Regional vs. National Franchise Systems

How to decide which is best for you

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Q: I've found a franchise system I really like. They have a great presence in the upper Midwest but don't yet have units anywhere else in the country, including the area where I live. What are the pros and cons of getting involved with a franchise that's not national?

A: To determine this, you must first be aware of what a franchisor provides franchisees. As a franchisee, you should receive these three basic components:

  1. Brand. The brand and trademarks of the franchise system should have value in the eyes of the customers of the business. The best value exists if the brand is already established in the market area you will be operating in. The next best situation is when the brand can be easily established or expanded in your market area.
  2. A proven operating system that produces predictable results. You want to find a franchise system that has worked the bugs out of the system and perfected the operating systems before you get involved. This saves you from being one of the franchisees who may have to help the franchisor learn some lessons the hard way. These lessons can be expensive, not only for the franchisor, but also for the pioneer franchisees.
  3. Operating support. This includes the initial support the franchisor provides to help you establish your business and get it moving in the right direction--building your unit, training your staff to run the business, teaching you how to market the business effectively and any other information you need to become successful. This also includes any and all forms of ongoing support to provide franchisees with whatever assistance they need to operate their business for the long term.

As you review the components listed above, it becomes obvious that a franchisor with a strong regional focus is just as capable of delivering good value to you as a national franchisor. It really should make no difference in the value of the franchise for you.

Whether you are dealing with a regional or national franchisor, make sure you are not going to become an "Orphan" franchisee. This is the real risk you run, regardless of where the franchisor is currently focusing its operations.

As an Orphan franchisee, you're out in a market all by yourself with no strong assurance that more development will rapidly take place around you. In your situation, with a regional franchise with strong operations in the upper Midwest, if you decided to open a unit in Tampa, you would likely be an Orphan. Even in the case of a nationally focused franchise company with units in many states, if you're the only franchisee in Boston, you would likely be an Orphan.

The issue here is the value equation we discussed above. If you're in Tampa or Boston all by yourself, with no strong development commitment from the franchisor to expand the market, how powerful is the brand going to be? And, frankly, if you are going to be the only one spending money to build the brand, why pay more money to be a franchisee?

If you're going to be all alone out there, you also need to carefully consider the proven operating system of the franchisor. Boston or Tampa may have differences that make an operating system designed for the upper Midwest less effective in that market. Boston has completely different real estate characteristics than the upper Midwest. The demographics in Tampa, particularly the average age of the population, are quite different from the upper Midwest. Don't automatically assume you'll get the same results as other franchisees if their market areas are significantly different from yours.

Finally, consider the ongoing support services of the franchisor. Support services are always stronger and personal visits more frequent when the franchisee is in or near a concentration of units. It's simply easier and cheaper for the franchisor to provide support on this basis. Don't assume you'll get the same level of support if you're an Orphan franchisee.

As a final word of advice on this issue, if you are considering being a trailblazer (that sure sounds better than an Orphan, doesn't it?), make sure you heavily weigh the validation of other trailblazing franchisees when investigating the franchise system. Their experience will be much more relevant to you than the experience of franchisees in the middle of a bunch of units.

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