Franchise Management For Dummies. Mazero Joyce

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      Franchisors don’t set standards, nor do they provide assistance, out of the kindness of their hearts. It is important to them that their franchisees deliver a consistent, sustainable, and replicable quality of products and services to consumers. They need the system to grow, prosper, make profits, and achieve a solid return on investment at every level, and to achieve that they design their systems so that franchisees can easily execute to their brand standards. If they do that well, franchisees can make money, stay in business, expand, and pay fees. The franchisor’s brand value grows as more people shop at its branded units – and because of everyone’s success, additional investors will want to become franchisees.

       The franchisee’s end of the bargain

      When you invest in a franchise, you are not buying a franchise. You can’t because all the franchisor is providing to you is a license allowing you to use its brand name and methods to operate your business, and you only get those rights for a specified period of time.

      As a franchisee, you own the physical assets of your business: the land, building, equipment, and so forth. You are not buying the franchisor’s brand or systems, and in some franchise system, the franchisor may even retain the right to purchase your assets when the franchise relationship ends.

      It may not sound like much of a deal, but here’s what you get when you join a well-established franchise system:

      ❯❯ Brand standards and enforcement by the franchisor

      ❯❯ A proven and successful way of doing business

      ❯❯ A recognized brand name

      ❯❯ Training and ongoing field and headquarters support

      ❯❯ Research and development into new products and services

      ❯❯ Professionally designed local, regional, and national advertising and marketing programs

      ❯❯ Often, a chance to invest in additional franchises

      ❯❯ A shortcut around the common mistakes of startup businesses

      ❯❯ Often, a buying cooperative or negotiated lower costs from suppliers for many 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

      

Metes and bounds is an old English term still used in real estate today. A mete defines the measurement or distance, and the bound describes the physical feature like a road or a river. You will see it frequently used to describe territories in franchising.

      ❯❯ 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.

      

Even when a franchisee is granted territorial rights, they may not be permanent and may only be provided for a limited period of time. Some franchisors may also require franchisees to reach certain levels of performance to maintain those rights. And in some systems, a protected territory may overlap with another. If you are a prospective franchisee, make sure you read the contract, and consult with a lawyer to make certain you understand the territorial rights the franchise agreement provides.

Nuances of the Franchisor/Franchisee Relationship

      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.

      

In great systems, franchisors and franchisees frequently discuss issues both one-on-one and communally through franchisee advisory councils (FACs). But it is essential to understand that it is the sole right of the franchisor to make the brand decisions.

      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 СКАЧАТЬ