Franchisors do not like to take on ‘Entrepreneurs’ as Franchisees
A business franchise is any economic venture that entails the aspect of branding where an entrepreneur seeks to use a given recognized company name at a fee. The term can further be used conservatively to refer to commercial activities where an entrepreneur is granted express authority by the producers or manufacturers to distribute goods and services from a given supplier. This practice is often undertaken by licensing brand trademarks and the supply chain through which goods are passed from the manufacturer to the consumer. Franchisees are the traders who obtain the licenses to trade in a given line of goods or services while an entrepreneur is a person who invests time and money into a business venture with the intent of maximizing returns (James 2007). A franchisee is the trader who owns the trademark, license, business model or a given business name. Thus the statement ‘franchisors do not like to take on ‘entrepreneurs’ as franchisees’ is a credible remark that defines the place of startup entrepreneurs prefer setting up their own business brands rather than using already established and licensed trademarks by other companies.
The applicability of this statement has spiked controversies regarding the best choice of business startup and how spontaneous entrepreneurs can manage their own portfolio. Looking at the historical evolution of franchising whose definition has been associated with the use of another firms business model because of its success in attracting customers, franchisors are faced with the challenge of either starting their own chain stores or avoiding the potential risks and liabilities that could possibly arise from making investments. Therefore the statement that franchisors do not like taking up business ventures as franchisees supports the fact franchising makes the success of the franchisors fully dependent on the reputation and goodwill of the franchisees (Brian 2009). This is because the franchisee obtains a greater incentive from the trademark than another start up entrepreneur would.
It is generally acknowledged that franchisors benefit from franchisees in the sense that they gain a stronger reputation and customer loyalty because of their increased accessibility following the setting up of sub stores affiliated to the good brand. An example is Subways Company and McDonalds (Lesonsky & Conley, 2007). Furthermore there are payments which are made in form of loyalty for using the licensed trademark or reimbursements paid after consultancy, training or consultancy services offers by the franchisor to the entrepreneur. The franchising agreement stipulates the time period within which payments are to be made and the itinerary in which a franchisee is supposed to operate. Such agreements are renewable and last for five to thirty years. Premature cancellation of a contract could have serious implications on the franchisee because the entrepreneur activity is by itself a temporary business venture that operates as a lease and not an actual purchase. This implies that franchising is hurting to the entrepreneur or the franchisor because they do not gain ownership of either the business or the trademark in the long run. Because of this factor, entrepreneurs consider franchising as a wasting asset because of its finite license which might be beneficial for a short period of time.
Apart from the statement being negated by the fact that entrepreneurs might disregard franchises, it is rife that franchisors do not like to take on entrepreneurs because of factors relating to conflict of interest. The obligatory parties consisting of the franchisor and the franchisee are bound by legal agreements aimed at protecting their rights and privileges. Whereas the franchisor is keen on securing and protecting the trademark, controlling the business model as well as the business concept, the franchisee is obligated to perform according to the contractual agreement. Furthermore the franchisee is required to keep up with standardization bids tailored by the franchisor. This can be done by ensuring that the franchisee uses the franchisors logo, signs, trademarks and plan designs for the business. The services too have to be in accordance with a standard code thus the franchisees are prevented from gaining full control of their businesses as compared to entrepreneurs. Because of this factors, franchisors view entrepreneurs as creative and innovative people who might steal their business ideas and startup competing businesses.
Services recommended by the franchisor are offered using supplies and equipment bearing the trademark of the licensed business. There are cases where equipment such as those used in the confectionary industry could be purchased at a fair price from supplier contracted by the franchisor. The franchisors also fear that entrepreneurs can negotiate for licenses that will allow them to dominate the market at the expense of the franchisor (Longenecker, Petty, Palich & Hoy 2011). This is possible when the entrepreneur develops marketing models that are more workable compared to those of the franchisor. It is legally recommended that the franchisee should be given the correct informational disclosure that will guide their decision making and avoid being bound to legal obligations associated with franchises. On the side, the franchisors will be restricted from adding more franchisees into the itinerary.
The fact that the activities of an entrepreneur cannot be easily narrowed down into becoming an independent merchant or franchisee makes franchisors weary of taking on them. This is because entrepreneurs who indulge themselves in multiple activities can easily infringe the trademark as third parties without being easily noticed. The training session that the franchisee is inducted through could be an eye-opener for an entrepreneur who might use it to gain an insight into business operations provided by the franchisor. Regarding the risk presented by entrepreneurs infringing the trademark, the franchise agreement fails to provide adequate cover for the franchisor. The agreement does neither warranties nor guarantees that the franchisee will be charged for recourse or legal intervention in case the two parties begin to conflict.
The franchisor is further aware that franchise contracts are at most unilateral thus they favor them at the expense of the franchisee. Wilson & Stokes, (2010) states that the contract protects them from lawsuits raised by the franchisees because the contracts are non-negotiable thus entrepreneurs who are focused on growth cannot ascribe to the terms and conditions instigated by the franchisor. The franchisor virtually holds all the power to control decision making and internal operations. Such a condition is not admirable to entrepreneurs who have a passion of controlling their businesses by making key decisions and seeing to it that their efforts are rewarded in form of profits. Because of the need for autonomy entrepreneur franchisees are rebellious thus franchisors shun from taking on them. The renewability of the contract makes franchising more risky than it is secure because entrepreneurs make long term decisions that either impact the financial performance negatively or positively (Birkeland 2007). Additionally the entrepreneurs have shown opposition and criticism while signing agreements limiting itinerary thus taking on entrepreneurs presents a major risk to the growth of the franchisor.
Despite much critic for this statement, proponents of the idea support that franchisors prefer to take on entrepreneurs as franchisees. In fact the intermittent growth of social franchises has provided a solid ground upon which premises opposed to the statement have thrived. Social entrepreneur have been among the groups in support of taking on entrepreneurs. This is coupled by the realization that social enterprises are aimed at simplifying the classical franchising practices that have discouraged the setting up of entrepreneur ventures and new businesses. The idea of social enterprise franchising has in the past been applied to business ideas ranging from soap making, aquarium maintenance, hotel operations, wholefood retailing and courier services just to mention but a few. These firms have been on the fore front in creating franchise contracts with the disadvantaged or the disabled groups of people in societies as a part of the corporate social responsibilities (Bradford & Duncan 2010). Unlike the former franchisors who use their power to wade off competition or opposition that might result from entrepreneurs, social franchisers embrace entrepreneurs by acting as venture capitalists. The bottom-line being the provision of incentives to attract more entrepreneur franchisees.
The best example that supports criticism against the statement has been exemplified by the CAP market which has been successful. Their success is part of their incorporation of ideas from entrepreneurs who have come up with winning strategies that are adaptive to their markets. By so doing, steady growths of the supply chain were noted in more than 50 franchised supermarket chains in Germany (Lorenzen 2006). The other example that supports this statement is the St. Mary’s Place Hotel located in Edinburgh which has had many social franchisers grow its brand (Kuratko 2013). With social franchising also, franchisors have edged closer to reaching markets with underprivileged or customers with special needs thus creating profitable market niches which have been beneficial to both the franchisor and the entrepreneur franchisees.
Swart, (2010) specifies that similar to the social franchise, there is the third party logistic franchising which has integrated both the services of the franchisor and the franchisees. These two parties work together as one thus achieving the joint goal of reaching out to the customers through a third party. The third party logistics has become synonymously associated with the offering of franchising opportunities to entrepreneurs (Tuunanen & Cliquet, 2011). Apart from subjecting the franchisees to the franchisors demands, the logistics franchise gives freedom to the franchisees to offer their services to the transportation industry. The system which has been described as being a low cost franchise is a suitable option for entrepreneur franchisees. By using these franchising strategies, companies in the logistics and courier industry have managed to grow because of the support they receive from franchisees because of their proximity to the consumers and their understanding of their specific market segments as they act as third party logistics franchisees.
Moore, (2008) states that event franchising has also shown disapproval of the statement that ‘Franchisors do not like to take on entrepreneurs as franchisees’ because it is a service based activity that entails the duplication of event management practices in geographical areas where such services are much needed. This implies that entrepreneur franchisees have been contacted using franchise agreements to use the original trademark of companies such as Kodak among other imaging companies to foster the growth of the companies brand as a whole (Morrison 2013). Instead of imposing harsh terms on the franchisees so as to regulate their practices, the companies have expanded their trademark by sharing their business models and mission concepts to entrepreneur franchisees who have in return gained from the trademark. In return, the company gains customer loyalty, increased customer base and an increased rate of stock turnover. Just like it is used in classical franchise activities, event franchising replicates successful events such as Music Stops then the franchisees replicate the idea in their itinerary (Baron & Shane 2007). By so doing their get returns from their entrepreneur ventures.
The home based franchising model does not advocate for the statement since it advocates for the duplication of successful business ideas. It is supported by the home based business model which has in the recent past been applause as a great business venture for startup businesses. Apparently this translates into attracting entrepreneurs who might want to start their businesses as franchisees. Franchisees support this franchise model because the franchisors provide low barrier to entry and innovation. Since innovation is a vital aspect exhibited by most successful entrepreneurs then the home based model of franchise becomes applicable to entrepreneurs. The entrepreneur is further exempted from high costs of renewal fees or goodwill. The entrepreneurs who take up these franchises only need to dedicate time to work because it is home based. These provisions have been preferred by entrepreneurs who want to be franchisees, because the restrictions towards innovation or purchase of specific equipment or work machines are avoided. An example of such franchises is the GLD and Tanisha which are companies specialized in offering nutrition products (Anttonen & Ilan 2005).
List of References
Anttonen, N & Ilan, A 2005. ‘The International Business Environments of Franchising in Russia,’ Academy of Marketing Science Review, (5), 1-18.
Baron, R & Shane, S 2007. ‘Entrepreneurship: A Process Perspective. Cengage Learning: Australia.
Birkeland, P. 2007. ‘Franchising Dreams: The Lure of Entrepreneurship in America.’ University of Chicago Press: United States.
Bradford, M & Duncan, B 2010. ‘Simplified Strategic Planning.’ Chandler House: United Kingdom.
Brian, T 2009. ‘The 100 Absolutely Unbreakable Laws of Business Success.’ Koehler Publishers: Beret
James, S 2007. ‘The Business Communication Casebook: A Notre Dame Collection’ (2nd Ed.), Cengage: United States.
Kuratko, D 2013. ‘Entrepreneurship: Theory, Process, and Practice.’ Cengage Learning: Australia.
Lesonsky, R & Conley, M 2007. ‘Ultimate Book of Franchises.’ McGraw-Hill Companies, Incorporated: Canada.
Longenecker, J., Petty, J., Palich, L & Hoy, F 2011. ‘Small Business Management: Launching and Growing Entrepreneurial Ventures.’ Cengage Learning: Australia.
Lorenzen, M 2006. ‘Strategic Planning for Academic Library Instructional Programming,’ Illinois Libraries, 86, no. 2.
Moore, C 2008. Managing Small Business: An Entrepreneurial Emphasis. Cengage Learning EMEA. United States.
Morrison, A 2013. Franchising Hospitality Services. Routledge: US
Swart, N 2010. Starting Or Buying Your Own Business Or a Franchise. Juta and Company Ltd: South Africa.
Tuunanen, M & Cliquet, G 2011. New Developments in the Theory of Networks: Franchising, Alliances and Cooperatives of Contributions to Management Science. Springer: Austria
Wilson, N & Stokes, D 2010. Small Business Management and Entrepreneurship. Cengage Learning EMEA: United States.
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