Franchises can be a an ready-made solution for many budding entrepreneurs. Buying into a franchise requires different levels of capital, but ultimately can lead to very healthy returns depending on the franchise type.
Recently, the WSJ published a ranking of the most successful franchises in the US. The one that surprised me most was two men and a truck. The marketing behind this company makes it appear as though its just a few people and a truck, implying little loyalty and likely a fly-by-night organization. That’s my perception, at least. But, in reality, they have the highest customer satisfaction rating in the moving industry.
I recently attended a talk given by William Edwards of Edwards Global Services. EGS is a leading consultancy to many US based franchises on how best to take their franchise global. It turns out that his firm is consulting for two men and a truck as well. Overall, it’s a very interesting industry and if you ever want to take a franchise global or buy a master franchise agreement for a country Bill is likely the man to talk with.
First, what are the types of franchises exist in the world:
- Product Distribution Franchises: The franchisee sells products manufactured by the franchiser, e.g.: Coca-Cola, Bud, Goodyear.
- Business Format Franchises: The franchisee uses the franchiser’s trademarks, business systems, and advertising programs to sell a product or service.
- Conversion Franchises: An independent business owner decides to acquire a franchise which rebrands his or her business, brings new business system in, and gives them access to more buying power and training programs.
Next, if you want to buy into a global franchise, it’s best to buy the rights of an existing franchise. This is because it takes years to actually build a franchise. A successful franchise takes a lot of work in building repeatable, durable and trainable systems and processes. Getting one’s business to a point where it can be easily handed off to a clueless person after 6-8 weeks of training isn’t easy.
There are a lot of opportunities out there. And, convincing a successful US franchise to go global may be a good, but not-so easy option. Typically, global franchises grant rights in the following formats:
- Master Franchise (most common): Franchisor grants exclusive rights for a country to one company, often with the right to sub franchise.
- Area or Province Franchise: Franchisor grants exclusive rights for part of a country
- Direct Franchise: Franchisor awards Franchises and directly supports their Franchisees in a country.
- Joint Venture License: Franchisor jointly invests, owns and develops the business in a country with a local company.
- Direct Investment (least common): Franchisor owns and operates all units in a country.
Getting the master franchise rights can be very lucrative. Or, if you’re going to China, getting a Province Franchise right is likely optimal.