franchising creates a faster route to setting up together with a business that has already worked elsewhere. To suggest that you don't have to 'reinvent the wheel' when setting up your business wouldn't be far wrong, as the groundwork and foundations have already been laid.

But let me just contradict that for a second. There is the belief that people are buying a business model that really succeeds, or is reality something different? What's required for business success? Does a business model that ensures success even exist? So can anybody just buy a franchise and expect that success is all but guaranteed? Do franchisees stand a better chance at success than someone setting up an independent business?

Too many questions? Right, we need to study this in more depth and attempt to comprehend the components of a successful business. I'm going to reference one specific source, on account of the different sources also referenced by Moyak K. Mason, when trying to understand what makes a business succeed or fail. Suffice to say, that research conducted for the paper, 'What Causes Small Businesses to Prosper?' provides enough data to suggest that whether a business succeeds or fails has little to do with management tools or techniques. Moreover, a strong understanding and grasp of business basics is the most likely platform for a successful business than any management tools. When all is said and done, a tool or system is nothing more than that especially if not implemented properly, and is never going to be a panacea or silver bullet for business failure.

Business that do achieve success, display a number of qualities and practices:

They are centred on standing out in the defintion of their strategies.
They are also consistent in their execution, rising and meeting customer demands, and providing staff with the authority to make the decisions required that will help them remain agile in changing market conditions.

Their internal cultures have high performance expectations, who motivate their employees and management, and reward them not only financially but also psychologically.
The internal organisation is built so that unimportant matters are overlooked, but zoom in rationalising the business processes, cutting down administration and over-management. Simple is where it's at and the promotion of cooperation between internal departments and personnel.

Taking into account that the numbers of business that fail is reportedly just as high for franchises businesses, of what real advantage is the franchise model? A 1995 study conducted by Dr. Timothy Bates of Wayne State University tells that the frequency of failure for a franchise business was in excess of 30% yet those exact same companies also realised much lower margins than the independents. Given the restrictions that a franchise model places on the franchisee, the ability the be creative as a successful entrepreneur would hardly have been possible under the rigidity of such a model. Of course, some may argue that such creativity should be coming from those who are the franchisors, but then you have to ask; where does an entrepreneur fit into this?

The positive aspects of a franchise model turn rather less than beneficial when weighed against the rather harsh picture painted by statistics that haven't been produced by some national franchise association. The level of credence you give to which ever set of numbers depends on how much vested interest in the franchise model you believe a national franchise association has! I'll let you work that one out for yourself.

Ok, so a franchise is apparently not as great as is made out, where do budding entrepreneurs, looking to make their fortune, turn for a safer business model that addresses their concerns over 'getting it wrong'?

Well, unless your mind is already made up that you really must open another multi-franchise restaurant, the chances are you're probably just looking to create some wealth for yourself whilst minimising the risk that inevitably comes with starting any business. If so, then you might well consider a business system and model that guides you through to constructing a business that will achieve success, minus the royalties and regulations that a franchise would impose would be preferable? What about a system that plugs you into the best training and mentorship available, whilst still allowing you to retain your entrepreneurial creativity? A platform that automates all the telling and selling, as another option to franchising, releasing you to conentrate on driving potential customers to your business, with an average 80% profit margins, but without the punitive costs and royalties, a franchise alternative is a reality.

Is The Franchise System Flawed?
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