At one point or another, we all hear about (and maybe even aspire to attain) the “American Dream”: a vision that invokes owning a business, having a warm and comfortable place to call home and achieving success through hard work. For many, unfortunately, this vision remains abstract, rather than rooted in reality. And that’s at least in part because starting a business involves taking on risks, navigating complexity and overcoming fear.
Of course, owning a business is filled with complexity. But there may be a workaround — an approach that blends the freedom and independence of owning a business with a proven business model and far greater security. The approach is called “franchising,” and it has seeded a long track record of success stories in the American business landscape.
Franchise: Definition
There are several key points to understand about franchises. Let’s break it all down:
- A franchise is a type of licensing agreement.
- This license exists between two parties: the franchisor and the franchisee.
- It allows the franchisee to use something proprietary — typically business knowledge, processes or trademarks, or some combination of the three.
- The licensing agreement usually also gives the franchisee the right to sell or market products or services using the franchisor's business name.
- As a system of marketing or distributing goods, this practice is referred to by a similar term: franchising.
If all of that sounds simple, that’s because in many ways it is. But it’s also a proven method for setting up your own business — in other words, it’s a recipe for success, and for reasons we’ll turn to next.
Key Benefits of Franchises
What advantages does franchising have over, say, starting a new business from scratch — and being entirely on your own? Consider these points:
- Under a franchising system, franchisors can share knowledge of best practices for setting up and managing the business, along with an understanding of what works and what doesn’t, from the very beginning. That means there’s much less of a learning curve.
- Thanks to franchisor support with marketing collateral and messaging, franchisees can communicate their product and service offerings quickly and effectively.
- Because many franchisors invest time, money and energy into ongoing research and development (R&D) initiatives, franchisees are often able to bring new products to market with little financial outlay, risk or liability on their end.
Speaking of risk: Franchises typically operate with a lot less of it than independent businesses. You can see that reflected in their relative five-year success rates, too. Notably, there’s a 92 percent success rate associated with owning a franchise over the course of five years, versus just 23 percent with independent businesses.
You’ll also know what to expect from the outset with a franchise business — from startup costs to marketing, who your customers are, what locations are likely to succeed and a whole lot more. Knowing in advance what will happen at each step as your franchise develops is a key advantage, and should help you chart your path toward success.
You Won’t Find a Synonym
Given the specificity of the definition we laid out earlier, it comes as no surprise that the word “franchise” lacks a synonym. And that’s because the business model itself is in many ways inimitable. For anyone embarking on an entrepreneurial journey, diversifying their investments or just chasing the American Dream, franchising is certainly a path to consider.
To recap what we’ve covered so far:
- A franchise is a licensing agreement between a franchisee and a franchisor. It entitles the franchisee to use something proprietary that belongs to the franchisor — typically business knowledge, processes or trademarks, or some combination of the three — and receive some kind of ongoing support.
- There are distinct benefits to the franchise business model: A clear understanding of costs in advance, shared knowledge and best practices, reduced risk and fewer financial outlays are among the most notable.
As a result of these undeniably attractive attributes, there are hundreds of thousands of franchise businesses (over 770,000, to be exact) currently operating in the U.S.). And those businesses cut across industries, too, from hospitality to technology, HR services to healthcare, and everything in between.
If you have a totally unique business concept that includes trade secrets you don’t want to share, then by all means, start your own brand. But for the rest of us, a franchise offers an attractive route forward. It has all the benefits of entrepreneurship — and far fewer risks than independent business ownership..
Eager to learn more about franchising, or even get started on the journey to business ownership today? Contact us at Spherion Staffing.