About Responsibility: Independent vs. Franchised Operations

Businesses succeed or fail due to a variety of reasons both in and out of the hands of ownership.  However, the franchise ‘sub-set’ of entrepreneurship adds an interesting dimension to the mix, especially as it pertains to overcoming new challenges.

First, independents make up the vast majority of entrepreneurial ventures. According to a variety of sources the number of small businesses in the U.S. is in the 20-25MM range (sole proprietorships, partnerships, S-Corps, Corporations filing tax returns).  According to other sources (IFA), the number of franchised units in the same geography is 800-900,000. So, can we agree that independents outnumber franchises at least 20 to one? Thanks.  The ratio is important to establish a picture of the overwhelming percent of owners that shoulder all decision making responsibilities.

The vast majority of entrepreneurs prefer independence from a franchisor for many reasons (total cash in, fees, control, creativity, bootstrapping, etc.), but I’ve always believed that the main reason lies in the very word that defines the category - ‘independence’.  Years ago when I began developing ‘the Focus Program for Emerging Entrepreneurs’ it had already become clear to me that there existed different ‘entrepreneurial types’, and in order to provide adequate counsel to those seeking self-employment, I felt there would have to be a self-determination of ‘type’ in order for the aspiring business owner to make a quality decision about their future.  I won’t waste time here explaining the rationale behind ‘types’ because the preceding hyperlinks provide that thinking, but suffice it to say that differing entrepreneurial types appear at different points on a continuum of ‘independence’.  In a nutshell, those with a greater need for independence from society and a greater desire for self-expression will (if their thinking hat is on) choose independent ownership over franchising.  Being a ‘better or superior’ entrepreneur has nothing to do with where an individual falls on the continuum; it’s simply a matter of how different people might ‘fit into’ the world of self-employment.  (And yes, I fully realize that franchising might be best for certain independent entrepreneurs when they lack specific product or service knowledge, and are seeking education, pre-ordained systems, and so on.  I also realize that there is a huge difference between enormously successful multiunit owners and those with a unit or two.  I’m referring to the ‘average’ entrepreneur interested in establishing a lifestyle apart from standard employment, be it public or private.  Again, see my Focus Program for greater detail.)

Can we sum up the franchisee mentality?  After many years of considering, working with, and trying to define franchisees, the best descriptive I ever mustered up is a person that says: “Help me, but leave me alone”.  Make sense?   

On the highly plus side, franchisees have demonstrated the fortitude to forgo the perceived security of public/private employment, they have put up their time and money to be in business, and have placed much of their trust in other people to lead the way. That makes for a lot of ‘forgoing’.  (Yes, I know that I opened up an entirely different can of worms with that statement, so I’ll say the following and be done with it for now: ‘most franchises are not worth the powder it would take to blow them up, especially when compared to a well thought out independent venture’.)

Generally, franchisees are more dependent (in business) than independent operators. That’s why they are willing to exchange a franchise fee for an education (and sometimes other benefits), and royalty payments for support.  It would then, in my mind, follow that when things go wrong, the spotlight should shine on the franchisor, even when (in fact, especially when) a franchisee is at fault for not following the system and must be brought into compliance.  In ‘Franchise Relationships, the Real Facts of Life’, I write about franchisor/franchisee relationships and the mindsets that establish certain barriers to understanding and progress.  But the core of that article is rooted in the idea that, for the most part, in franchising there exists a superior/subordinate interaction that should be designed to last for the term.  And that intended relationship is (supposedly) designed to ‘help’ franchisees through the trials of ownership. 

So, how does the ‘Blame Game’ work in the Independent vs. Franchise scenario?

Obviously I’ve already set up the answer, at least as it pertains to independents, so let’s not labor that point.  Independent business owners are inclined to stand alone on their beliefs, abilities, and resources. They are more apt to fight city hall or move their business if an overpass cuts off traffic. They are more apt (and able) to change vendors when backed into a corner.  And, they will adjust an entire business plan/strategy when economics so dictate. They take responsibility for their successes and their failures. They tend to be …. well, independent because the ‘buck’ really does stops with them. Either they ‘work it out’ or they ‘go out’.

When it comes to franchisees (and the tenets of franchising), dependence on the franchisor is both implied and expressed.  I, therefore, do NOT conclude that franchisees are to take the heat when things go wrong in (the normal course of) business.  While it’s true that a franchisee trades royalties for support, of greater significance is that the franchisor accepts those royalties in exchange for support, and I hold that a franchisor must stay ahead of the franchisee curve.  That means working always toward solving problems both real and imagined. That’s their job.  Of course I don’t expect franchisors to clip fingernails, but common sense is ‘supposed’ to prevail. On all major issues, the franchisor should be an activist.

So, what’s my conclusion regarding the blame game?  It’s simple.  Independents must accept the results (good or bad) of their decisions, and make those decisions they must.  But franchisees have entered a contractual arrangement that radically changes decision making dynamics. They joined a network; one that is to be overseen and, for the most part, protected by the franchisor.  They have every right to expect support, significant support that is in keeping with each stage of development, not just an instruction manual on how to open the doors and account for royalties.

Now, beyond the decision regarding which entrepreneurial ‘type’ (independent or franchisee) best suits a prospective business owner and the consequences of that decision regarding future problems, is there another major caveat to consider?  Yes, and it goes directly to the now extremely tiresome (but still too infrequently asked) question: “is the franchise I’m considering worth a damn beyond the start-up phase?” 

Bonne chance new entrepreneurs - bonne chance.

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Nick Bibby is a franchise consultant and principal of the Bibby Group. He works primarily with successful entrepreneurs franchising a business, and individuals interested in buying a franchise.