Franchising Your Small Business - the Fly Speck Part One

According to Scott Shane in From Ice Cream to the Internet, Using Franchising to Drive the Growth and Profits of Your Company, "the basic principles about how to design effective franchise systems ... (are) virtually unknown among practioners of franchising. The net-net being is that if the current franchising developers don't know what the heck they are doing, then, you will be far ahead of the curve by reading the detail here. Starting a franchise of your own might not be such an outlandish idea.

The purpose of this blog is to give you the step by step to start a franchise, the nuances surrounding each step and some context around franchises. In my previous blog - How To Franchise Your Small Business - I provided the bigger picture steps that you need to take to franchise. Here I will provide the details or the "Fly Speck" around those steps.

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A non-inclusive list of Fortune 500 company franchise:

McDonald's

Ponderosa

Prudential Insurance

Wendy's International.

Five percent of all franchisors include public companies such as Doubletree Hotels, Big O Tires and Swisher International.

In his book Shane presents to us 11 rules to follow for a company to be successful at franchising.

I will recap each one briefly in this blog.

1. Select the right industry

What is a franchise ...

According to the Federal Trade Commisson:

"The term 'franchise' means any commercial relationship ... whereby a person offers, sells or distributes to any person ... goods, commodities, or services which are: 1) identified by a trademark, service mark, trade name, advertising or other commercial symbol ... or 2) directly or indirectly required or advised to meet the quality standards prescribed by another person where the franchisee operates under a name using the trademark, service mark, trade name, advertising or other commercial symbol."

According to Shane, "the broad category of franchising is made up of tow different business models: product franchising and business format franchising. Product franchising is an arrangement in which one party, a franchisor, develops a trade name and licenses it to another party, a franchisor, develops a trade name and licenses it to another party, a franchisee. The product franchisee contracts for the use of the name to deliver products or services to end customers for a certain time period at a certain location. Examples of companies tha engage in product franchising are Coca-Cola, Goodyear Tires and John Deere.

Business format franchising is an arrangement in which one party, a franchisor, develops a brand name and an operating system for a business, and licenses them to another party, a franchisee. The franchisee contracts for the use of the name and the operating system to deliver products or services to end customers for a certain time period at a certain location. Examples of copanies that engage in business format franchising are McDonald's, Subway, General Nutrition Centers and Wendy's.

The major difference between product franchising and business format franchising is that product franchisors do not offer an operating system to franchisees and business format franchisors do."

To be continued ...