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Rise of the Franchisee Entrepreneur

I remember my year 11 economics class and the subject of entrepreneurship; it was described as being “hard to define and even harder to encourage”. It sounded elusive and counter to the field of economics where we generally like to be able to define our parameters for everything we study.

How do we define entrepreneurship and what is its relationship with franchising? Let’s start with returning to the definition. It turns out my year 11 class was not wrong. Wikipedia allocates nearly 250 words to a definition which includes:

  • Entrepreneurship is the creation or extraction of value.
  • Entrepreneurship is the process of designing, launching and running a new business, often a small business.
  • Entrepreneurship is the capacity and willingness to develop, organise and manage a business venture along with any of its risks to make a profit.
  • The people who create these businesses are often referred to as entrepreneurs.

I am going to summarise and define entrepreneurship as a willingness to, or process of taking on commercial risk, developing and managing a business with a view of creating value, profit or return.

The misperception that franchising stifles entrepreneurship

We have conversations every day with people who want to start and grow their own businesses. They want to take a measured risk, invest time and money with a view of controlling their future and of course, make a return. Without perhaps saying it themselves, they want to be entrepreneurs. Those that have already decided that franchising is their route we call franchisee entrepreneurs. The statistics overwhelmingly demonstrate franchisee entrepreneurs are more successful.

Some budding entrepreneurs however have a misconception that franchising will stifle their entrepreneurial aspirations. I believe this could not be further from the truth, and invariably we have a discussion around recurring themes:

I want to own my own business, not someone else’s

Nearly every franchise brochure or explanation that I have seen over 20 years starts with something similar to “be in business for yourself, not by yourself”. This is true, franchisees find – whether directly or through borrowings the business themselves, and the risks and rewards sit solely with the business owner, the franchisee entrepreneur. It is their business – it is not an outlet or subbranch of the franchisor’s business.

I want something I can develop, control and influence

That is not solely, but it is ultimately in the hands of the franchisee entrepreneur. If it is a start-up or greenfield franchise business, they obviously need to develop and grow the business. If buying an established franchised business, there is always room to develop, refine and do better. And the best part about franchising is it provides the road map and the benchmarking against which success can be measured.

From over 20 years of research the Franchise Relationship Institute has established that one factor accounts of approximately 40 percent of the success (or otherwise) of a franchised business. It is not the brand, not the location (though both are critical), it is the franchisee.

I don’t want to be told what to sell and I don’t want to be stifled

Firstly, here is the wake up, “someone” is going to tell you what you should be selling. That “someone” is the “market” – if the market does not want it, you won’t sell it. And why would you not want the collective experience, support and guidance of a franchise system to assist you with what you should be selling?

We also often hear people say they don’t want their ideas or innovation stifled. Good franchise systems do not stifle innovation, they have the ability to develop, test and roll out innovation, often generated by franchisees. Need we say more than Big Mac – invented by a franchisee, now the greatest selling burger on earth.

I don’t want to follow rules

Let’s face it, we have rules in business – we must pay taxes, we must follow an extraordinary number of legislative requirements and we must perhaps most importantly, do the things, and follow the rules that will create profitable businesses.

Franchise systems develop processes and parameters, “rules” because they work. Some are designed to make sure the franchisee is able to stay within the legislative playing field. Whilst others are definitely to ensure compliance within a franchise system.

To quote one of my former franchisor managing directors: “The franchise agreement and parameters are designed to keep the good things in and the bad things out.”
There is one statement that does separate the entrepreneur from the franchisee entrepreneur – I want to create or develop my own “thing”.

These super brave people are politely called pioneers. I believe there is often a confusion between pioneering and entrepreneurship and while they are not mutually exclusive, they are not the same.

You do not need to invent, or revolutionise anything to be an entrepreneur. If you do want to be a pioneer, then franchising is probably not for you and we wish you the best of luck.

But remember that statistically, the franchisee entrepreneur is more likely to be successful.

Nathan Bonney
Director of Iridium Partners. He can be reached at nathan@iridium.net.nz or 0275-393-022

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