Franchising a successful business model

Every serious discussion about franchising starts with the question: what is franchising? Franchising involves a party (the franchisor) granting another party (the franchisee) the right to use a certain name or trademark according to an established system. This usually occurs within a specific area or location, for an agreed period. The franchisee receives a license to use the franchisor’s trademarks, systems, software, and other tools according to the guidelines in the franchise agreement.

Also read: The definition of franchise on franchiseplus.nl

Franchising: a brief history

Franchising is a proven business model that has helped countless entrepreneurs worldwide start their own businesses. The concept originated in the Middle Ages, where local governments granted rights to significant figures to hold markets and conduct business activities. This evolved further during the colonial period, where rulers granted rights for various trade activities. In the 19th century, brewers granted rights to taverns to sell their beer, and Isaac Singer introduced licensing agreements for the sale of sewing machines.

Modernization of franchising

The modernization of franchising was further shaped by the rise of car dealerships and fast food chains like McDonald's. In 1880, Isaac Singer developed a licensing system for his sewing machines, which was a precursor to the modern franchising model. The car dealerships of Henry Ford and the uniformity and cleanliness introduced by Ray Kroc at McDonald's contributed to the refinement of franchising as we know it today. These historical developments have led to the current successful franchise model that continues to inspire and support entrepreneurs worldwide.

Also read: The history of franchise

Henk gives a new twist to Pasta

Your name is Henk and you have created a new pasta variant. With a unique pasta production technique, homemade sauces, and a workable restaurant design, you find a location for your pasta restaurant and build it out.

The setup cost more and took longer than expected, but you documented everything, providing a blueprint for a second location.

During the build, you created your menu, calculated prices, designed uniforms, purchased supplies, and discovered a hundred other things. Essentially, you assembled a franchise system: Henk’s Pasta Palace is open!

Now that your business is operational, it's time to fine-tune the system. Trial and error are part of the process. Making mistakes now means you can resolve them for location number two. Meanwhile, you document everything: labor costs, food costs, inventory management, busy and slower times, marketing and advertising efforts. Documenting ensures you know what you're doing and how you can improve.

In the franchising world, it's all about the system. The best product or service offers no success without an efficient business system. As the founder, you must create this system.

How? Through trial and error. Once you've devised the system, you need to duplicate it. Hire a franchise salesman to sell your franchise concept to potential franchisees.

Also read: Difference between Systems, Processes, SOPs, and SOCs

Why does franchising work so well?

Franchising is often praised as one of the best business models ever conceived. It offers countless people, including tens of thousands in the Netherlands, the opportunity to become entrepreneurs. The success of franchising is clearly visible in companies like McDonald's. Worldwide, there are thousands of McDonald's franchise owners who benefit from this model.

1. Proven success model: franchising works with a tried and tested business model, significantly increasing the chance of success compared to starting an entirely new business.

2. Support and training: franchisors provide extensive support and training to their franchisees. This ranges from operational procedures to marketing strategies, helping new owners run their business quickly and effectively.

3. Brand recognition: franchisees benefit from the name recognition of an established brand. This ensures immediate customer trust and recognition, which is crucial for attracting customers.

4. Financing opportunities: banks and investors are often willing to provide financing to franchisees due to the proven success model, facilitating access to needed resources.

5. Innovation and product development: franchisors typically invest in continuous innovation and product development. As a result, franchisees have access to the latest products, services, and technologies.

6. Joint purchasing benefits: franchisees benefit from joint purchasing benefits. This leads to lower costs and better margins since the parent company can buy in bulk and negotiate favorable terms.

7. Network of support: franchisees are part of a larger network of fellow entrepreneurs. This network offers valuable experiences, advice, and a support system that independent entrepreneurs usually don't have.

8. Marketing and advertising: franchisors often conduct large-scale marketing campaigns that increase brand awareness and attract customers to local branches. Franchisees benefit from this without having to invest large marketing budgets themselves.

Franchising a business

Anyone considering franchising their business has the same vision: they see themselves owning a business with hundreds, if not thousands, of locations. Suppose you are Henk, the entrepreneur who wants to start and franchise a chain of healthy pasta restaurants.

Your 10-year business plan should have 100 highly profitable franchise units in operation. Your figures look like this:

• Entry fees: € 10,000 x 100 locations = € 1,000,000

• Monthly franchise fee: 5% of sales = € 45,000 x 100 locations = € 4,500,000 (based on annual sales of € 900,000 per location)

Of course, you have to subtract costs for sales, marketing, payroll, and other expenses, but in the end, you will be a multi-millionaire. Not a bad model, right? This is why so many people want to franchise their business. But as the saying goes: "If it were really that easy, everyone would do it."

Scaling a business through franchising comes with many challenges. Both operationally, legally, financially, and recruitment-wise. This has been our specialty for over 35 years, with which we are proud of the valuable contribution we have been able to make to a significant part of the largest and best-known chains in the Netherlands.