If you think about successful brand name franchises, they did not create an industry for the most part. McDonald's did not invent hamburgers and fries. Planet Fitness did not invent exercising. Aamco did not create transmissions. Super Cuts did not create haircutting, and I can go on and on. What a great franchise does is find a fragmented, sometimes cottage industry and creates systems, procedures, and marketing concepts surrounding their product and service. The goal is to have a business in a box, ready to go, so almost anyone can operate it anywhere in America or around the globe.
When a business is thinking about expanding, they are faced with a choice: Franchise or go it alone. Starbucks is an example of a company that choose not to franchise. They had to pay for the build-out, hire the managers and the staff and run all the marketing. In a franchise, the Franchisee pays for the rights to use the corporate logos and trademarks and trade dress. The franchise owner pays for the unit's interior construction, hires the staff, does the payroll, and conducts the local marketing. The Franchisee pays a small fee to the franchise company for ongoing training, public relations, call centers, national advertising, and much more. The franchise owner and the franchise company are true partners.
Another way of saying it is; when a company decides to expand via the franchise model, they can do it quicker and more efficiently than going alone because they are leveraging other people's capital to grow. In exchange, the other people or franchisees have a chance at building equity in a national brand name.
In a way, it's sort of like owning a condominium or coop apartment in a building or a subdivision. The builder or association owns the structure, but the condo owners own the apartment or unit. The association takes care of the maintenance on the outside of the building. The condo owner pays a Homeowners Association Fee (HOA) and or maintenance for that service. The condo owner is responsible for most of the interior construction and the utilities such as water, electricity, cable, or Wi-Fi access. When it comes time to sell your condo, you keep all the profits, very much like owning a franchise.
Franchising is being in business for yourself but not by yourself. It's great…for the right person. A franchise owner must be coachable and willing to cooperate with the franchise company and the other owners.
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