Hybrid Franchise Models: Wave of the Future or Bad Idea?
Are hybrid franchise models a portent of the future of f
ranchising?
I am curious whether anybody in this community knows of hybrid franchise models in operation, and what sorts of challenges franchisors or franchisees have encountered in them.
I am familiar with only one hybrid franchise model, Solana MedSpas, a company in the emerging medical spa industry.
When John Buckingham, the founder of Solana MedSpas, began in 2003 there were few growth platforms available to him. Company-owned units would require significant capital and traditional franchising was onerous and unwieldy because of state medical licensing laws. Because Solana MedSpas believed that the market would grow exponentially in a short period, speed of market entry would prove to be a deciding factor in the success of the enterprise. So, they created a hybrid franchise model.
How a Hybrid Franchise Model Works
As you probably know, there are essentially three criteria that determine whether a company is a franchise or not.
- You (as the franchisor) license to a party the right to use the trademark
- You provide advice (a "system" or "method of business operation") or otherwise tell the other party what to do, and
- You receive a payment in return.
If you only have two of those criteria you are usually not classified as a franchise, are not subject to franchise law, and can operate your business as you see fit. (NOTE: For some reason I'm thinking that the state of New York does not quite fit with the above three criteria, but I am sure that someone with legal experience in franchising from New York will let me know.)
In my consulting business I generally provide advice and receive a payment but I never share (or license) a trademark, similar to all management consulting firms. This is the path that Solana chose, and their owner/operators ("clients") receive advice, pay a royalty, but own their own trademark which they can build in their own local market.
Even among companies that franchise there are variations depending on the products and services they provide, on the core values that drive their company, or on their strategy. The Great Harvest Bread Company has trademarked the term "freedom franchising" because it describes their very flexible and loose approach to franchising. There are really only three rules: use approved wheat, respect territorial rights, and pay your royalties. As they state on their website, "When you open a Great Harvest, there aren't many rules on how to run your store. Owners do it their way, but within the context of a community of like-minded and like-talented and like-spirited owners."
An article in the Wall Street Journal (Subscription Required) featured several franchise companies, like Great Harvest, experimenting with variations of the traditional franchise model.
Are hybrid franchise models a portent of the future of franchising? Is the United States economy moving into a stage where differentiation, customization, and local community preferences are more important than consistency in experience and standardization? Or are hybrid models an experiment that holds little promise?
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About the author: Peter Birkeland is author of the acclaimed book, Franchising Dreams (University of Chicago Press, 2002), and was named by Fortune Small Business as one of the “Top Ten Minds in Small Business.” He is the president of the Birkeland Institute, specializing in consulting companies in franchising, distribution, and growth platforms. A Ph.D. from the University of Chicago, Peter also continues to teach business there.
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