Do Business Well

This is modern-day franchising at its best. In addition to a product or service and the right to the use of a trademark, the franchisor offers franchisees a comprehensive business concept that has been tested and proven to work at optimal efficiency. Moreover, the franchisor undertakes initial and ongo- ing training of franchisees and sometimes their staff, product development, market research, joint purchasing and promotional programmes and takes an ongoing hands-on interest in the franchisee’s business affairs.

However, the real secret underpinning the success of business format franchising is the reality that, given the way the business format franchise relationship is structured, the franchisor cannot hope to be successful in the long term unless the vast majority of his franchisees are successful as well. Behind this simple fact lies the true genius of franchising; it is also the reason why business format franchising has become the business model of choice for entrepreneurs worldwide.

Unless specifically stated otherwise, the balance of this book will 0 deal exclusively with the concept of business format franchising.

Figure 3 presents a summary of the characteristics of the various business formats that have been described above. At the bottom of this table, the term Conversion Franchising is mentioned; this term has not been described earlier because in essence, a conversion franchise is nothing else but a business format franchise. The only difference is that instead of opening a new business and recruiting an inexperienced person to fill the role of franchisee, the franchisor has elected to target independent entrepreneurs who are already active in the industry and converts them into franchisees. This holds major advantages for both parties:

Given the conversion franchisees‘ established trade connections, the franchisor can look forward to gaining market share more rapidly than if the outlet were set up from scratch. This will be of significance, for example, if bulk purchasing is the main rationale for the franchise network.

The franchisee, on the other hand, will typically be attracted by the bulk purchase benefits, advertising muscle and sophisticated IT systems offered to him by the network.

Definition of Franchising

A major problem that continues to rear its ugly head from time to time is the absence of a legally binding definition of the term “franchising” which, as we have seen, effectively stands for “business format franchising“. The seed for a clear definition goes well beyond mere semantics, as a bona ide business format franchise is the only business model that is likely to leliver on the promises would-be entrepreneurs have come to expect.

The Franchise Association of Southern Africa has published a definition that, although it is not legally enforceable at present, should go a long way towards creating clarity in this regard. See block below.

“A franchise is a grant by the franchisor to the franchisee, entitling the latter to the use of a complete business package containing all the elements necessary to establish a previously untrained person in the franchised business and enable him or her to run it on an ongoing basis, according to guidelines supplied, efficiently and profitably.”

Although this definition embodies the spirit of franchising, it may not be specific enough in setting out its intentions. Much is implied rather than expressed. Guidelines developed by British attorney and franchise guru Martin Mendelsohn may be better suited to eliminate uncertainty as to what constitutes a bona fide franchise.

Possibly related posts: (automatically generated)
Business format franchise

• Some Franchise Terminology
• Modern-day Franchising Part 2
• Selling the Franchise
• Relationship Franchise Agreement - Operations Manual
• Various Business Formats
• The parties to the franchise agreement
• Modern-day Franchising Part 1
• Is a franchise the optimal solution? From the prospective franchisor's viewpoint
• What does a Franchise Agreement cover?
• Modern-day Franchising Part 3

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