The Ultimate Guide to Responsible Franchising

Chapter 1Introduction to Franchising

Before I get into what it takes to invest into individual brands, I want to establish some terminology and define some terms.

Definition of Terms

According to Dictionary.com, a franchise is “the right or license granted by a company to an individual or group to market its products or services in a specific territory.”

I find this definition insufficient to the point of being laugh-out-loud funny.

True, a franchise is a legal contract, but when a franchisor is skilled, it takes more the shape of an intangible social contract than a tangible legal contract. The social contract is simple. Franchisees agree to execute the business model to the best of their ability, to build the brand locally consistent with the intention of brand leadership, and to add more value to products and services than it charges customers in price. The franchisor agrees to continually refine processes and systems and go to work each day to add more value to the franchisees’ business than it extracts in royalties.

Put it another way, the social contract says, “We each have roles and responsibilities that impact each other. We are in this together and the common bond is building value in the brand.” Within this social contract, there is no assumed hierarchy, no parent company that lords over the lesser-than, childlike, dependent franchisees.

Franchisees and the franchisor only pull out the legal contract when this social contract breaks down.

Because the textbook definition ...