What is Franchising?

Franchising is a strategy for expanding a business. The model has appeared in a variety of forms beginning as far back as the Medieval Period, but it wasn’t until the mid 1800s that the concept developed into the model we recognize today.

Here’s how it works:

A franchisor and a franchisee enter a relationship in which the right to sell specific products and services using methods, operations, systems, the brand name and other intellectual property owned by the franchisor is granted through licensing and a contract known as a Franchise Agreement, by the franchisor to the franchisee. In order for the model to succeed, the franchisor also provides training and support to each franchisee they recruit, and the franchisee has to follow the processes and methods established by the franchisor.

It’s a mouthful, but you’ll get the hang of it. Let’s break it down-

Let’s say someone perfects a drink recipe and they bottle and sell it throughout Town and all the townsfolk can’t get enough. Soon, word spreads to Another Town and now all the people there want to have the beverage there, too. The creator of the drink could grant a license to an enterprising business person in Another Town, giving them access to the proprietary recipe, bottling methods and even the branding itself, as well as the right to recreate and sell the drink to the thirsty population of Another Town.

The creator in Town becomes a franchisor, promising to teach and support the enterprising businessperson from Another Town, who becomes a franchisee and promises to uphold the standards of the brand and its delicious drink. A beverage franchise has just been born.

But why not just make your own drink?

This question brings us to the real essence of franchising. You’re an enterprising businessperson, so why would you sell someone else’s product instead of creating your own? The answer is surprisingly simple: launching a startup is really hard.

Creating a business from scratch can be exciting, but it’s way more work than just having a really good idea. Before you even set up shop, you have to go through the long and rigorous process of creating a business plan, securing finances, finding partners and advisors you can trust – and everyone who invests their time or money into your idea will have to be convinced that the gamble is worthwhile. Not so easy for an unknown startup.

In contrast, buying a franchise can afford you the lifestyle of being a business owner with significantly less risk. Signing on with a franchise gives entrepreneurs access to a field-tested concept and a proven system in addition to the marketing budget, recognition and operational precision of an established brand. That’s not to say that it’ll be easy – a franchise investment isn’t ever guaranteed to succeed and requires a lot of time and financial commitment. But, it’s likely to help reduce the challenge.