Entrepreneurs as Franchisees

Do entrepreneurs make good franchisees? Our expert offers both the pros and the cons.

learn more about Jeff Elgin

By Jeff Elgin

Opinions expressed by Entrepreneur contributors are their own.

One of the misconceptions many people have about franchising is that franchise companies are looking for "true entrepreneurs" as potential new franchisees in their systems. This isn't usually the case at all.

True entrepreneurs are those rare individuals willing to go way out on a thin limb in terms of taking the risks associated with starting a new business. They have an idea, and they generally have some sort of business plan and financing in place. They operate on the assumption that challenges will come up, but, most important of all, they have supreme confidence in their ability to overcome whatever obstacles get in their way on the journey of building their business.

They shoot from the hip and they aren't afraid to create new solutions or change their business model on the fly--given whatever they find in the marketplace as they proceed with building their business. These folks don't generally want to be told what to do, how to do it and when to do it, because they're wired to make these types of decisions for themselves. These are the true heroes of the American form of capitalism, and they are indeed a rare breed.

Contrast this with what a franchise company is looking for in a franchisee. A good franchise company has typically invested in years of trial and error, gaining the experience to know exactly what a new franchise should do in order to open and operate a business unit successfully. They aren't looking for prospective franchisees who want to reinvent the wheel--rather, they want people who'll simply execute very well the exact plan laid out by the franchisor.

This approach has many advantages for a new franchise in terms of risk reduction, capital preservation and the peace of mind of knowing exactly how challenges should be overcome. The problem for a true entrepreneur is that this approach doesn't leave much (if any) room for self-expression, especially early on in the process of building the business. This can be frustrating for someone with a high degree of self-confidence in their own ability to invent solutions to business challenges on the fly.

Does all this mean that, if you have strong entrepreneurial traits, you shouldn't become a franchisee? Not necessarily, but there are some factors you should carefully consider. These include:

  • Risk vs. Reward. Often, entrepreneurs have already tried setting up one or more businesses. They might even currently own an independent business they founded. They've paid the dues and learned just how difficult and expensive this process can be. Given this history and experience, entrepreneurs are sometimes willing to forego some of their independence in exchange for a higher degree of certainty in terms of the financial planning and risk management involved in starting a business. This is a factor you should carefully examine prior to getting involved with any franchise system.
  • System Comfort. As much fun as it is for an entrepreneur to "wing it" in terms of solving business challenges, it's also very stressful. It's a tough world out there, and sometimes they want to make life a little easier for themselves by getting involved in a system that's already tested and proven. If that's your motivation, and if you are comfortable trading some of your freedom for a clear roadmap on how to bring the business to market, franchising can be a great stress reliever. The secret here is that you need to conduct a thorough investigation to develop a crystal-clear idea of what the rules are going to be, so you can avoid frustration after becoming a franchisee. It doesn't do any good for either side if you are constantly challenging the franchisor about the basic system for running the business.
  • Opportunities for Personal Expression. Even though good franchise systems are typically very well documented and regimented, there are usually some opportunities for franchisees to express their thoughts about system improvements. These opportunities can be a wonderful outlet for the creative forces that drive entrepreneurs. One example could be participation in advisory groups that work with the franchisor to review and suggest modifications to the current systems. These can be focused on marketing, operations, technology or any of a number of other topics. The key is that this type of opportunity can provide a creative outlet for your ideas in whatever areas of the business you find interesting, while also letting others focus on areas that aren't your strengths.
  • Opportunities for Personal Innovation. Many of the most important innovations in franchise systems are actually developed and tested by franchisees, normally in conjunction with and under permission from the franchisor. The development and testing of new products and services to add to the current system is a very important growth factor for most franchises, and this is an area where entrepreneurs can really make a contribution. This type of activity usually takes place after the franchisee has proven their excellence in the execution of the basic system of the franchise, so it might very well be some time before this type of opportunity presents itself. The important thing for you is to find out what kinds of avenues exist for such innovation, and then decide if that's going to be enough to provide the balance you'll need to be happy as a franchisee.

As I mentioned above, franchisors aren't typically looking for true entrepreneurs as potential franchisees in their systems. This isn't because they don't think they'll potentially contribute great value and success in the future--they often do. The reason is that the franchisor doesn't want to have to argue and justify everything they're telling a new franchisee to do in order to be successful, and that happens quite often with true entrepreneurs unless the relationship is set up correctly in the beginning.

Good franchisors want their new franchisees to build successful businesses as quickly and efficiently as possible. They've developed a set business model for making this happen. They've learned that new franchisees that deviate from this set business model typically get lower initial results, and that defeats their purpose. If they have a sense that you are a true entrepreneur but are willing to hold off your natural inclination to make changes until your business is up and running well, then they're often happy to have you in their system.

In this type of situation, it's very important for both you and the franchisor to be upfront and realistic with each other. If both sides know the rules and expectations that'll produce success, and are comfortable proceeding on that basis, this can be a huge win-win for everyone involved.

Jeff Elgin

Jeff Elgin has almost 20 years of experience franchising, both as a franchisee and a senior franchise company executive. He's currently the CEO of FranChoice Inc., a company that provides free consulting to consumers looking for a franchise that best meets their needs.

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