Is Franchising a Viable Option For Today’s Corporate Executive?

Katherine Gleiter

While corporate America continues to “downsize” and the stock market continues down an uncertain path, there is one business model out there that is booming, and that is franchising! A recent government survey concluded that franchising has been experiencing strong uninterrupted growth since the 1970’s and that it is clearly the leading model for doing business in the new century. In the United States, there are over 2,500 franchise systems representing over 75 industries. These systems have in excess of 534,000 franchise units, which represent 3.2% of the total number of businesses. This 3.2% of all businesses controls over 40% of all retail and service revenue in the U.S. economy.

What is franchising? Franchising is a business strategy for getting and keeping customers. It is a marketing system that creates a belief in the mind of the consumer, about how the company’s products and or services will satisfy their needs. It is also a system that promises to distribute and or deliver the products and services, in a manner that will meet or exceed customer demand. In short, franchising is a strategic alliance between a group of people (franchisor and franchisees) who have specific roles and responsibilities towards a common goal, to get and keep more customers than their competition by maintaining a competitive advantage through their unique and proven business plan. The franchising model is successful because consumers are creatures of habit and are brand driven. When they buy products and services, they tend to be loyal to the product or service that is delivered to them in the most consistent and predictable manner.

Why buy a franchise? Buy a franchise and you not only gain a service or retail business, but a complete system of how to run your business successfully. When you purchase a franchise you pay an initial fee and usually an additional on going percent of your revenues as a royalty or advertising fee to the franchisor, this revenue provides the franchisor with a continuous source of working capital to expand, support and develop the organization. In exchange, you, the franchisee, receive training, support and a complete business package which has taken years to develop and refine. Additionally, as the franchisee, you benefit from an established brand identity and from the marketing power of the franchisor as well as the cost benefits and clout associated with the franchisor’s collective purchasing power. A recent study produced by the United States Chamber of Commerce found that 94% of franchised businesses were still open for business after 5 years whereas a U.S. Small Business Administration study found, 62% of non franchised businesses were closed within their first 5 years. The conclusion is that the best strategy for success is to buy a franchise. You will open faster, develop your customer base faster and you will become profitable faster. Why? Because when you buy a franchise you not only buy a business you get a proven business plan. As a franchisee, you are in business for yourself but not by yourself!

Do top corporate executives make good franchisees? In general, the resounding answer is yes. Corporate executives know how to follow business systems and procedures and have experience in managing people and finances. Most have practical experience on how a business should be run, and once they enter a franchise system all they have to do is shift that paradigm and put that experience to work. Many of the business to business service model franchises are finding that the majority of their new franchisees are former corporate executives. One such franchise reports that over 92% of their 293 franchisees are former executives. This type of model seems especially appealing to executives because it allows them to continue to interface with professionals from familiar fields such as law, finance, information technology and business consulting. In addition, to running their own business, the former corporate executive franchisee is often tapped by the franchisor as a valuable and reliable source of knowledge, experience and expertise. The franchisor looks to them to help identify system wide issues, devise solutions, predict trends and strategize for the future success and growth for the whole franchise. In other words, corporate executives and franchisors have great synergy. Is franchising a viable option for today’s corporate executive? The answer is Yes!