Franchising and Entrepreneurship

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Category: Entrepreneurship

Entrepreneurship and franchising - these two concepts are closely intertwined, gauging even by the way certain publications on entrepreneurs, like the Entrepreneurs Magazine, are giving considerable attention on franchise opportunities. The franchising-entrepreneurship link is beautifully explained in the book Franchising: Pathway to Wealth Creation:*

What is franchising? Franchising happens when someone develops a business model and sells the rights to operate it to another entrepreneur, a franchisee. The company selling the rights is the franchisor. The franchisee usually gets the rights to the business model for a specific time period and in a specific geographic area. Franchising is sometimes referred to as business format franchising or product franchising.
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Entrepreneurship, according to Howard Stevenson of the Harvard Business School, is "exploiting an opportunity regardless of the resources currently available." Stevenson goes on to say, "The key to this perspective is the focus on opportunity" (not resources). 
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Franchising is, at its core, an entrepreneurial alliance between two organizations, the franchisor and the franchisee. There is no franchise per se until at least one company store exists, the opportunity has been tested, and franchisees sought. Once the concept has been proven, the franchisor and the franchisee enter into an agreement based on their believe that there are advantages in the alliance. An advantage is when you can outperform the competition.

Indeed, it is beyond question that entrepreneurship and franchising are connected, although it is argued that there is no entrepreneurial component in applying for and running a franchise. If we agree that innovation is an integral part of entrepreneurship, the requirement that a franchisee must comply with the business model set forth by the franchisor -- a standard requirement in a franchise -- stamps out entrepreneurial discretion in the business.

[See also Franchising Option for Pinoy Entrepreneurs]

In any case, the franchising business model is not without its risks and drawbacks, but the existence of successful franchises shows that this business model works. Whether it will work for you is an entirely different matter. These matters will be discussed in the days to come.