Franchise structure
Sources:
Key Insights on Franchise Structure
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Growth through Franchising: Franchise owners often expand by buying multiple franchises within the same brand (e.g., multiple McDonald's outlets) or across different brands (e.g., Taco Bell and Pizza Hut under Yum Brands). This allows them to leverage their existing knowledge and negotiate better terms with the franchisor. They often set up a management company to oversee operations, centralizing resources and streamlining logistics 1 2.
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Franchising vs. Licensing: Licensing, like that of CrossFit, typically involves paying for the right to use the brand name but provides minimal operational support. In contrast, franchising offers more guidance with a structured operational model, albeit at a higher cost and with stricter requirements 3.
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Challenges and Considerations: Franchising can lead to a complex relationship where franchisees attribute their success to their own efforts, potentially resenting the royalties they pay to the franchisor for the brand's systems and name recognition. This tension can result in friction, making it a challenging model to scale smoothly 4.
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Operational Focus and Value Proposition: Successful franchisors often operate multiple corporate locations to refine their business model and economics before franchising. It's crucial to have clear value propositions for franchisees, such as marketing support and sales facilitation, to ensure long-term success and avoid becoming a short-lived trend 4 5.
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Alternative Approaches: For some businesses, a corporate-owned model might be more beneficial. Hiring operators with strong incentives like revenue sharing can lead to higher profitability and growth without the legal complications of franchising. This approach ensures better control and consistency across all locations 5.
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Solid Foundation Before Franchising: It's advisable for businesses to reach a level of stability and success (e.g., running profitably with multiple corporate-owned locations) before considering franchising. This caution helps in establishing a robust foundation and avoids premature expansion which often results in failure 4.
Experts and Sources:
- Jason Feifer from
- Leila Hormozi from
- Dave Ramsey from
- Brett Heffes from
- Bedros Keuilian from
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