Are There Too Many Cooks In A Franchise System? What About Going Corporate? by Forbes – Entrepreneurs

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JUSTJUNK® CFO Andrea Bone speaking to some of our Franchisees and General ManagersMike Thorne

If you’re an entrepreneur, you’ll inevitably get asked,  “how are you going to expand your business?” Early on, the only way in which I could expand was through the franchising model.  Expanding into new cities using a corporately-owned approach was simply too expensive, and banks were not willing to provide us with a loan. I and many other entrepreneurs chose to franchise as it’s the best way to share the risk and capital that is required to scale a brand nationally and internationally.  

Prospective franchise owners pay a franchise fee and ongoing royalties to licence the brand and use the proven business model and support services from the franchisor. The franchisor, in return, has the peace of mind knowing that when a franchisee has made the investment to open up a new franchise, they have a committed business partner that will fight through the ups and downs and remain loyal to the operation. Franchisees have more financial skin in the game than a general manager or employee might have.  

Our franchise system has always been mixed, with 95% locations franchise owned and 5% corporately owned.  Recently, we announced to our franchise network that we would be opening up additional corporate locations.  The feedback from our franchisees varied. Some celebrated the decision and some cast doubts. Many franchise systems have a higher percentage of corporately owned locations than we presently have, and it’s not uncommon to hear one CEO of a national franchise brand state their franchise system wants to increase their corporate units to 50% overall, while another CEO state in their strategic plan they want to reduce their corporate units to 1%.  There is no “right” answer, here. It really depends on the strength of the franchise system, the company’s balance sheet and the type of business model they’re using.

I will always be a huge believer in the franchise model and we will continue awarding franchises to qualifying owners, but I also admire brands such as Starbucks or Chipotle that use a corporate store expansion approach. More and more frequently entrepreneurs that have grown through both corporate and franchise units have found that corporate expansion has it’s advantages.  Here is why:

Increased Profitability.  

With a franchise model, the Franchisor doesn’t receive any profits earned by the franchise owner, only royalty fees they charge the franchisee.  Being able to participate in both the top and bottom line revenue has a lot of appeal for the Franchisor, strengthening their financial position.  Be mindful that, when building a strategic corporate growth plan, newly incurred management expenses to manage the corporate locations aren’t greater than the newfound profits – otherwise the returns are negligible.

The Roles Of The Zee and Zor Has Evolved.  

When we started franchising our business model, the way we acquired customers was vastly different than today.  We started franchising in a world when few customers were searching for junk removal online and most people found our service through our guerilla marketing efforts and good old fashioned relationship building by knocking on the doors of realtors, property managers and homeowners.  Franchisees were required to focus 80% of their time on customer acquisition and 20% on operations.

As time passed, we discovered some of our franchisees were spending little to no time on advertising and promoting their businesses. We slowly began to take control of almost all of the advertising tactics on behalf of the franchise owners.  JUSTJUNK® and many other franchisors are no longer largely dependant on their franchisees to generate business locally. The world of local and search engine marketing has evolved and in 2019 those changes have lead to the franchisee in some systems playing less of a role in new customer acquisition than they once had.

One Voice

When there are too many cooks in the kitchen, execution and productivity slows.  Take a simple decision, like defining an annual advertising budget. When multiple parties are involved in decision making, especially when debating large budgetary items, the speed in which decisions can be made is bound by the length of the debate and delays in correspondences between all parties involved. Under corporate ownership, these discussions can be streamlined.  Having full control over a decision and the ability to execute is one of the biggest driving forces behind franchise systems expanding through a corporately owned model.

Many startup franchisors can’t consider opening corporately owned locations as most lack the infrastructure or capital. Over time as their franchise system grows, branching out into corporately owned locations can be a great way to fast forward the growth of the brand and diversify their expansion model.  With our Director Of Corporate Franchises hired and working to launch our newest corporate location, his fresh perspective is bringing improvements to our start-up steps, operating procedures and advertising strategies which our company is leveraging to benefit all franchise owners. The best of both worlds.

March 15, 2019 at 02:09PM
Forbes – Entrepreneurs