Question

The Allure of Franchising

Neil Erlich knew that he wanted to be an entrepreneur when he helped start a contracting business when he was just 14 years old. During his junior year at Sonoma State University, Erlich, with help from his father, a corporate executive, began investigating franchise options that would suit his interests and skills. They honed in on the automotive service industry and reviewed the regulations of several franchises, including Total, Jiffy Lube, and Midas, before settling on Express Oil Change. Erlich was particularly impressed with the support that Express Oil Change offered its franchisees. When Erlich graduated with a business degree, his father put up $375,000 to help him purchase and set up the $1.5 million franchise operation. Erlich, who is the youngest franchisee in the Express Oil Change system, sees the franchisor’s support as one of the greatest benefits of choosing to open a franchise rather than an independent business of his own.” The franchisor is there for you," he says. "It’s very comforting. "

Like Erlich, a growing number of college graduates and twenty-something adults who are disenchanted with the prospects of a dull job in the corporate grind are looking to franchising as a promising career choice. Indeed, franchising is attracting people of all ages and backgrounds, from corporate dropouts and military veterans to retired Baby Boomers and corporate castoffs.

” People say, ’I put 20 years into a company, and because they ran into some tough times, they let me go,’” explains Ray Titus, head of the United Franchise Group.” They think, ’Do I want to put myself into a position where I may get laid off again?’ Instead, they take control of their future by running their own businesses." For many of them, franchising is the perfect fit.

Retirees who are looking for second careers also are turning to franchising as well. "They’ve got school-of-hard-knocks experience and business skills that they can apply on day one at a franchise," says Michael Shay of the International Franchise Association. Judy Divita, a retired corporate human resources manager, and her husband Charlie, a retired college professor and consultant, decided to embark on second careers as franchisees rather than stop working. After researching franchise opportunities, they opened a Subway franchise in Columbia, South Carolina, not far from where Charlie had taught at the University of South Carolina. Over the next nine years, the Divitas opened five more sandwich shops in Columbia, including one on the university campus. In addition to their built-in market of college students, they target the players on the athletic teams that come to campus to participate in more than 400 sporting events ranging from baseball and football to basketball and volleyball each year. The Divitas have won the MVP Award Winner for Innovation from Multi-Unit Franchisee magazine. Their nine outlets generate $4.5 million in annual sales, and the couple’s goal is to have 13 Subway locations within 10 years.” The franchise gives you the basic things to put you in business pretty quickly," says Charlie.” You have to take it beyond that and be creative to come up with novel ways of doing things that are particular to your company and your community.”

Franchising can be the ideal path to owning a business for people in almost any phase of professional life, whether they are retirees looking for a new direction and extra income or recent college graduates who are ready to embark on exciting careers. "Boosted by a brand name, training, advertising, and an established business plan, a franchise can ease the struggle and the risk of opening a business and still let you call some shots,” says one business writer.

1. These examples show people at different stages of their professional lives choosing to become business owners with the help of a franchise. What conclusions can you draw from their stories about the benefits and appeal of franchising? (300 words – 40- marks)

2. What are the disadvantages of investing in a franchise? (200 words – 30 marks)

3. Suppose that one of your friends who is about to graduate is considering purchasing a franchise. What advice would you offer him or her before signing the franchise contract? (200 words – 30 marks)

Answer 1

1. Franchising is benefitted in that case where people do not want to own their own business, any individual passionate to increase the capital feels less risky in investing the money in the franchise from a reputable brand. This also benefits the entrepreneur to be creative and innovative. Instead of opening their own brand and setting up their own business and also it is not predictable to see the vision goals as a profitable asset in investing their own business model so It is beneficial to have a franchise from some renowned brand according to the above stories.

2. Disadvantages of investing in a franchise are as follows:

a. Initially, there is a high Investment.

b. As all the system and business models are made on transparency so there is left of Privacy left for the franchisee.

c. We do not have full control in setting up the business process.

d. Monthly royalty fees which are charged with 5-6% of sales and thus reduce the profit potential to the franchisee

e. Restrictions on selling the product to a segment of customers and also on suppliers.

3.

a. I advise my friend to invest in a renowned brand to acquire their process understanding and business model and also the reputable brand attracts the customer and they feel loyal.

b. No need to take the risk of investing in his own business.

c. Investing in a franchise may cost high initially and profit potential is less but it is ongoing and profit him in the long term.

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