What is franchising?
In general, franchising allows one person (in franchise terminology called a franchisee) to use the business concept, trade secrets, know-how, goodwill, vibe, and so on, of a particular, usually renowned business (in franchise terminology called a franchisor) while maintaining the independence of its corporate structure. Simply put, instead of merging their companies, the franchisor and franchisee merge in branding and management style of the business. After such merger, the franchisor will also often help out with technicalities and provide the franchisee with training to get them up to speed with the establishment of the business operations. In return, the franchisee pays a fee, usually a percentage of its turnover.
The importance of a solid Franchise Agreement
Life is full of surprises. While startups can be more agile, facilitating stability is more suitable when running a franchise. To protect your whole business model and valuable IP rights, in addition to finding a trustworthy partner, it’s essential to have a solid Franchise Agreement that covers all possible situations. Such agreements are designed to prevent disputes by setting clear rules for the management of the franchise and cooperation between franchisor and franchisee. The agreement also anticipates possible clash scenarios and provides effective solutions to them.
Ensuring you have the right stakeholders:
Franchisee
Franchises are a thrilling way to build a successful business, but the key to success lies in selecting the right franchisees. Without the right people, even the most promising franchise can struggle. That’s why it’s crucial to carefully screen potential candidates, looking for individuals who are driven, experienced, financially stable, and fully committed to the franchisor’s business model and culture. Should the franchisee breach its obligations and, for example, not follow the instructions and policies leading to a similar level of quality to which customers of the franchisor are used, it could significantly damage the franchisor´s reputation.
To avoid these unpleasant situations, the franchisor needs to be extra picky about who they sign a Franchise Agreement with and ensure the terms are just right. In this case, it’s really better to be safe than sorry. However, even if the franchisor misjudges the franchisee, a properly drafted Franchise Agreement should include penalties, guarantees, and other provisions that will balance the risks and offer sufficient protection to the franchisor.
Franchisor
Owning a franchise can provide a sense of independence and entrepreneurial spirit while still being part of a larger network of like-minded people. If you’re considering becoming a franchisee, it’s however essential to do your due diligence before making the decision. One of the most important factors to consider is the franchisor’s track record, including its history.
Additionally, you should look for comprehensive training and ongoing support, understand the initial investment required, and consider the franchise fees and royalties. It’s also important to consider the territory you’ll be operating in, the marketing support and brand recognition offered by the franchisor, and the satisfaction of current and former franchisees. Furthermore, you should understand the industry trends and carefully review the Franchise Agreement before signing it. Considering all these factors should ensure you make an informed decision and choose the right one for your business.
Being a franchisee is a lot like being married. You commit to a long-term relationship, follow a set of rules and guidelines, and have ongoing support from a partner. And just like in marriage, communication and teamwork is the key.
Challenges of taking your business to an international level
Franchise agreements are a popular way for corporations to expand their business globally. Think of McDonald’s or again Gong Cha, who have franchises all over the world. While these networks offer exciting growth potential, they also bring challenges that can vary depending on the country. For example, a franchise in the United States might have different legal requirements than one in China or EU.
Additionally, cultural differences can affect how a franchise is received in different markets. For example, a fast-food restaurant might not be as successful in a country where sit-down meals are preferred. These factors can make international franchising a thrilling adventure, but also require careful planning and consideration. Even the Franchise Agreement may also have different requirements for what must be covered. For example in Taiwan (Republic of China), the franchisor has to provide detailed information about its management program. In certain countries, the competent state authority may also need to approve franchise parameters beforehand. And finally, there are even differences regarding the anti-trust law limits of the non-competition clauses and distribution setup of the Franchise Agreement, which are essential for the running of a franchise.
Franchising in the Czech Republic
Franchising has reshaped the landscape of global business, and one illustration of this is the rise of international coffee brands. Take, for instance, The Miners – a brand that originated in Prague and now also dots street corners in Barcelona through a franchising agreement with partners. Through their franchising model, The Miners has not only taken steps to propagate its distinctive coffee culture across Europe but has also managed to adapt to urban cafes and roasting specialty coffee. The success of such coffee giants is a testament to the power of franchising as a tool for rapid expansion, brand consistency, and cultural exchange in the global market arena.
In conclusion, it can be difficult to scale up a scaleup even with franchising. However, it is not impossible and with the right partner, it can also be lucrative and, dare we say, fun. In case you aim to become one of the successful franchisors, we at Sparring are ready to navigate you through the challenges on the path to success.
