The four fundamentals of franchising: what you need to know

By Sarah Stowe | 29 Oct 2015 View comments

The "four fundamentals of franchising" may not have the gravitas of the "four horsemen of the Apocalypse" or the "seven deadly sins" or the "ten commandments" but it is an interesting exercise to compile, at the editor's request, this list. Any such list is inevitably idiosyncratic and personal. If my mum rather than Pope Gregory the Great had documented the deadly sins I have no doubt that the list would have been a lot longer than seven.
 
Identifying the four fundamentals of franchising presents a similar challenge. This is my list. Others will have their own.   

The brand 

At the heart of a franchise system is the brand. In a narrow sense this is the name – distinctive and trade mark protected – under which the business is carried on and in which the goodwill of the system resides. But in a wider sense the franchise brand refers to so much more – to the entire brand architecture and the "look and feel" of the outlet. The franchise brand is an holistic concept which represents the recognisable public face of the franchise and promises the consistent, standardised, familiar experience which consumers value. The prospective franchisee must be satisfied that the brand and its front of house manifestation is attractive and distinctive and compelling and viable.  

The system 

The term franchise system is generally used to describe the totality of the franchised offering – the business which is franchised, the branding and front of house dimension, the distinctive and standardised method of offering the goods and services as well as the individual units which are part of the system. In a narrower sense it refers to the back of house side of the package – to the business, management and operational systems which, although generally imperceptible to the public, ensure not only uniformity and replicability but also the efficient and profitable operation of the franchised units.
 
The prospective franchisee must be satisfied that the system is proven – an exercise in which the experience of the existing franchisee network is the most valuable resource.    

The relationship 

The franchisor/franchisee relationship is one of the key factors in successful franchise systems and will feature prominently in anyone's "four fundamentals" list. The franchisor/franchisee relationship is of course a legal relationship enshrined in the franchise contract which records the complex and intricate commercial relationship between the parties, but it is so much more than that.
 
The term "commercial marriage" is often used to describe the franchising relationship because it is characterised by inter-dependence and longevity and good faith to a much greater extent than other business dealings. A franchise agreement records a relationship rather than a transaction and, as we all know from our personal lives, relationships involve challenges beyond the merely commercial.
 
A prospective franchisee must be confident from his or her due diligence, which must include discussions with the existing franchisee network, that the relationship is strong and respectful and effective.  As with any marriage there are a number of dimensions to building a strong relationship but effective communication is probably top of any list.  

The dollars 

At the end of the day it's really all about the money. Enterprises with a successful business model franchise them not to share the love but to improve their bottom line. Individuals acquire franchises to profit from their investment of time and money.
 
The combination of the franchisee's proprietorship and the franchisor's system is a proven formula for unleashing synergistic entrepreneurship for the financial benefit of both parties.
 
But franchising is not fairy dust – it is not a magic moneymaking formula for either party. Franchisors will rarely, and understandably given the factors that will impact on turnover, provide definitive financial promises and the prospective franchisee must be satisfied, by comprehensive due diligence, that the numbers add up.