Franchises make up approximately 5 percent of businesses in the U.S. and provide approximately 8 percent of private sector jobs, according to Fox Business. It’s no wonder why franchising is growing all the more popular in America.
Regular people can become entrepreneurs with this unique, tried-and-true way to build a company. It can cost a lot to get a franchise going, though, which is why microfranchising is quickly on the rise.
What Is Microfranchising?
Microfranchising began overseas, in countries where poverty was a huge problem. The idea behind microfranchising is to create very small businesses to sell products and services. The items for sale don’t cost a lot and the business is set up in an area with heavy traffic. Investment is small, even at startup, and the business has a great chance at succeeding.
Drive-through coffee kiosks and food trucks are two examples of microfranchises. Many of the main concepts of franchising still play a role in microfranchising, especially:
- The franchisor has an established product or service.
- The franchisor goes into a business contract with the franchisee.
- The franchisee operates the business under the franchisor’s name and business guidelines.
- The franchisee agrees to pay the franchisor a fee.
Support for the Micro-Entrepreneur
What does the franchisor provide? Quite a lot, actually.
The franchisee will be given a business model, marketing strategy, training and support. One of the biggest perks of microfranchising is that the business doesn’t have to be built from scratch, which eliminates some of the risk and a good deal of the startup capital.
Other perks of microfranchising include:
- The business has already been tested.
- The products or services being sold are recognizable to customers.
- Demand for the products or services has been established.
- Marketing and advertising campaigns are devised already, which cuts out a huge amount of the budget you’d normally spend when promoting your business.
- Marketing materials are provided and they’ve been proven to work.
- Franchisors often provide IT services, accounting, billing, a call center and customer service.
The Micro-Franchisee’s Responsibilities
The franchisee has to run the facility and is in charge of daily operations. In a microfranchise, the location is typically a cart or a kiosk, which is bought by the franchisee. The franchisee is also responsible for renting the location where they’ll be operating.
3 Problems With Microfranchising
1.) Lack of Control
For entrepreneurs who want to take the reigns entirely, microfranchising may not be the best option. While a microfranchise may feel like your very own since you are, in fact, the person operating the business day to day, it’s not actually yours.
The business system has been put together meticulously and shouldn’t - or can’t - be deviated from. Micro-entrepreneurs who feel they can run the company in a better way simply can’t act on their ideas. Not only will you be operating outside the parameters of the contract, you could end up running the business into the ground.
2.) Local Context
Microfranchises tend to draw in a heavy local audience. This is great for some owners, but it can make opening a new branch or location difficult. Expanding outside of a certain area means that there are new elements to consider, all while sticking to the original business model and layout.
Since local context is so important to the success of a microfranchise, the franchisor has to be willing to adapt the business to area needs.
3.) New Business Model
Microfranchising is still a relatively new concept and there are a lot of gaps that need to be filled in. There’s a healthy debate in the business community concerning everything from financing and regulation to technology. The types of businesses that are most effective as microfranchises are still being tested as well.
Note: Justin Norris is a professional blogger that provides tips and information on franchise opportunities and investments. He writes for Franchise Expo, the place to find the best franchise opportunities available.
Contact: Marv Dumon at firstname.lastname@example.org