In 2021, franchising is bigger news than ever but, despite this, there are a few myths about this unique business model and if franchising can grow in the long term which need busting.
One of these myths is that, although franchising can be a money-maker, it falls flat as a long-term business growth strategy. The people proliferating this myth tend not to be franchise owners, and, in reality, this couldn’t be further from the truth. In this article, we’ll take you through the compelling evidence that shows that franchising is a high growth solution for today, tomorrow and well into the future.
A chain reaction
Franchising is the act of buying into an established company in order to gain the benefits of owning your own business without the inherent risks of starting from scratch. For a business owner (the franchisor), this means that they’re able to expand their business nationally and internationally at a faster rate than they might otherwise manage.
Franchising has been around since the mid-1800s and, while you will have heard of some of the larger franchise companies like McDonald’s and Starbucks, these are just the tip of the iceberg of what is a worldwide revolution in business models.
Let’s get something out of the way straight away – not every company is suitable for franchising. The following are examples of companies that may not be the best fit for franchising:
- Businesses selling a product or service which may only have short term appeal.
- Businesses in niche markets in specific geographic areas.
- Business with a lot of legislation and regulatory issues.
- Business with limited capital and limited access to credit.
While it’s possible for businesses like these to pivot to a franchise model, it may take a lot of money, effort and changes to make them work.
So, now that we’ve got that straight, let’s take a look at the businesses that are super compatible with franchising:
- Companies that have a recognisable and respected brand.
- Companies that have a compelling sales proposition.
- Companies that have a repeatable model.
- Companies that have a tried and tested business process that can be transferred to any location.
As you can see, the two franchise big hitters that we’ve mentioned fit perfectly into this model – as do many many others.
The long and the short of it
All of this brings us to the main point of this article – the long term growth prospects for franchised businesses. Even during challenging times such as recession and, say, a global pandemic, a great many franchise businesses continue to experience robust growth. One reason for this is that many franchise businesses trade in everyday items such as coffee, car hire and candy – items that consumers will continue to buy even when times get tough. The COVID-19 pandemic did, of course, present some unique challenges to high street businesses. Despite this, demand for investments within franchising saw an uptick of a whopping 35% during the pandemic.
If the franchise industry can drum up that kind of interest in the face of adversity, how about during more peaceful times? The leisure and fitness franchise, Anytime Fitness, was launched in 2002, and, since that time, it has opened 4,5000 clubs across 35 countries and continues to grow with a new member joining every three minutes. If that doesn’t demonstrate the potential for longevity in franchising, let’s take a look at some other examples:
1940 – Dairy Queen opened its first-ever store – 81 years later, the company now has over 4,800 franchise stores across the USA alone.
1940 – The world’s favourite burger chain, McDonald’s, opened its very first restaurant. The company now has over 39,000 restaurants across the globe.
1930 – Kentucky Fried Chicken (commonly known as KFC) began its finger-lickin’ good franchise and has never looked back since – in fact, a further 896 outlets were opened in 2020, during a global pandemic.
1948 – Dunkin’ Donuts – This popular sweet treat provider started franchising in 1955 and continues to go from strength to strength.
1969 – Wendy’s – Another fast food outlet, Wendy’s now has over 6,650 restaurants worldwide.
1971 – Starbucks – One of the world’s most famous franchise companies, today, you can’t walk down a street without seeing this coffee giant’s famous logo.
1965 – Subway – Sandwich supremo Subway is now a high street staple in 2021.
All of these world-famous franchises have a couple of things in common:
Keeping it simple – Each of these long-running companies offers simple products that have a far-reaching appeal. The secret of success for a franchise is not to make your offering overly complicated – instead, find a product that has universal appeal and is affordably priced. For this reason, it’s an excellent idea to avoid anything too trendy or too luxurious when looking for a franchise business.
A passion for product – Not a single one of the companies listed above set out to become a franchise; they just wanted to open a business that offered good quality, affordably priced products. The tip here for those looking to start a brand new business is to focus on that business as a standalone rather than starting a business to achieve world domination through franchising.
So, how do you create a long-lasting franchise business?
While there is no secret formula to the perfect franchise business, there are a few things that you can do to give your business the best chance possible:
Give it time – many people make the mistake of trying to franchise their business too soon. You need to make sure that your business has been running successfully for long enough for you to assume that it will continue to do well.
Watch the wonga – In order to be an attractive proposition for a franchisee, you need to be able to present evidence that your business generates enough revenue to make it worthwhile. Take a long hard look at your return on invested capital before thinking about making a move to franchising.
Avoiding obsolescence – The product or service you have may be great right now but, what about in five years? Or ten? Nothing says ‘out of business’ quicker than a brand based on a fad or trend, which will be history in a few months.
Recession reality check – When it comes to franchising, the secret sauce is finding a product that people will continue to buy even during an economic downturn.
About-face – Avoid basing your business around a person in terms of having a ‘face of the business’. Fast-food chain Wendy’s made this mistake when it focused on the founder, Dave Thomas, in its marketing and advertising. When Dave sadly passed away, the brand struggled to maintain its success without this part of its identity. Interestingly, before his passing, Dave apologised to his daughter, Wendy, for naming the business after her – acknowledging that it put a lot of pressure on her to continue the brand’s success.
As we circle back to the title of this article, I think we’ve demonstrated that not only is franchising a tremendous long-term prospect but, it’s also a safer bet than any other kind of business model – as long as you follow the golden rules. Franchising is a fantastic way of signing off as an employee and starting your journey as a business owner without the pitfalls and risks of going it alone.
The key to success is all in the product or service – if it’s something that people want, can afford and, are likely to still want in five or ten years, then the chances are good that you’ve found a business that will secure your future – and even that of future generations.