Advisory Feb, 01 2010

Partnering with budding franchisors

Success is guaranteed neither with a popular franchise nor with an evolving one. Often a franchisee has to go through the painful process of selecting the right franchise. Let us find out the pros and cons of taking up a franchise of an evolving business

By Abha Garyali
Sub Editor
Partnering with budding franchisors

Partnering with a popular and successful franchisor does not ensure definite success for a franchisee. Same is the case with an evolving franchise that is on its way to gain prominence in the market. Agreed that taking up a franchise of a popular brand provides umpteen benefits, but a franchise of an upcoming brand too has its own share of benefits. All aspiring franchisees undergo the dilemma of selecting a suitable franchise. If logic is applied then partnering with an experienced company is safer than partnering with a new franchisor. However, disqualifying a new franchise, for the sole reason of its being new, may mislead the franchisee into missing out on a lucrative opportunity.

Pros and cons of franchising for an evolving brand

Every coin has two sides. So does a franchise business. Let us discuss the pros and cons of being a franchisee of yet to be successful franchisor.

Merits

Undoubtedly, an established franchisor may give the franchisee a well-known brand name, which acts as a good start to a franchisee, training and support by the franchisor along with the security of an ensured break-even period. However, a new franchisor also has some advantages for the aspiring franchisee.

  • First mover’s advantage: The success of a first time franchisee is critical for the success of the any franchising company. Therefore, budding franchisors and their corporate staff generally devote more time, attention and support to their first franchisees. In this way franchisees get the first mover’s advantage and often get the most important position in the franchise network.
  • Gaining profits from a fresh concept: First franchisees benefit more from the fresh business concept of the franchisor. After sometime the unique concept may become stale and might reach its saturation point with lots of other companies following suit.
  • Being the master franchisee:  In a new franchise system, a franchisee can reap more benefits by taking the position of a master franchisee or an area developer. Moreover, he can open outlets at prime territories and localities. In an established system, existing franchisees may have already taken those prime locations, and you being the newcomer may not get the opportunity.
  • Flexibility of the franchisor: To encourage prospective franchisees to come on board, new franchisors are more flexible in terms of contract terms and fees. With the help of a franchise attorney you may be able to negotiate in your favour on many terms and conditions.
  • Taking initiatives for improvement: Being one of the first franchisees can lead to being in a position to recommend and initiate changes in the franchise system. New franchisors heed the advices of their franchisees and can implement the changes in the product or concept.
  • Complimentary offers: Being a partner of an establishing business may give you an opportunity to avail some complimentary offers from the franchisors in the form of discounts in investments and royalties.

Demerits

Just like in any other business there are some negative aspects of taking up a franchise of an establishing franchisor.

  • More risk involved: Being a new company, the franchisor has no proven franchise profitability record. Therefore, as a franchisee you may be under a greater risk as compared to an established franchise company. Moreover you may not be able to carry out an extensive research about the concept and its competitors.
  • Being a guinea pig: A new franchisor without any prior experience of franchising can experiment all his ideas on his first franchisee. But that may not always be a feasible move, considering his ‘fresh’ status in the market.
  • Both are learners: For the first-time franchisee, who is a novice in franchising, partnering with a franchisor who is also new may not be a good experience. As both are learners and any loss would directly influence the business as well as their partnership. 
  • Difficulty in getting loans: It is more difficult to obtain business loans with a franchise company. Bank professionals and lenders may evaluate and deem your venture as too great a risk.

Although risks are there in being the franchisee of a new company, but it also has its own benefits. Being a franchisee is better than starting a business from scratch. Therefore to conclude, it can be said that being the franchisee of a new franchise company can also take you on a successful franchise journey.

Related: Availing profits from web portals

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