‘To Franchise, or Not to Franchise?’


Franchising can be a highly successful approach to growing a business. But entrepreneurs should weigh success stories such as those of McDonald’s, which had $28.1 billion in revenues and $5.6 billion in net income in 2013, or Subway, which now has more than 67,000 shops across the globe, against cautionary tales that tend to reinforce realism. Sbarro and Quizno’s both filed for Chapter 11 bankruptcy protection in March 2014. This highlights the truth that adopting the franchise model is no guarantee of success.

For starters, let’s take a look at the complexity of franchising overall. While franchising evokes thoughts of fast food (the largest franchise sector), the franchise model has been embraced by a broad range of industries, from hotels to gyms to home health care to business services. The popular conception of the franchise owner as “the little guy” also is an over-simplification. In fact, multiunit franchise owners are commonplace and can be large companies in their own right. Carrols Restaurant Group, for example, owns more than 570 Burger King locations. Multiunit ownership allows the franchisor to work with a comparatively small number of franchisees whose common ownership promotes economies of scale. It’s no wonder that franchisors like to work with multiunit owners.

Originally Published in The Franchise Handbook - Summer 2014.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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