They may be bakers, brewers, hotel owners, or yoga instructors. Franchising is the business relationship between a “franchisor” (the party that owns a brand) and a “franchisee” (the party obtaining the right to use the brand at another location). The franchisor permits the franchisee to sell certain products or services to consumers under the brand in a way that’s consistent with certain operating standards and, in return, the franchisee pays fees to the franchisor. This model allows entrepreneurs with a successful brand or concept to copy-and-paste that brand or concept in multiple locations, using other people’s money.
Franchising is not an industry, but rather spans many industries. Franchisees sell spa and massage sessions, mufflers, burritos, haircuts, lodging, music lessons, and more. Common industries for franchising include restaurants; hospitality; fitness and health; beauty; experiences and activities; consumer retail; schooling and child, adult, or senior care; home, auto, or business services; real estate; and staffing and tax. According to the International Franchise Association’s Franchise Business Economic Outlook for 2017, the personal services, restaurant, and retail products and services industries are expected to have the most growth in 2017.
Many franchised businesses offer unconventional products or services. In the past year, Larkin Hoffman’s franchise team assisted entrepreneurs in franchising a business providing proprietary pizza ovens and ingredients to lodging facilities for guests, a fitness and entertainment concept using obstacle courses, a fast casual sushi concept, a pest control business, a Spanish-immersion child care center, and a school providing rock music lessons!
Entrepreneurs who become franchisors are just as diverse as the types of businesses which they are franchising. Some entrepreneurs come to us with extensive business backgrounds and capital. But most are people who know the ins-and-outs of Pilates training or rolling sushi, and would like to expand to multiple locations without the cost of opening another location. Likewise, more and more minorities and women are becoming franchisors. In fact, minorities and women executives have made up a significant portion of the award recipients of the International Franchise Association’s Entrepreneur of the Year Awards in the past decade.
One caveat: Just because your business can be franchised does not mean it should be franchised. If the concept is proven (even at a local level), if the concept can be repeated by others with proper training and instructions, if there is something unique—a “special sauce”—about the concept, and if there are sufficient revenues to pay the bills and royalties to the franchisor with an acceptable return to the franchisee, franchising may be an appropriate growth strategy. See our Fit to Franchise assessment to learn more.