“Sellout.”
Unfortunately, that is the common perception when it comes to a well-loved, successful brand that veers into franchising for expansion.
The assumption is: since the new shops are going to be managed primarily by someone who is not the owner, there wouldn’t be nearly as much care, attention to detail, and quality control in everything they do, for e.g the service standards, the taste, and the quality of food served.
On the opposite end, if you consider organic expansion, the brand would still be under the original owner and would logically mean that he or she has stricter control across all outlets.
McDonald’s: The King of Franchising
If you want to grow “legitimately”as a brand in the eyes of your consumers, is organic expansion really the way to go?
In my opinion, your method of expansion really depends on your short and long term goals for the business, and what you’re willing to give and take to get to that end goal.
Now, let’s dive into some pros and cons on the key factors of organic growth versus franchising.
Capital
Organic
This essentially means you need to pump in the massive capital investment needed to start up each new store – and we’re talking six-figure sums here.
Unless you have investors to back you, it can take a while before you gather enough of your profits from the first store to invest into your second one, which will limit your speed for growth.
Franchising
Franchisees foot the bill for everything that goes into their new store. As a business owner, you’ll get upfront income with the one-time franchising fee as well as monthly royalties from your franchisee.
In terms of capital, it has less risk because it’s not a direct investment using your money Of course, you don’t get 100% of the profits as if it’s your own store.
Returns
Organic
Your heavy investment into your new store also comes with 100% of the profits – which is great!
You are in full control of the seeds you planted and what you can reap. As you’re fully invested into the business, the worries of sales, staffing, maintaining or lowering your ingredient costings, remaining profitable (so you are not making a loss and running your business to the ground) are now 100% your worries.
Franchising
As a franchiser, you only get a share of the pie – royalties that get paid to you according to your franchisee’s revenue per month.
While it is nice to have a guaranteed variable income every month, it doesn’t come worry-free. It’s your job to ensure that you set up your franchisees for success, which means you can’t take your one-time fee and leave them to fend for themselves.
Your brand is at stake. Moreover, a successful franchisee means a successful brand expansion, and higher royalty payouts to you. It works both ways.
Scalability
Organic
It’s going to be pretty hard to scale quickly on an organic growth model.
You’re overseeing minute start up tasks and challenges of the new store, while running your existing flagship one.
Unless you have a truly unshakable team to hold the fort for the flagship store while you fret over the new one, you’re looking at a pretty daunting road ahead of you.
Even if you have a stellar team assisting you with location after location – how far are you able to expand on your own?
Logistics are something to think about: you’ll need a central kitchen/warehouse to hold your packaging inventory. If you’re thinking of expanding overseas, it’s even more challenging. It’s going to be a tough call on how you’re going to locate part of your team there, manage it from here, and so on.
Franchising
Once you’ve set up your franchising model and have readied your brand for launch, you can set up a franchise almost anywhere.
It comes down to evaluating and selecting your franchisee operators to ensure you have someone who will be deeply invested and incentivised to turn their investment into a success.
Because you’re not forking out any capital, overseeing gruelling start up tasks, and dealing with managing more staff for a new team, you get to channel your focus into mentoring and guiding your franchisee towards success, and they are the ones taking on all these worries instead.
Human Resources
Organic
You’ll have to deal with the nightmare and burden of a managing, motivating and dealing with a whole new team under your wing.
Managing people is the one of the most difficult things in business, simply because you’re dealing with different personalities with varying motivations.
While everyone thinks that being a boss is fun because people work for you, in actual reality, YOU are the one working for your employees.
You need to create company culture, check in on everyone to ensure they are happy, motivated, learning and growing, forecast career paths for them, provide sufficient benefits, oversee their work and boundaries, and mediate any squabbles between team members.
The list is never-ending – and this is a daily thing on top of worrying about all other aspects of your business.
Franchising
Alternatively, you could focus on hiring an area franchising manager and strengthening your core team. Your core team can help oversee franchising expansion, and a well-functioning one can train new franchisees to be duplicates of the flagship store (all the way down to the nitty gritty) – exactly what you want.
It is comparable to a smaller, tightly knit family taking care of adopted siblings, compared to the organic growth model which resembles much more of a large, constantly expanding family that is harder for parents to keep in line.
Organic Expansion vs Franchising – Which To Choose?
At the end of the day, both growth models work.
However, it depends on the entrepreneur and his/her needs as well as goals set for the future.
If you’re worried about letting your brand go to outsiders, and don’t mind growing slower as long as you get to keep all the profits, the organic growth model may be for you.
If you know the potential of your brand but lack the investment capital, perfecting a franchising model may be the right way for you to expand at a faster rate and making a mark in a broader market.
