What Market Segments is Franchising a Good Model for?
What sort of market segments does franchising lend itself to?
In other words, does franchising work well in fast-food but not so well with computer programmers? Why?
Strong retail component, need for local units
Someone I know is thinking of setting up a chain of franchises for architects and has approached me about the idea.
I've not heard of architectural franchises before. Any thoughts on why not?
I'm no expert on these things but it seems to me that the franchise concept works well when there is a strong retail component to the business model.
In b2b franchise models, there is a need for units to cover the country. The franchisor needs local sales teams and facilities throughout the country.
When a Franchise System Works
I have some preliminary thoughts about this.
First, a franchise system makes sense when local operators are better than the hired help.
Second, a franchise system makes sense when there are networks effects: think of a phone system, the incremental cost to one more user dwarfs the incremental gain to the network being able to talk to that user.
Third, there has to be something in the franchise system which turns a $8.00/hr job + technology into a replacement for a $25.00/hr job.
Fourth, if you are in position to change the distribution network of goods through your franchise system, that is good thing.
Fifth, don't make money by purchasing captive markets - eg your franchisees.
I am a big fan of the franchise concept, despite some obvious failings the current model has.
But in 10 years, we might wonder why we ever had public companies.
Michael Webster PhD LLB
Not sure it would work
If you are going to do your own architecture business, I would guess that you'd be better off going out on your own, and not paying ongoing royalties to a 'zor.
I don't think there are any benefits to the zees to be part of a franchise in this field. You don't see professional service firms out there franchising, ie law firms, CPA firms, etc. Typically those types of firms rely on being good at what they do and not part of a national network.
That's my feeling.
Architects Check Webster's List of What Makes a Good Franchise
Architects would check your list of 5 things that make a business concept franchisable.
- Local operators are better than the hired help - CHECK. An architect who is a franchise owner would work better and harder than if they were only the hired help.
- Complimenting network effects - CHECK. A franchise could leverage an architects stretch from one locality to the next. A franchise system could also provide national accounts to architects just starting out - similar to many of the b2b franchisors we see who typically offer such national account services.
- Franchise system turns a $8.00/hr job + technology into a replacement for a $25.00/hr job - CHECK. Where there were architects in other localities, a franchise system could allow better leveraging of architects. So one architect sits at the head office and 6 lesser paid draftsmen in other localities help fuel projects to the architect.
- Changes the distribution network of goods - CHECK. A franchise chain could allow high end artistic projects to be leveraged to small townships that in the past would not have a large enough market to support big city architects.
- Economies of scale - CHECK. I've thrown in this requirement since I think it was implied in Michael's list. I must confess that I struggle to understand how business service type franchises - printing, accounting - improve economies of scale. I guess paper and office supplies could be cheaper for architects since they would buy in bulk. But office supplies is a small percent of expenses. Leveraging an architect by setting up an army of draftsmen / salesmen would lower the cost of the product to the consumer though.
Professionals Do Franchise
Some professionals do franchise. I believe there's a franchise system of dentists. And didn't we recently read about an English shire thinking about franchising general practitioner doctors? CPA firms franchise. Some large systems come to mind. Jackson Hewitt, H&R Block and others come to mind.
Under what conditions do professionals tend to franchise?
Standard operating procedures is a commonality. A CPA does not provide individuality and creativity to tax returns. Accounting practices follow standard operating procedures. On the other hand, architects each have individualistic, distinctive artistic styles. That's why one is sought out over another, isn't it? Invidual artistic styles goes against a franchise model of uniformity and the economies of scale that standardized products bring to franchise chains.
Dentistry follows standard procedures too. One does not become inventive on how to deal with teeth problems or how to build a cap. A dentist's office as well as H&R Block have high retail components to their businesses. I've even seen local H&R Block take up a temporary office in Wal-Mart to find customers during tax preparation times. H&R, Jackson Hewitt, etc. als offers b2b accounting services.
On the other hand, lawyers do not franchise. Does that mean that their industry is more about customized art than standardized product? One would think that a divorce is a divorce. It has a retail element and individual elements that can be input into a procedural template that go well with franchising.
Architects and Franchising
I don't have a firm view about how architects could franchise. My own guess is that they could outsource some of the drafting before they could franchise.
But again, I don't know enough about the economies of architect firms to make serious suggestions.
Michael Webster PhD LLB
Think of it this way
HR Block, Jackson Hewitt, etc, are not accounting firms, they are tax preparers, although HR Block does have an audit branch because they bought out an audit company. To prepare tax returns you don't have to an accounting degree, shoot I was preparing tax returns when I was a junior in college as part of my tax class for free. To do audits, requires that you have some sort of experience and the person signing off on the audit is required to be certified in that state (at least where I am at). I'm sure it is the same for architects. Plus, you'd have to register the company with the state and some states require that 50% of the company be owned by a licensed architect in that state.
If your friend wants to go through with it, good luck. I just don't think that there is a market it out there for franchised architects, because like I said before, most would go out on there own and not pay 5-10% in royalty fees.