Entrepreneur creates a franchise business model

Franchising business model: what founders should consider

Franchising, what is it actually?

There are two partners in the franchise model: the franchisor and the franchisee. The franchisor provides the franchisee with his business concept in a previously defined area and a certain amount of know-how. What exactly this is (trademark rights, equipment, distribution system, etc.) is regulated in a franchise agreement.

The franchisee sells the products or services of the franchisor and pays them an ongoing fee and usually an entry fee. However, the franchisee is legally independent. This is also one of the big differences to a branch. There the branch manager is an employee and does not have to make any investments himself.

The advantages

The big advantage of franchising is that you don't need your own business idea. On the contrary, the business idea has already been tested for its suitability in franchising, which can take away the first fears. In addition, with franchising you have a permanent contact person who trains you and is at your side if you have any questions or problems. Especially for rather insecure people, the "accompanied founding" of a franchise system is perhaps more suitable than a solo start-up. Nevertheless, of course, you have to ask yourself whether you are the type to be self-employed at all.

An advantage that should not be underestimated is that most customers should already be familiar with the brand. So you don't have to laboriously make a name for yourself. You also benefit from the advertising and marketing activities of the franchisor. And: at banks, the tried and tested business model sometimes makes it easier for you to get the necessary loans.

The disadvantages

Lower risk through an established business model - that sounds fantastic! It could be, but there are also catches with franchising. These mainly affect founders who value their own freedom. In a franchise system you work in a much narrower framework than if you have your own company. Although this framework creates security, it also sets limits. So you can't just change the corporate colors if you no longer like them. You may have your own company, but someone is always involved. Here everyone has to decide for themselves how willing they are to compromise.

This dependency is also evident when problems arise or one is dissatisfied with the quality of the work or the fulfillment of the duties of the franchisor. Sometimes your own business acumen is of no use if the franchisor fails. In the worst case, unsuccessful actions by the franchisor fall back on the franchisee.

Franchise, but with whom?

McDonald’s, Apollo-Optik, Joey’s Pizza - who should you choose? Of course, that depends entirely on personal preferences and also on your own skills. The DFV, the German Franchise Association, has a list of many franchisors. However, not all franchisors are represented in this association.

The monthly fees and investments that you have to make are also not entirely unimportant. How high is the entry fee, how high the franchise fee and what minimum investment should I expect?

In addition, of course, the business situation of the franchisor is also decisive. How long has it been on the market, what image does it have, etc.? Feel free to ask other franchisees how satisfied they are with the respective franchisor.