2. Why is it better to grow the company through franchising than branching?
The most common reason why an entrepreneur decides to grow the company through franchising is lack of resources.
Since the franchisee pays the starting fee and most of the initial investments (if not all), the franchisers can expand to various markets without the necessary basic capital. Real estate, rental space renovations and design, equipment, furniture et al inventory is also taken care of by the franchisee with equity and loan proceeds. This is particularly necessary for fast food chains, where it is crucial to have as much representation as possible for the brand to become well-known and get a bigger market share.
Franchising is promoted by the belief that the performance level of the sales agents, privately held by the franchisee, is higher than in those with hired managers. All the more so, that monitoring hired managers in remote locations is tedious and expensive. Private owners are more personally invested in growing profits, and so they are typically more motivated to be successful.
Furthermore, franchise benefits from the created symbiosis, where the franchiser can monitor the agents that belong to them and the franchised ones, and compare their productivity. If the organization can make use of the good experiences of both types of agents in order to secure the entire company’s position, then it is an obvious competitive edge.
