April 5th, 2008 Systems posted by dmerritts View Comments

Buying into a Franchise

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.

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  • http://www.third-place.be/

    Most of big franchises are now expanding to Asia. Creating a Franchise in China is for me the best way to unit support and opportunities.

  • Lorita Mayoka

    Opening a franchise is a big gamble, either you win big or you lose big. There is a no small lost for the business. I still remember, losing 100k$ last year.

    Lorita M – Earlier investor at http://cheapmovingcompanies.co

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