One of the biggest questions that the owner of a budding business will oftentimes have is whether or not franchising is the right decision. Just like any other critical business decision, franchising comes with a unique set of its own risk and benefits. Understanding the pros and cons will allow you to make the most educated decision for your personal needs. The following are some of the biggest pros and cons of franchising any business, regardless of the niche.
To put things in better perspective, here are just a few of the statistics about franchised businesses in the nation. In the year 2014, franchised businesses collectively created an output of $844 billion. Companies that franchise have created over 8.5 million jobs, and there are well over 700,000 franchised businesses in the United States alone.
Pro: Financial growth risk management:
One of the most attractive benefits of franchising is the fact that growing financially doesn’t necessitate as much risk. Compared to buying outlets directly, not very much capital has to be invested into getting franchised locations off the ground. If all goes smoothly, then very generous royalties can be gained from every franchise location with practically no strings.
Pro: More freedom to expand
Due to the fact that the outlets are required on the franchisees bill, a good amount of the different locations can be gained without having to rely on financial institutions to give loans. In the best case scenario, franchising can put a company’s expansion on autopilot, provided that there’s enough incentive for franchisees to buy in.
Pro: An easier time locating talent
Generally speaking, the types of people who make qualified franchisees will have very strong qualifications. The people who are best-suited for running a franchised establishment can be more reliably counted on to go the extra mile than those who are only interested in working for an employee’s salary. Taking the franchising route may give a brand the opportunity to be empowered by those with the highest level of work ethic and best ability to represent it positively.
Con: Less organizational unity
One of the most apparent necessary evils of franchising is the fact that things aren’t as centralized. Franchising does help expansion, but at the same time, this can result in a lack of unity. The disconnect between different branch locations can present a very real challenge in getting different branches to work cohesively. The only way to account for this risk is to think carefully about how cooperation between franchisees can be optimized before it becomes a problem.
Con: More red tape for innovation
Another trade-off of franchising is the fact that there will be more hurdles when it comes to new ideas. Without franchising, it is slightly easier to push a new initiative forth without needing run through too much red tape; on the other hand, once franchised, any new initiative will need to be gone over with the franchisees before it can be enacted. New products will be open to the possibility of getting contested by any one of the franchisees, which could potentially delay certain developments.
Con: Less micromanagement
In addition to the disconnect between the franchisees and the possibility of development being delayed, there is also the fact that micromanagement just won’t be as possible. The nature of franchising means that there has to be a leap of faith taken with the competence of all of the franchisees, and no matter how strongly the policies of the company may be communicated, it will ultimately be up to the franchisees to deliver. If managing every single aspect of the operation is an absolute necessity for the owner, then franchising won’t be able to accommodate that need.
To summarize, franchising offers opportunities for financial growth risk control, more expansion freedom, and an opportunity to locate talented people to entrust with your brand’s management. On the other hand, franchising also introduces the risk of slightly less organizational unity, more red tape in terms of innovation, and a lowered ability to micromanage all levels of the operation. The weight of these pros and cons will vary depending on the specific nature of your company, but understanding these things is highly important all the same.