of the things you need to run and operate the business (ingredients, advertising, insurance, supplies, and so on)
❯❯ Your fellow franchisees as a network of peer advisors
❯❯ Sometimes a protected market or territory in which to operate your business
Franchisors don’t always provide their franchisees with a defined area around their location in which no other company-owned or franchisee-owned business are allowed to operate. Many do, but even then the market area provided may not be an exclusive territory and may only be a protected territory. An exclusive or protected territory may be defined by the following:
❯❯ The radius or area around the franchisee’s location
❯❯ The number of households or businesses in an area
❯❯ The number of people who live in an area
❯❯ Zip codes
❯❯ Counties
❯❯
Metes and bounds using highways, streets, or other geographic measures
❯❯ Any other method that defines the area in which no other same-branded location may be established or in which the franchisee has some protection
From the franchisor’s perspective, if the territory is too large, the total market will not contain enough locations to achieve brand recognition. From the franchisee’s perspective if it is too small or if other locations are too close, there may not be enough customers to support the business.
The goal for franchisors when granting any type of territorial protection is to ensure that they have the right to develop sufficient locations in an area to achieve brand penetration – the number of locations in an area sufficient to service the market and to ensure that consumers see the brand frequently.
The franchise relationship is contractual, and franchisees and franchisors are not partners. Franchisors don’t have a fiduciary responsibility to their franchisees. That means that the franchisor can do things to benefit itself and other franchisees, even if these things aren’t beneficial to all franchisees.
FACs give franchisees a voice in the system’s direction and provide the franchisor with advice in evolving and improving its systems. Often, one of the FAC’s functions is to review ideas for new products and services, whether the ideas come from the franchisor or from a franchisee. FACs are also frequently involved in advertising review and menu or product testing, and help the franchisor to make changes to improve the system.
You may often hear franchisees referred to as entrepreneurs, and franchisees may view themselves as entrepreneurs. But franchisees are not true entrepreneurs because if they were they would naturally want to make all the decisions about how the franchise system should operate and would want to break free from the constraints that franchise systems impose on them. Successful franchisees are “formula entrepreneurs” willing and able to invest in a system and follow the system’s direction. To achieve consistency a franchisor has to make decisions about how the business operates globally. Franchisees may think that they have the next great idea, and often they do, but the franchisor must look at those great (and sometimes not-so-great) ideas and make system-wide decisions.
For franchisees who are true entrepreneurs, the restrictions of a franchise system can be overwhelming and may even make the franchisor appear like a dictator. This can lead to disputes and disruptions in the franchise relationship.
If you invest in a franchise, you might not become rich. Not all franchises systems are successful, not all franchisees are profitable, and many franchisors and franchisees fail.
Owning any business is hard and comes with risk. For franchisees, even though you are supposed to get a proven systems and training when you hook up with a solid franchisor, no one guarantees your success. Often, the variable in this equation is you. Business ownership is not a passive investment and it requires long hours and dedication. Even with the best franchise system and the most popular brand name, the franchisee is often the key ingredient to making the business successful.
For emerging franchisors, how they design and develop their franchise system is essential to their ability to grow and support their franchise system successfully. Unfortunately, there is no legal baseline on who can become a franchisor, and how you structure your franchise system is up to you – and no one else.
Have we discouraged you? Scared you? Confused you? Don’t worry. The rest of this book is designed to help you in many ways. Franchising, when done right and entered into with eyes open, can be a profitable, highly enjoyable way to spend your future.
Chapter 2
Franchises Come in Different Sizes
IN THIS CHAPTER
❯❯ Understanding the different kinds of franchised businesses
❯❯ Exploring franchising arrangements
There are a wide variety of franchise opportunities and levels of investment available today. The choice of products and services offered by franchised businesses is limited only by the imagination and skills of the men and women who create them.
More than 120 distinct lines of business use franchising, including hotels, home healthcare, agriculture, car rentals, payroll services, hair care, lawn care, mosquito control, mold detection, restaurants, fitness centers, and everything in between. Because of franchising, national and local brands have leaped into our national consciousness and improved our quality of life.
As you begin to explore franchising, you need to cast a wide net because a number of industries and companies will likely surprise and interest you and the breadth of what is available is wide and deep. Although running a restaurant may be one of the most popular choices available (close to 20 percent of all franchised businesses fall into the restaurant category), restaurants are not the only – or necessarily the best – way to go. You are just getting started. Take your time and explore, and we promise you will not be disappointed by the variety of the opportunities you will find.
Don’t dive into the pool too quickly because the selection of possible franchise opportunities can be overwhelming. Wade in slowly, get your feet wet, and choose carefully because becoming a franchisee can be life-changing. This chapter simply introduces you to what is available.
Many people naturally begin their exploration of franchising by first looking at the restaurant and food-related franchises because they seem to be on every corner. Without a doubt, food franchises have made many franchisees happy and wealthy (they were probably already wise, so franchising cannot take credit for that). But don’t be too surprised when we tell you that many non-restaurant opportunities not only do better financially than some of the better-known restaurant concepts, but they also may offer a more stable investment and might even be easier to operate.