‘Entrepreneurs’ as Franchisees Essay
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Franchisors are increasingly having to be more and more selective in the adoption of franchisees with factors such as economic climate and the potential difficulty with growth playing key factors in the decision making process. It is not simply an ability to grow which creates a successful Franchise and nor is it the desire of any franchisor to adopt every potential franchisee. Franchisors are becoming more and more scrutinising as the global economy declines. There is a general understanding within any franchised business, which is that one of the most desired traits of any franchisee is the ability to follow a set design “People who buy franchises are not entrepreneurs, and they better know that going in,” (Libava, 2012).
Throughout, the difficulty of working with entrepreneurial franchisees will be analysed alongside what a Franchisor looks for in an ideal Franchisee in the context of someone seeking to enterprise a franchise; how these differ, how they are similar and what potential benefits or disadvantages this stance may create.
The entrepreneurial process requires a great number of identification and opportunist methods in order to obtain the resources for their business and be deemed “entrepreneurial” (Shane, 2003). The use of these skills will be evaluated in the context of a franchise in order to understand why franchisors prefer not to take on entrepreneurs.
Firstly, it is important to understand why franchisors must have certain barriers of entry to their franchise before we can fully question their likeliness to take on entrepreneurs. Franchisees seek to join a Franchise due to the ease of starting a business; Suppliers are already established, store layout is already set, uniforms already designed customers already familiar with the brand and so on. The sole reason this is set out already is because it has been tried and tested (in most cases) over time, and most likely by a number of other Franchisees. Since all the Franchisees have built this brand image up since the off, it is integral to protect this brand image as any impairment to one franchisee could cause the public to “tar” the whole franchise “with the same brush”. However, the extent to their high expectations of potential franchisees has a tendency to vary with each scale of franchise. A well-established franchise has a lot to protect and therefore is likely to resist the urge to take on an enterprising franchisee, seeing them as “high risk”.
Alternatively, the opposite can also be said as it is likely to promote the business more with greater levels of feedback, new prospects and innovative ideas (Diebold 1990). From one perspective, there are many reasons why certain franchisors would avoid accepting entrepreneurial Franchisees into their Franchise. Entrepreneurial businessmen and women are often stereotyped as the innovators; someone who pushes the boundaries of the known world–a change agent who is relentless in making things happen and bringing ideas to execution (Entrepreneur.com). This means that their skills best lie in the development of new ideas, improvement of old ways and generally the identification of modern concepts and techniques. In the eyes of a potential franchisor this has many foreboding difficulties should they decide to accept the franchising agreement.
Firstly, a franchise is a tried and tested model which has proven to be a mostly profitable and successful enterprise of its own with a large quantity of time, effort and money used to perfect the foundations of the franchise. Therefore should a franchisee wish to try and change these perfected techniques, not only does it risk the chance of failure and therefore damaging the brand as a whole, but also the arrogant “I know better” attitude contradicts the very concept of a franchise. Libava defines this concept as using a “franchise company’s trademarks, systems, signage, software, and other proprietary tools and systems in accordance with the guidelines set forth in the franchise contract” to an “Identified System” (Libava 2012). Taking on board the enterprising ideas the franchisee puts across would essentially be the franchisor wasting effort and money in the perfecting of their pre-set method.
This is especially the case with larger, more established franchises such as Subway and McDonalds, whereby every task is responded to in a set way and is quantified to the smallest factor. An example of this is when changing the uniform at McDonalds in 2012, it cost over £1.52 million in the UK alone due to the vast number of employees (Weiss 2012). From cleaning the floors to dealing with food complaints, even the smallest change in the franchisors technique requires a great amount of communication and control, but is also a timely and therefore costly exercise. This then reflects the reluctant attitude to established Franchises when considering the great cost and risk involved in the context of someone entrepreneurial. The franchise already has the fine details of the business set into its own convention; entrepreneurial individuals only cause a constant battle with the franchisor due to the desire for change and sometimes, change for change’s sake.
However, although in the established franchise context this statement may be true, it is not always the case. Start-up, less established and more innovative franchises are much more likely to be open for suggestion and more interested in taking on entrepreneurs into their franchise. The same can be said for franchises in need of innovation to survive. With everyday names such as HMV and Woolworths going into administration, amplification of a USP and innovation has become a necessary act for survival. Even the slightest differentiation could mean the difference between consumers buying with you or a competitor; Domino’s Pizza is a good example of this. Since the almost-global economic recession of 2008, survival has been integral to any business model, franchise or otherwise.
As a result of this, Domino’s has allowed one of its more entrepreneurial franchisee’s to trial and as a result implemented “Bread Bowl” and “Pasta” dishes onto their menu with great success (Wilson 2012). The same can be said of WSI, an internet marketing franchise, whereby 90% of the products and services have come from the franchisee’s themselves to “ensure that [they] are offering the latest and best internet marketing processes to end clients that deliver results” (McArthur 2012). This shows how, it is not only the economic factors that play to a franchisors’ decision making, but also the type of franchise that they are operating. The online marketplace is a raw marketplace where each business is instantly comparable to their competitors and just as easily undercut; therefore, an innovative franchisee is more desirable than the traditional replicable franchisee as they are able to create differentiation potentially more valuable than price.
In addition to this, it is also useful to look at the financial success of large and small franchises to gain a better understanding as to why some seek entrepreneurs and others don’t. An “Innovation vs. Replication” report compared the financial performance of 500 firms varying in size and found that small businesses with business models centred on low levels of replication and high innovation, showed more growth than models with high levels of replication. Additionally, they also found that large businesses with only high levels of innovation and low levels of replication had a lower average financial position (Aspara 2009).
This reflects how statistically it would work against the favour of a large franchise to adopt innovative entrepreneurs, whilst also presenting a counter-point portraying enterprising individuals as promoters for growth and financial stability for smaller franchises. This isn’t always the case though, presented in the franchise Krispy Kreme with its “boom” stage in the early 2000’s. Being a rapidly growing donut franchise it had entrepreneurs from around the world wanting to become part of this international business. However, due to the lack of care when choosing franchisees and with growth as their only concern, issues with proximity caused cannibalising sales as a result of capitalising their own popularity (Morebusiness.com 2010).
Pulling these points together, there are many clear reasons why a franchisor would be hesitant to take on an entrepreneur. Taking on a “If it’s not broke don’t fix it” attitude emphasises the safety in the tried and tested method of replication. Franchises with a set convention are likely to take a “sure-bet” rather than a “risk”, due to knowledge that the model works fine the way it is, proven by their own and other franchisees. That is not to say that what works for one franchising model is the same for all (Francis 2010). Both economic and business models play key factors into how enterprising a franchise may or may not choose to be. Some franchises such as WSI rely on entrepreneurial franchisees for the very success of their business and remain an integral part of their franchise model.
Within the report of innovation and replication it found that the most financially successful businesses were large scale firms with high levels of innovation and replication (Aspara 2009) showing how there is room for improvement in any business. “Staying consistent on the core components of your business doesn’t mean the products you sell, or even the way you deliver them, have to stay the same” (FranchiseDirect.com) However, replication in a franchise builds the foundations of what has already been industry certified and therefore proven to work.
Entrepreneurs are most useful in a franchise when the need for innovation is high, such as start-up franchises and times of economic instability where differentiation is needed to survive. As a franchise grows, the structure becomes more and more rigid and therefore more difficult and less susceptible to change as the cost of doing so outweighs the potential benefits. Perhaps it is the case that most franchisors are less likely to take on an entrepreneur as a franchisee, using their own sources of research and development. However, not every franchise has the capital to operate their own entrepreneurial department and therefore is much more likely to opt for enterprising franchisees to enable their franchise to grow.
Aspara et al, J A, 2009. Innovation vs. Replication. Business model innovation vs. replication: Financial performance implications of strategic emphases. 1, 6,7 Diebold, J. D, 1990. The Innovators: The Discoveries, Inventions, and Breakthroughs of Our Time. 1st ed. New York: Plume. Entrepreneur.com 2013. Innovators | Entrepreneur.com. 2013. [ONLINE] Available at: http://www.entrepreneur.com/innovators/index.html. [Accessed 24 January 2013]. Francis K.A. Demand Media. 2010. Innovation Vs. Replication in Franchises. [ONLINE] Available at: http://smallbusiness.chron.com/innovation-vs-replication-franchises-198.html. [Accessed 23 January 13]. Libava 2012, The Top Traits of Successful Franchise Owners | Entrepreneur.com. 2013. [ONLINE] Available at: http://www.entrepreneur.com/article/224016. [Accessed 23 January 2013]. Also see Definition Of A Franchise. 2013 [ONLINE] Available at: http://www.thefranchiseking.com/definition-of-a-franchise. [Accessed 24 January 2013] McArthur, R M, 2012. President of WSI Internet Marketing Franchise. Can Franchising and Innovation Go Hand in Hand? (See Wilson 2012) MoreBusiness.com. 2013 . Learning from the Franchising Mistakes of Failed Krispy Kreme | MoreBusiness.com. [ONLINE] Available at: http://www.morebusiness.com/franchise-risks. [Accessed 23 January 2013]. Shane, S.A , 2003. A General Theory Of Entrepreneurship: The