Why franchises are attractive for Franchisees

Almost everyone who considers Franchising asks themselves the question at one point or another, should I join a Franchise or should I make my own brand? While the true answer to that question involves both looking inwards as well as out to what's available, in this article we'll highlight a list of some of the top external factors that make Franchises attractive for Franchisees.  

Reason 1: Validation

Anytime someone opens up a business there are a host of risks that they assume. These risks can be broken out into a few general themes or questions, as follows:

• Are you the right personality type to be a business owner?
• Is your idea good enough to beat out the competition over the long-run?
• Will you be able to manage all of the elements of business ownership? 

Many people think that they have the right constitution to be an effective business owner, and many more people don't think about this at all, instead distracting themselves with the perceived benefits of the role. For those people who don't do the proper soul-searching before venturing into ownership, the realities of the market place can be harsh and unforgiving. The very process of Franchisee selection, however, can also serve as a transparent assessment of your strengths and weaknesses in a much safer environment. For example, Pizza Hotline employs as part of it's assessment program a host of cognitive and behavioral assessments that they share with all of their candidates. Candidates get to see objective self-reported strengths and weaknesses that they may have otherwise not personally explored before. Furthermore, you'll be able to hear the Franchisor's assessment on if they think they would be able to business with you as a Franchisee, which can serve as valuable validation for someone unsure of if they 'have what it takes' to run their own business. 

Reason 2: A Proven System

Assuming that you are a born business owner, you still need to find an idea that can establish a niche in the market and then grow that niche over time against increasingly large and well-funded competition. This is no easy feat. A good Franchise, however, completely eliminates this risk for the business owner. With it comes an established model with long-term success, thorough and considerate training, an experienced management team, and the ability to offer support to you at your request or as needed. For example, Pizza Hotline has been in the market for 35 years, with average-unit-volumes of approximately $1.4 million, year-over-year same store sales growth, and number 1 market share you can rest assured that the system you are signing up to use will work and will work well. Creating a concept that lasts can in many ways be a game of mistakes, so why not join something that has already been through the trenches and emerged victorious instead of suffering through the high risks on your own?

Reason 3: Brand Recognition

In addition to providing a proven system, Franchises also have another key element: a recognizable brand. The greatest business in the world will still fail if it doesn't have customers to use their goods/services. Franchising allows you to open your doors with the brand power of a chain behind you. If you're opening in an existing market for the Franchise you can most likely bet on customers lining up to give you a shot. Furthermore, taking a strong brand to new markets can provide immense upside for the Franchisee as well. Being the first one out the gate with a strong brand and good product/service can be a once in a lifetime opportunity for Franchisees to catapult themselves into successful single or multi-unit operation in the same time frame it would likely take for someone building their own brand to get to basic cashflow or breakeven.     

Reason 4: Initial and Ongoing Support

Without a doubt one of the biggest reasons why Franchises are attractive to Franchisees is because of the host of supports that a good Franchise model brings to the table. An established Franchise will help you with everything including:

• Store design and construction
• Training on all policies & procedures
• Best-practices for management, human resources, customer service etc.
• Management of online ordering, social media, etc.
• Negotiation of supply chain to get you the best prices on goods/services
• Fully fleshed out menu, pricing model, service model, etc.
• And more!

Engaging with a Franchise model ensures that entirely cutting out the need to create anything new for your business. You inherit a tried and trusted system for success, and your job becomes singularly to build on that system and to grow your business using it. It's a significantly easier way to accomplish your goal than having to figure out every single detail on your own. 

Furthermore, as a Franchisee you not only join a system, but you join a community as well. In addition to the Corporate supports you get, you also get a contact list of every other Franchisee in the chain. These are people going through exactly what you are going through and have found success, and are an invaluable resource to call on for ideas, help with problems, or more. The benefit of a built-in support network like this can't be stressed enough, and is a massive reason for why this model is more attractive than building your own brand. At the time of writing this article, the world is dealing with the COVID-19 pandemic and the restaurant industry is adapting and changing at a lighting speed. Ask yourself the simple question: do you want to have to figure out how to deal with COVID-19 by yourself in a standalone business, or do you want to have the full support of a Franchisor + Team of Franchisees working with you?

Reason 5: Legitimacy and Access to Capital

One of the less thought of but equally important reasons for why a Franchise is so attractive to Franchisees is because of the legitimacy that the brand and its history bring to you. This legitimacy affects a number of different elements of your business' operation. From financing to supply chain, or marketing to human resources, having the recognition and power of a Franchise model behind you opens doors that would otherwise take decades in your own business.

For example, if you're looking to secure financing through small business loans or other measures banks typically look significantly more favorably on people working with Franchises than on their own because the risk associated with the business model is so much lower. You will get the best prices on food or materials and equipment from suppliers because you are buying as part of the larger Franchise instead of by yourself, which can often turn in to tens of thousands of dollars in savings year-to-year. Many elements of marketing your location are taken care of for you, without having to worry, and for the additional marketing that you do want to do you'll have no problem meeting with the best and brightest firms or providers, since they know you're coming from a large and reputable Franchise. And last but not least, think about having to find people to work in your business. Being able to post a job on behalf of a major, recognizable Franchise brand sure attracts more prospective employees than a local unknown start-up.

Another key element that comes with legitimacy is the higher valuation your company stands to earn at any given time. This is a massive reason why a good Franchise is always more attractive to a Franchisee. Just like with banks, to other people looking to buy or invest in business, Franchisees usually mean less risk for the same reward. Modern business theory states that people should always be thinking about their exit strategy, and especially when they're starting their business. Consider the two scenarios below:

• Scenario 1: John's Chicken, a single store in downtown Scranton, PA, with sales in 2019 of $800 000.00 and a net-profit margin of 10% is for sale and asking $360 000.00 for the business
• Scenario 2: A Popeye's Chicken Franchise is for sale in downtown Scranton, PA, with sales in 2019 of $800 000.00 and a net-profit margin of 10% is for sale and asking $360 000.00 for the business

The question: which one would you buy? Everyone would agree that the Popeye's Chicken Franchise is the better deal. Heck, it might even be undervalued. You might pay $400 000 or more to secure it against the other offers that are coming in. 

Why is this the case? It's because your recognize the brand and are willing to pay more for what it brings to the table. This is one of the biggest reasons why Franchises are always attractive for Franchisees, if it's a strong and reputable brand it should always bring a higher value to you and your business than if you were trying to work in the same field but as an independent. 

Summary

There are a number of factors that make Franchises attractive for Franchisees. A strong Franchise model can allow you to focus your attention on where it matters most, on growing your business instead of trying to create and manage a concept. From market, model, and personal validation to systems and supports, to legitimacy, the list of advantages are limitless. Anyone interested in opening a business should strongly consider the reasons above and decide whether a Franchise isn't ultimately the more attractive model for them.