Advantages and disadvantages of franchising to scale your business

Aspects that an entrepreneur should weigh and evaluate before deciding to launch a franchise

So, you have a successful business and you want to scale it as soon as possible. You want your business to immediately appear in every city around the world.

But you want to make an reasoned decision that franchising is the right path for your business.

Franchising has obvious advantages that help entrepreneurs around the world to build giant successful chains. But at the same time, like any powerful tool, franchising has a disadvantages, which an honest blogger simply cannot hide from his reader.

It is my duty to warn you about these disadvantages. Moreover, I think it will be very useful to see these disadvantages so that you can hedge against them and compensate for them.

Power of franchising

First, let's list the advantages that make franchising a truly great business scaling tool.

Profit from franchise sales

The most obvious advantage of a franchise is that the founder makes money by selling the franchise. Entry fees can run into the tens and hundreds of thousands of dollars. Getting that money can in itself be a great motivation to start your own franchise

Rapid growth of your chain

In any case, developing your chain with your own funds alone will take longer than developing a chain in partnership with your franchisees

Economies of scale

Centralised purchasing allows large chains to get better prices and terms from suppliers than dispersed businesses. A chain of hundreds of sites can dictate prices to suppliers.

Regional expertise

Regions and countries differ in their cultures and ways of doing business. If you scale your business centrally, you will find it difficult to immerse yourself in the context of each specific country and each specific city. If you build a franchise chain, each region will have a partner with experience and background in that particular region. This will strengthen your business, help make it more adaptable and help you avoid unexpected challenges caused by the cultural and consumer characteristics of the region.

Results orientation

Your employees are not always motivated to achieve goals. They receive a salary plan that is not always linked to specific financial results. The partner of your franchise invests his own money in the business and he is maximally motivated to return the investment and make the business successful.

Franchising weakness

Franchising as a model has a number of typical weaknesses. Knowing them you will be able to adjust and avoid possible mistakes.

Independence of the franchisee

The franchisee acts according to the established rules, but at the same time, the franchise partner does not work in your direct subordination, which means that any decision you make must be argued and agreed upon by your franchisees.

Reputation threat

Any actions of your franchisee may be perceived by the audience as words spoken on behalf of your brand. This is a threat to your brand's reputation.

Product quality decline

To increase profits, franchisees tend to skimp on quality. If insufficiently monitored, this can significantly jeopardise the reputation of your product and brand.

A franchise business generates less profit than your own business.

The royalty the business receives from the franchisee will always be less than the business owner's profit. Which means the profit from franchise units will always be less than the profit from your own units.

This means that almost always franchise chains with a small number of units are unprofitable chains.

What to do?

Okay, well, I know the pros and cons, what do I do about it?

When I create another franchise, I try to protect the founder from the risks listed above, or at least minimise those risks.

Write a strong franchising contract

A well-written contract will help protect the interests of the brand and product.

Establish a system of controls, checks and inspections

A properly structured control and inspection process will help avoid quality and product problems.

Introduce a system of continuous staff trainings

Sometimes product and quality problems occur due to lack of knowledge of the staff. A proper training and appraisal system will help in providing a strong product by trained staff.

Set up a dedicated management company

A strong management team will be able to keep all processes under control and properly develop the franchise chain.

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