Franchisor Insider Story: Why Franchising is Difficult yet Necessary in Growing Your Business

I’ve post a few on franchising - mostly from the eye of a franchisee.

This time, I present you a story from the franchisor side.

A story from the CEO of nation’s leading Business Services Center about franchising

When I’m talking about nation’s leading franchise, it’s non-US; It’s in a country where I live right now - just to clarify :)

I have a good relationship with my franchisor - the CEO of the Business Services Center. We share a lot about franchising.

One time, he shared a story that broaden my insight on franchising.

Not all franchisors share the vision of ‘growing together’

He mentioned that many franchisors think about franchising as a vehicle to rapidly grow their business and assets - that pushes franchisee interests on lower priorities.

He stated that it is his interest for franchisee and franchisor to grow together, because if the franchisees succeed the franchisor will reap the result, too - better brand value and awareness, and strong franchise performance, that lead to many opportunities.

Franchising your business is not easy

Franchising seems like a good idea to expand a business - but it’s not easy. He shared that although the cashflow is admittedly nice (in my case, the royalty fee is 5% of sales), almost all are ‘vanished’ into R & D and marketing campaigns.

He stated that the overhead in franchising is nose-bleedingly high - cost are sky high, and performances could be better. What gives? Mismanagement in the headquarters?

He honestly said that the liabilities here is not only the franchisor, but also the franchisee - ‘bad’ and uncooperative franchisees slow progress and consume unnecessary resources.

The impact is severe - the other cooperative franchisees and the franchisor suffer the consequences - lackluster support, damaged brand image and value, and lose focus.

How to solve? To ‘weed out’ bad franchisees, he had to splash some money to buy back the broken franchise units. His franchising strategy doesn’t include closing franchise units - buying them back are more viable, in his opinion, to preserve the brand image.

It’s simply not easy.

If it is not easy, why you insist on the benefit of franchising?

Despite the problems above, he mentioned that franchising is necessary, and a great, time tested, business strategy.

He took the franchising route, rather than licensing or partnership route, to incorporate exponential nature of franchising.

Exponential means covering strategic areas fast and outnumbered competitors - hence, achieving better brand awareness and exposure.

Franchising is at it best if the franchisor and franchisee can work well together

The power of franchising lies in the ability to agreed on a common goal despite all the differences. McDonald’s - a classic story of a successful franchise - becomes one of the world’s leading francishors due to its ability to work together with the franchisees.

Currently, my franchisor have more than 110 franchise units nationwide.

My benefit as a franchisee? A brand image that is nationwide, and a profitable business, thanks to the effort of my franchisor.

The end.

Ivan Widjaja
Franchise believer

Related posts other people has read:

Why Brand Management is Paramount in Franchising

10 Myths in Franchising

Brand Management in Franchising - My Guest Post at Small Business Branding Blog

Franchise agreement: From a Noobpreneur Point of View

Buying a Franchise - If You Think Owning a Franchise Unit is Easy, Think Again!