Why is this business model still work and is infact growing? In my view, the franchise business model works because of critical mass and economies of scale that allow the business owner to enjoy lower operating costs. It allows you to focus on managing your business rather than spending time creating or sourcing deliverables for your customers. It is exciting to expand your current business, grow a new business division, or become an entrepreneur however it is equally comforting to know that you are not alone. For a franchiser also, one of the greatest advantages to them is that they get 100% commitment from their franchisees who have a stake in the business rather than staff or managers who simply work for a salary and may be less motivated. Franchising enables them to utilise the entrepreneurial skills of the franchisee network to achieve better results than might otherwise be achieved.
Few days ago, I was reading an article on franchising in USA and found some interesting facts:
- There are an estimated 1,500 different franchisers (franchise business companies) operating in the U.S.
- There are believed to be more than 750,000 franchise businesses in the U.S.
- The franchising industry and businesses employs over 18 million people in the U.S.
- In 2004, it is estimated that franchise businesses were responsible for over 1.5 trillion in economic output.
- The franchise industry accounts for 40% of all retail sales in the US
- A new franchise business opens every 8 minutes of every business day
- Approximately one out of every 12 businesses in the U.S. is a franchise business
- More than 75 different industries use franchising as a means to distribute goods and services
- Top franchise industry- Fast Food
- Top franchise company- McDonalds
Quite interesting, isn't it?