They say that there are no certainties in life – and that is particularly true when it comes to business. You might have a killer idea and the best quality product or service, but this may not automatically guarantee that you’ll succeed.
While it’s true that there’s no such thing as a bullet-proof business, one sector seems to be able to survive every kind of political and economic fluctuation – franchising.
Do you want a franchise with that?
For the franchisee (the person buying in), this means that they get to start a business for themselves, selling a product or service which already has an established customer base.
A prime example of this would be, say, Papa John’s Pizza. It may be that you live in a town that doesn’t, as yet, have a branch of Papa John’s. It may also be that people in your town know of – and like – Papa John’s as they’ve visited a branch in another town or city. You see where we’re going? Somebody (say, yourself) who opened a Papa John’s in your area is likely to have a ready-made customer base waiting for your doors to open.
Franchising is, in essence, the art of starting your own business without the inherent risk of introducing something which is brand new. While this is great for the franchisee, it’s also pretty cool for the franchisor who is able to quickly expand their business without a huge investment of time and money.
Franchising has been popular since way back in 1851 when the Singer Sewing Machine Company launched what is thought to be the first-ever franchise. Since that time, franchising has gone from strength to strength and has enjoyed particularly spectacular growth over the last five years or so – even during a global pandemic.
So, why is franchising growing?
Great question – and one which is, in fact, is the basis of this article. We will take you through a few reasons for the continued growth of this popular business model.
In the ‘olden days’, if a business wanted to expand internationally, they would have to embark on an endurance test of red tape, language barriers and travel expenses in order to set up a branch of their business overseas. Not so with franchising.
In the age of the internet, most franchising transactions can be conducted quickly and easily. Additionally, unlike the traditional business model, the franchisee will generally be a resident of the new country – which means that language barriers won’t be a problem and, that the franchisee will have a knowledge of the county and culture that the business owner is unlikely to share.
For many brands, the key to success is in international expansion and, franchising is, by far, the simplest and most cost-effective way of doing this.
We mentioned earlier that franchising continues to grow even as the world went through a pandemic that saw many businesses closing their doors for good and, this really is part of the beauty of franchising.
Although it’s not always the case, often franchise businesses sell low cost, everyday products such as fast food and coffee. Even when a country is going through a recession (or, perhaps, a door-slamming pandemic), these businesses will tend to survive. While people may tighten their belts by giving up luxury products and services as they ride out their storm, most are unlikely to sacrifice their daily cappuccino or weekly pizza. A huge number of franchise businesses trade in repeat purchases which are part of their customers’ lifestyle. For the same (very good) reasons, franchise businesses tend to have a longer life than many independent ones – which brings us to…
Setting up for success
Every year, many people opt out of the rat race to follow their dreams and set up their own business – only to see it fail within a year. Starting a business from scratch takes time and money and carries a huge amount of risk. While franchising does, in most cases, involve a financial investment on the part of the franchisee, this is usually a fraction of what they’d spend on going it alone and, the risk factor is considerably diminished with this model.
Banking on support
Although many parts of the last year and a half have been extraordinary and – dare we say it – unprecedented – one aspect of franchising has remained on a familiar trajectory – support from the bank.
In the 1990s, there was an explosion of dot com companies, many of which didn’t last as long as the products that they were selling. During this time, a lot of banks and financial organisations got burnt as these businesses failed to repay business loans that had been issued in good faith.
As a result, banks and other lenders have become increasingly reluctant to fund brand new businesses with nothing behind them but a dream and somebody confident enough to pursue it.
On the other side of the coin, somebody seeking finance to buy a franchise business has a much higher chance of becoming the banker’s buddy. This is simply because funding for a business with a national or global brand behind it is a much safer bet than an independent one. Because of this, loans for franchise businesses have increased exponentially while those for new businesses dwindle even further.
Another, more simple, reason for the continued growth of franchising is that of the actual people who are buying products. In 2021, customers are demanding a lot, and they want good quality stuff at rock bottom prices. They also want to know that repeat purchases will be the same each time.
Let’s take the example of a sandwich shop. John decides that he is going to set up a brand new shop with his own branding and, Alice decides that she’s going to buy a Subway franchise. John will be responsible for sourcing all of his own ingredients and materials and, as he is only one small sandwich shop, the prices are likely to be high. Additionally, he can only afford to hire two part-time employees, making it difficult to guarantee consistency with the products. Alice, on the other hand, takes advantage of Subway’s ready-made resources as well as the brand’s bulk buying discounts. She also has set guidelines from the company to ensure that her products are the same every time.
The result is that John ends up with disgruntled customers who object to paying over the odds for an inconsistent product. In the meantime, Alice is sitting pretty as her customers enjoy low prices and the same great sandwich every time.
I know, I know – now you’re feeling sorry for John but, the reality is that nobody likes paying more than they have to – particularly for everyday products like coffee and sandwiches and, because of this, customers will often shun the independent neighbourhood cafe in favour of a brand that they know and like.
As we emerge, blinking into the sunshine of a post-Covid world, a huge number of businesses have sadly been unable to survive but, very few of these are franchise businesses.
While there are, of course, exceptions, we can sum up the continued growth of this robust business model, which benefits the franchisor, the franchisee and, most importantly, the customer.