Are you willing to run your own business to someone else’s rules?

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Inside Franchise Business: a franchisee is running a business within a businessOne of the most hackneyed phrases in franchising is that “franchisees are in business for themselves but not by themselves”.  As with so many other hackneyed phrases, it is a victim of its own success.

It is because it so succinctly sums up the reality of franchising that is has become overused. Franchisees do run their own businesses and are legally and financially independent of the franchisor, but they do so in accordance with, and with the use of, the franchisor’s system under licence. In other words, franchisees indeed run their own business, but within the constraints and controls of the franchisor’s business.

Running a business within a business should be a piece of cake. Business format franchising, the contemporary franchise model, is so called because the franchisor provides a complete and comprehensive blueprint – an entire business format and management systems for running a business.

Business format franchising is a sophisticated business relationship whereby a franchisor develops an individual way of doing business and permits the franchisee to use that system, in a controlled manner, in their own independent business. It is characterised by an ongoing business relationship between the franchisor and the franchisee that includes the product, service and trademark as well as the entire business concept itself – a marketing strategy and plan, image, comprehensive standards, systems and format, working manuals, training, quality control and a continuing process of help, guidance and supervision.  

What could be easier than plugging into the proven system of the franchisor? Well, plenty. The willingness and the capacity to work within another’s system is not for everyone. A franchisee needs to be entrepreneurial enough to leave the security of employment and assume the financial, managerial, time and other commitments of business proprietorship, yet flexible enough to run the business in accordance with detailed and prescribed system parameters. This is not for everyone.

The term “intrapreneur” has been developed to describe franchisees whose entrepreneurial ambitions have to be realised within another’s system. Living someone else’s dream is not for everyone.

Several years ago when writing about franchises, I told the story of a high-school friend who, after 30 years of employment with a significant organisation whose policies, strategies and business practices he never agreed with, resigned in frustration and went looking for a franchise to buy. I made him promise me he would never become a franchisee as it would lead only to recriminations and regrets and grief. He would have driven the franchisor mad, and the franchisor would have driven him mad.  Nothing would ever be right.

Franchising may have been a good fit for my friend, but only as a franchisor who could build the business he wanted and have the ultimate control over those licensed to use it.  

Some franchise systems, of course, offer a franchisee more scope for entrepreneurship. Established franchise systems frequently prefer multi-unit franchisees – franchisees who can run multiple franchise outlets. The franchisor in effect delegates a range of responsibilities to the multi-unit franchisees, who employ and train managers to run their units.

Running a multi-unit business, of course, poses greater challenges than a single outlet, but in either case the franchisees must be prepared to be intrapreneurial while working within the franchisor’s system.

Plato and Socrates sadly never turned their mind to franchising, but had they had been asked by a prospective franchisee about the wisdom of running a business within a business, they might well have replied with  the ancient Greek aphorism that resonates through their writings: “Know thyself”.

Andrew Terry

Andrew Terry is Professor of Business Regulation at the University of Sydney's Business School and Honorary Dean at Beijing Normal University's Franchise Management School. Andrew has been inducted into the Franchise Council of Australia's Hall of Fame. View More...
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