Franchising a successful business model

Every serious discussion about franchising begins with the question: what is franchising? Franchising involves one party (the franchisor) granting another party (the franchisee) the right to use a particular name or trademark according to a predetermined system. This usually occurs within a specific territory 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 short history

Franchising is a proven business model that has helped countless entrepreneurs worldwide to start their own businesses. The concept originated in the Middle Ages when local governments granted rights to important figures for holding markets and conducting business activities. This evolved further during the colonial period, where rulers granted rights for various trade activities. In the 19th century, brewers gave 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 franchise model. Henry Ford's car dealerships 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

Henry gives a new twist to Pasta

Your name is Henry and you have invented a new pasta variant. With a unique pasta production technique, homemade sauces, and an effective restaurant design, you find a location for your pasta restaurant and expand it.

The setup costs more and took longer than expected, but you documented everything, resulting in a blueprint for a second location.

During the construction, you created your menu, calculated prices, designed uniforms, purchased supplies, and discovered a hundred other things. In fact, you assembled a franchise system: Henry's Pasta Palace is open!

Now that your business is up and running, it is time to refine the system. Trial and error are part of the process. Making mistakes now means you can fix them before location number two. Meanwhile, you document everything: labor costs, food costs, inventory management, busy and slow periods, marketing, and advertising efforts. This documentation ensures that you know what you are doing and how you can improve.

In the franchise world, it all comes down to the system. The best product or service offers no success without an efficient business system. As a founder, you must create this system.

How? Through trial and error. Once you have devised the system, you must replicate it. Hire a franchise sales agent 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 hailed as one of the best business models ever devised. 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 operates 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 to run their business quickly and effectively.

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

4. Financing options: Banks and investors are often willing to provide financing to franchisees due to the proven success model, facilitating access to necessary 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 advantages: Franchisees benefit from joint purchasing advantages. This results in lower costs and better margins, as the parent company can buy in bulk and negotiate favorable terms.

7. Support network: Franchisees are part of a larger network of fellow entrepreneurs. This network offers valuable experiences, advice, and a support system not usually available to independent entrepreneurs.

8. Marketing and advertising: Franchisors often conduct large-scale marketing campaigns that increase brand recognition and draw customers to local establishments. Franchisees benefit from this without having to invest large marketing budgets themselves.

Franchising a business

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

Your 10-year business plan should have 100 very profitable franchise units in operation. Your numbers 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 must deduct costs for sales, marketing, payroll, and other expenses, but ultimately, 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 be doing it."

Scaling a business in the form of a franchise brings many challenges, both operational, legal, financial, and recruitment. That has been our specialty for over 35 years, and we proudly contribute valuable support to many of the largest and most well-known chains in the Netherlands.