To be or not to be…a franchisee

Do you think there’s a difference between the Outback Steakhouses you dine at? Well, the truth is, you shouldn’t notice any at all.

Outback Steakhouse only has company-owned restaurants; meaning they do not have franchisees. They own and control all of their locations. In other words, they no longer allow young entrepreneurs like me to engage in a franchise agreement with them and I will not get to own and manage any of the Bloomin’ Onions of the world anytime soon. Even when Outback allowed this approach the saw a huge gap in consistency among their locations, including the quality of food. Even with a detailed contract, you cannot control the franchisee completely. Since enforcement was so problematic, Outback regained ownership and control of all their locations.

I have another example of a franchise in a food industry that still allows this practice: Subway. I hold the 6” Italian near and dear to my heart. And with the convenience of having one on nearly every corner in Atlanta, you really can’t go wrong. However, I never know what to expect. I have literally eaten at probably a hundred different Subways around the world and about all that remains the same across the board is the company name. Yes, there’s a template for how they decide how many banana peppers go on there and how many pieces of cheese to add. But there is no consistency with the quality of food, the cleanliness of the eating area, the design of the room, or the décor. I believe this makes it difficult to increase customer loyalty when your brand has no consistency across multiple locations.

I also have friends who run a very successful dog grooming business north of Atlanta called The Dirty Dog. After opening up their second location, they began to be inundated with people interested in becoming a franchisee. The two owners discussed it at length over and over but the truth is, they were not ready to give up any control whatsoever. They were determined that the level of service their customers were used to remain the same. And I tend to agree. It would be next to impossible for them to oversee each location around Georgia, or much less out of state.

But then how DO you grow a business? We have seen the successes of franchise though…can you say “golden arches?” McDonalds opened its first franchise in 1955. While incorporating a training program for its employees appropriately entitled Hamburger University, it ensured consistency among locations, and over time, success. Notice I said “over time…” that’s key to the success of a franchise.

So “where’s the beef”, you ask…the benefit of even engaging in this type of start-up? Well, for starters, entrepreneurs typically think a franchise will be less risky as the company name/brand has already been established. But a franchise isn’t a proven concept. Just because one store does well, does not mean another will. The same factors that we learned in Entrepreneurship 101 still apply – target market, demand, price, area, etc. all play a role in the success of a business.

Entrepreneurs are also under the impression that they can spend less money during the start-up phase and make a faster profit if they only have to put forth some initial costs to buy the rights to use the company name, etc. While sometimes this is true, other times the franchisor still expects a portion of the sales and they do not always pay for marketing materials.

I personally ran into this at a local dog boarding franchise. While the new owners had become franchisees and they were given all the brochures and flyers they could ever imagine, there was a lack of help from the franchisor’s side on best practices to get the business running. When discussing how to run a grand opening, there were little no ideas or assistance from the parent office.

In the end, I think true entrepreneurs have an internal locus of control and want to start their own independent store. It’s hard for them to see the incremental successes and failures if their location is always tied to a “mother ship.”