Ever wonder how franchisees interact with their franchisor? Most
franchises choose one of two ways for providing sales and support
services to franchisees: directly by the franchise company to the
individual franchisees (known as direct franchising) or via a
master franchisee.
If the franchise is expanding via master franchisees, it means
they've contracted with a person or entity to provide services
to franchisees in a specified territory (typically a major market
or even one or more states). The master franchisee typically pays
the franchise company a significant initial fee for the rights to
develop the territory and then retains most or all the initial fees
and royalty fees paid over time by the individual franchisees in
the territory.
That master is usually responsible for recruiting the individual
franchisees and providing all training and support they need, both
initially and on an ongoing basis. Franchise companies often select
the master approach in the belief it will result in more rapid
system growth with less initial capital risk for the company.
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There is no reason for you, the franchise buyer, to place a
higher value on either the direct or master approach. Each strategy
can be effective or terrible, depending on the skills and resources
brought to the selected approach.
One significant difference between these strategies relates to
your research. In the case of a master, you need to completely and
somewhat independently investigate both the franchise company and
the master organization.
Keep in mind the saying that "you're only as strong as
your weakest link." A great master can't do anything about
a franchise system that does not have a strong, viable business
model to take their concept to market. Conversely, even a strong
and viable business model can be invalidated by a weak or
ineffective master franchisee.
Whether you choose a franchise with a direct or a master
approach, you should be aware of the fact that the skills needed to
provide effective franchise sales results are quite different from
the skills needed to provide operational and marketing support to
an operating business. One of the red flags in any master situation
(or direct, for that matter) is when you find one person who is
purporting to do both these jobs.
As a franchisee, you're going to need a strong franchise
sales effort to build the value of the brand around your operation.
You won't get that value if they can't sell effectively.
You're also going to need support to help you operate the
business effectively, and you typically don't get that from a
salesperson. You really need both skills, so make sure you have
talented people in both positions, especially in a master
approach.
If you decide to investigate a master franchise, make sure to
visit with a number of franchisees from all over the system. Then
make sure to visit with a significant number of franchisees located
in the territory of the master you'll be working with. You need
to see a strong track record in each iteration before you
proceed.
If you like and are confident with either the franchise company
or the master, but not both, you have a serious problem. If the
problem lies with the franchise company, forget this one and go
find a different franchise opportunity. This is the only safe and
smart move to make.
If the problem lies with the specific master you would be
working with, you can either relocate to a different territory that
has a good master or find a different franchise opportunity
altogether. In any case, do not assume you will have an experience
different from the majority of the franchisees you visit with
during your research calls-that's a recipe for disaster.
As a final note, when you investigate a master franchise company
and you are located in a territory that doesn't have a master
yet, watch to see if the company immediately tries to sell you on
being the master. Though this may seem like an incredible
compliment, don't let your ego get in the way of your common
sense. If you don't have experience in franchise sales,
marketing and operations, you're looking at a huge risk.
Remember that a job offer from NASA doesn't automatically
make you a rocket scientist. If you're thinking of becoming a
master franchisee, at the very least you should carefully research
the previous experience of the other successful masters to make
sure you have the necessary skills and capital to make this
opportunity a good one for you.
For more on master franchisees, read "Hi, I'm a
Master Franchisee".
Jeff Elgin is the "Buying a Franchise" coach at
Entrepreneur.com and has almost 20 years of
experience in franchising, both as a franchisee and a senior
franchise company executive. He is currently the CEO of FranChoice Inc., a company that provides free
consulting to consumers looking for a franchise that best
matches their needs.