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Franchising as an Alternative Route to Initiating a New Venture

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Whilst coming up with their own idea is normally the way most entrepreneurs get involved in start-up businesses, an increasing number of people are considering franchising as an alternative route to initiating a new venture.

Franchising is defined as the granting of a licence by one person (the franchisor) to another (the franchisee), which entitles the franchisee to own and operate their own business under the brand, systems and proven business model of the franchisor.

Whilst each franchise business is owned and operated by the franchisee, the franchisor controls the quality and standards of the way in which the business is operated and retains control over the way in which products or services are marketed and sold.

There are numerous advantages to franchising over starting your own firm including the relative quick speed by which the business can be setup, training and support by the franchisor, lower financial risks, and having a proven brand in an established market (with often immediate name recognition by customers),

Whilst franchising hasn’t really taken off as a business concept in the UK and Europe, it has been part of the entrepreneurial ecosystem in the USA for decades. In fact, it is estimated that over half of all new businesses in the USA are franchises (as compared to around 10 per cent in the UK) and that the growth in franchising was over twice of that for the US economy between 2016 and 2017.

“Entrepreneur” magazine is the best place to find out about franchising industry in the USA and its annual Franchise 500 list gives full details of the annual trends in the industry.

Not surprisingly, the list is topped by McDonalds, 7-Eleven and Dunkin Donuts but the list is about more than just these world-famous brands.

Indeed, any analysis of what is happening in franchising in one of the world’s biggest consumer markets also gives a clear indication of where there may be potential opportunities in other markets including the UK.

Not surprisingly, given that established franchises such as McDonalds, KFC and Subway dominate the perception of franchising, over 20 per cent of the Franchise 500 serve food with the majority of these being quick service outlets in food areas such as hamburgers, chicken, sandwiches, pizza and smoothies/juices.

However, an examination of the other growth sectors in the Franchise 500 can tell us a lot about changing consumer trends that can affect businesses in the future.

For example, five of the top hundred franchises in the USA are in childcare with other popular areas being children’s fitness and swim schools. In fact, health and personal services in areas such as physical therapy, fitness, hair care and senior care remain popular with seven of the fastest growing franchises being in the USA in health and fitness.

Therefore, franchising offers potential entrepreneurs in the UK the chance to start their own firms, especially as many of those on the Franchise 500 have little (if any) presence on this side of the pond.

And even if individuals do not want to become a franchisee and wish to be in total control of their new venture, a detailed examination of the Franchise 500 will show in which sectors there could be real market demand for different products and services in the future.

 

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