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In order to understand the meaning of franchising we have to bear in mind the definition which describes franchising as a process where the owner of know-how, a product, some kind of service or a process, the Franchisor, gives the right to someone else, the Franchisee to use the product, service or name as an exchange for a payment. The franchisee has a different role from franchisor as franchisees are people who become partners in an already recognized business and they are wiling to develop the sustainability through the franchisor's wisdom. Now, before commencing our examination of the matter, an entrepreneur is a person who is willing to create something original and sustainable for the first time and he or she is someone who takes a risk for the originality and sustainability of his or her business.
A lot of people believe that franchise is an American invention but that perception is wrong. The term 'franchising' imitative from ancient French, is distinct as holding a particular licence or right. Franchise took place in the USA in the 1850's when Isaac Singer invented the sewing machine. Singer wanted to allocate his machines in other geographical areas so he started selling licenses to entrepreneurs in different parts of the country. In addition, Singer was the primary person who set up franchise contracts. The purpose of franchising is to multiply the franchisor's business concept. Another example of that is Ray Kroc who started with a small chain of fast food shops in 1955 and now this chain turned to be one of the most successful fast food franchise worldwide known as McDonald's.
The franchising system operates between the franchisor and the franchisee. The role of the franchisor is that he is provided with the rights of the name of the brand, location and systems. Also it provides the know-how product or service and also he offers the required training for the franchising process. Another important role for the franchisor is to promote and to develop the business and to protect its status. The franchisee has also his role with providing the required equipment and manpower in order to develop rightly the business. Furthermore the franchisee must operate the business according the Operations Manual and Franchise Agreement and last but not least he is entitled to pay an on-going Management Service Fee.
In order to successfully complete the franchising process of agreement, the franchisor and the franchisee have to follow an agreement process. For the completion of this process, a contract called the Franchise Agreement which is set up by the franchisor, must be agreed and followed by the franchisee. This agreement includes the main terms and aims for the franchising and in order to proceed to the next step of the required franchising the franchisee has to agree and sign this contract.
In the world of franchising it is vital for the franchisor to choose right partners but on the other hand this is a very difficult task for them. When choosing a franchising partner, the personal characteristics, professional experience and qualifications are the most important factors which the franchisor has to consider. If the franchisor makes a wrong choice of partner, this will cause severe consequences for the system and the problem caused by the wrong choice cannot be solved by the termination of the contract. As a result, the future success of the franchising business and the economic development depends on the franchisor's right choice of partners.
Franchisors do not prefer entrepreneurs as franchisees because entrepreneurs generally are far more free spirited and they are focused on innovation and not the adherence to rules and manuals that the franchising process requires. Franchising is based on a set of rules and for this reason franchisors are hesitant in working with an entrepreneur as their franchisee partner. The vision between the franchisor and the entrepreneur is entirely different as an entrepreneur seeks to create something original and a business in which he will have the first opinion and he will set his own rules. Creating a business for the first time, there will be many difficulties which the entrepreneur will face and also there will be a lot of risks, but with the franchise system the risks are reduced as you are running a well-known business that is established in the market and with products or services that are already tested and maintain a great reputation and fame. In order to engage in the franchise system there is a business plan which has to be followed and as a result of this the entrepreneur is not deemed so suitable for this position as he will have greater difficulty in accepting to follow the rules set up by another company with strict rules, regulations and operation manuals. The original franchisor is considered to be the true entrepreneur who has a dream or a vision of the company and he is someone who takes and faces all the risks. Franchisees are those who seek to find guidance and leadership but this does not mean that they are not creative or they do not have a good work ethic.
It has to be said that until recently, entrepreneurs were not widely studied. The recent interest in revitalizing the dormant productivity that characterized the European and American markets has changed all that. Most business universities now offer courses in entrepreneurship, especially in the United States. Much unlike the experienced model that Franchisors seek, in small businesses, where there is no depth of management, the leader is the entrepreneur and he must be there. He may even not be able to afford a support staff to cover all business functions, and therefore he depends on far fewer people, there are no internal procedures and both him and his limited staff, if any, work long hours. Entrepreneurs do not function well in structured organizations and do not like someone having authority over them. Most believe they can do the job better than anyone else and will strive for maximum responsibility and accountability. They enjoy creating business strategies and thrive on the process of achieving their goals. Once they achieve a goal, they quickly replace it with a greater goal. They strive to exert whatever influence they can over future events.
In big planned organizations, entrepreneurs are simple to recognize by the statements they make: "If they wanted that job done right, they should have given it to me." A main characteristic of entrepreneurs is their faith that they are smarter than their peers and superiors.They need the liberty to select and to take action according to their own awareness of what actions will result in success. That is dreaded by Franchisors who, while they do appreciate self confidence, they expect structures to be there so as to ensure that their operational manuals are adhered to by a team that is willing to follow rules and accept guidance but even that their very own brand and its value will be protected.
Contrast this with what a franchise company is looking for in a franchisee. A good franchise company has typically invested in years of trial and error, gaining the experience to know exactly what a new franchise should do in order to open and operate a business unit successfully. They aren't looking for prospective franchisees who want to reinvent the wheel--rather, they want people who'll simply execute very well the exact plan laid out by the franchisor. This approach has many advantages for a new franchise in terms of risk reduction, capital preservation and the peace of mind of knowing exactly how challenges should be overcome. The problem for a true entrepreneur is that this approach doesn't leave much, if any, room for self-expression, especially early on in the process of building the business. This can be frustrating for someone with a high degree of self-confidence in their own ability to invent solutions to business challenges on the fly.
However, entrepreneurs have already tried setting up one or more businesses. They might even currently own an independent business they founded. They've paid the dues and learned just how difficult and expensive this process can be. Given this history and experience, entrepreneurs are sometimes willing to forego some of their independence in exchange for a higher degree of certainty in terms of the financial planning and risk management involved in starting a business. As much fun as it is for an entrepreneur to have freedom in terms of dealing and solving business challenges, it's also very stressful. It's a tough market worldwide and sometimes they want to make life a little easier for themselves by getting involved in a system that's already tested and proven. Even though good franchise systems are typically very well documented and regimented, there are usually some opportunities for franchisees to express their thoughts about system improvements. These opportunities can be a wonderful outlet for the creative forces that drive entrepreneurs. One example could be participation in advisory groups that work with the franchisor to review and suggest modifications to the current systems. These can be focused on marketing, operations, technology or any of a number of other topics.
Many of the most important innovations in franchise systems are actually developed and tested by franchisees, normally in conjunction with and under permission from the franchisor. The development and testing of new products and services to add to the current system is a very important growth factor for most franchises, and this is an area where entrepreneurs can really make a contribution. This type of activity usually takes place after the franchisee has proven their excellence in the execution of the basic system of the franchise, so it might very well be some time before this type of opportunity presents itself.
As analyzed above, franchisors want their new franchisees to build successful businesses as quickly and efficiently as possible. They've developed a set business model for making this happen. They've learned that new franchisees that deviate from this set business model typically get lower initial results, and that defeats their purpose. If they have a sense however that an entrepreneur is indeed willing to hold off his natural inclination to make changes until his business is up and running well, then they're often happy to have an entrepreneur in their system.
One such example of a successful relationship from my own country would be that of the successful Austrian Chain Akakiko who trusted the Louis Group of companies to open Akakiko restaurants on the island. While the Louis Group does indeed have a long history of professionalism, experience and history, it is well known in Cyprus that its management is characterized by a somewhat entrepreneurial spirit. That is what led to new products being developed for Akakiko from Louis Group, of course with the consent of the Austrian Chain which now has adopted them and used them in Austria too. The same can be said for the well-known Greek fast food chain Goody's. Goody's had a no home delivery policy for years until they cooperated with a local Cypriot entrepreneur who opened franchised Goody's stores in Cyprus. He insisted on taking the risk and developing this service and product for Goody's. After a lot of pressure from him, they finally agreed 5 years ago. It proved to be so successful in Cyprus, that the franchisor adopted the new service and also launched it in Greece, using the entrepreneurs' design of the whole concept. So, in essence we saw the roles here being reversed.
What such examples show is that yes, choosing the right partner is crucial and while entrepreneurs might ne far more free spirited and lack some other important qualities franchisors seek, let's not forget that franchises do need innovation in order to avoid being stagnant and losing their leading position in the market. So if and when a golden balance between franchising and entrepreneurship can be reached, the best of both worlds will then be utilized.