The dream of starting your own business and “being your own boss” is often attractive to many aspiring entrepreneurs. And investing in a franchise seems to be a path that allows you to obtain the benefits of an established brand and business model, without having to start from scratch. However, the notion that franchisees can truly “be their own bosses” is more myth than reality.
While franchises offer more independence than the alternative of employment, franchisees are still heavily restricted and regulated by franchise agreements. Franchisors maintain strict control over almost all aspects of the business, including products/services offered, pricing, hours of operation, approved suppliers, staff training, marketing materials, and more.
Franchisees must strictly adhere to the franchise operating system and standards, leaving little room for flexibility or innovation at the operator level. Likewise, contracts usually last 10 years or more and carry severe penalties for early termination.
On the contrary, franchisors can generally terminate a contract or refuse to renew it at their discretion and could also revoke territorial exclusivity or open their own locations that compete directly with franchisees. This power imbalance inherent in franchise contracts is unlikely to make franchisees feel like they are “their own bosses.”
While day-to-day operations are managed by the franchisee, all major decisions come from the franchisor's guidelines. The restrictions imposed by franchise contracts, along with royalties and advertising fees, show that running an establishment as a franchisee is in no way equivalent to “being your own boss.”
The economic power of franchises is such that this industry has operating more than 780,000 establishments that generate sales of more than $780 billion annually and generate over 7,45 million jobs in the country.
However, franchises are not exempt from business failures. For example, Steak 'n Shake closed 57 locations in 2019, while chains like Subway and Pizza Hut closed more than 500 stores each. And major brands like Quiznos and Curves have shrunk by more than 70% in recent years due to financial problems.
As a cautionary note, aspiring entrepreneurs should be aware that the autonomy promised by franchising is much more restricted than in simple business ownership. So while franchises offer some benefits, the adage that they allow you to “be your own boss” is more franchisor marketing rhetoric than a tangible reality.
And, as a result of these considerations, a well-known Latin American saying has come to mind: “"It is better to be a mouse's head than a lion's tail."
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Author: Alfredo Gonzalez (alfredo@negociosenflorida.com)
Image created with Bing Images.