Franchising is a business model that combines the best aspects of sole proprietorship and Corporate America. It can be described as a “hybrid†model that fills the gap between working for somebody else (whether a large corporation or a small business) and working for yourself.
Franchising is not an industry in itself. Rather, it’s a way of doing business that can be applied in almost any sector. Today about 3,000 established franchise brands operate in nearly 250 different lines of business in the U.S.
Franchising has two main forms. In product/trade name franchising, a franchisor owns the right to a name or trademark and sells or licenses the right to use that name or trademark. Business format franchising, the type discussed here, involves a more complex relationship in which the franchisor provides franchisees with a full range of services and support, and franchisees sign an agreement to conduct operations in conformity with specific rules laid out by the franchisor.
According to the International Franchise Association, “Franchising is a method of distributing products or services. At least two levels of people are involved in a franchise system: 1) the franchisor, who lends his trademark or trade name and a business system; and 2) the franchisee, who pays a royalty and often an initial fee for the right to do business under the franchisor’s name and system.â€
Franchising is a team effort. For any franchisor to succeed, the vast majority of its franchisees (all, ideally) must operate profitable individual franchise units over the long term. A brand’s success depends on an ongoing partnership between franchisor and franchisee. One of the most common sayings in franchising is: “Franchising means working for yourself, but not by yourself.â€
