Small Businesses Weigh the Merits of Franchising

Why would franchising be a better expansion model than buying other companies or hiring more employees? One advantage is that you have franchisees willing to give you money for your model. That's better than paying lots of money to buy out other businesses to grow. A group of business owners highlight for Fortune (CNN/Money)  their thought processes on whether or not a firm should franchise.

 Paul Sperry, CEO of IDP Consulting, ponders what a franchise would do for his company.

One of his firm's assets is that it already has solid systems for managing sales, invoicing and workflows. IDP Consulting has a working system that franchises could replicate.

The ease of replicating a work system is one answer on why businesses can franchise. Sperry continues on his train of thought.

Growing by buying other companies would be tricky — Sperry has had little luck in the past when he's approached other business owners about buying their company.

"They typically make decisions based on emotions and not logic," he says. ". . . So franchising seems easier, in some ways, for us to find the right service levels in the radius of our own offices as we move to other areas of New York and into New Jersey."

Huh? C&B wants franchise buyers because they are less emotional in relinquishing their money than when C&B wants to give lots of its own hard-earned money and incur debt to to buy competitors out?!? Who would have thunk?

. . . attorney Jack Schwartz, managing partner of Jacobson and Schwartz in Rockville Centre, N.Y., leans in with another thought. "You also have to invest money to make your company enticing so that everyone wants to be in your franchise," he says. "This could be a great time to start the franchise, because this recession will produce a wave of people who will want to be self-employed. Many who have been laid off will never go back to corporate structure. But it'll take time and effort to sell them on your company."

Ah-hah. Now we are getting to the unsaid root of the issue. There is an anticipation that laid-off Americans are lining up in droves to tap into their savings to pay franchisors for the privilege of running a shop. That has not happened yet in this credit crunch but one can dream. After all, why wouldn't small businesses want to tap into the hugely increasing unemployment ranks of the middle-class rather than spend hard-to-obtain capital on opening up new company units or buying out competitors?

Loss of control is one honest concern of why not.

Sperry [is] ... still conflicted about the idea of franchising. He doesn't want to rush into anything, because he's frightened of losing quality control.