Chapter 6What Insiders Want You to Know About Franchising Before You Invest
Franchising has evolved quite a bit over the last 50 years. Franchisors can be lumped into three basic schools of thought that I call Franchising 1.0, 2.0, and 3.0 and will describe in this chapter. Do not invest in 1.0 and 2.0 franchisors. That isn’t to say they don’t or can’t make money, but that they don’t assign the proper value or respect to what you risk and bring to the table as a franchisee and it’s reflective in the culture of the organization. It’s more of a quality of life decision – a “life is too short” decision.
Franchising 1.0
Visionaries and pioneers like Ray Kroc (McDonald’s), Fred DeLuca (Subway), and William Rosenberg (Dunkin’ Donuts) created what FPG (Franchise Performance Group) defines as Franchising 1.0 (1960–1990). It’s “the original franchising strategy,” as a “better, faster, and cheaper” distribution model to get their products to market using other people’s money and effort. The franchisees assume the financial risk and the franchisor realizes almost risk-free recurring revenue streams.
If you could look into the heads of the franchisor’s ownership and leadership and hear their thoughts, you would see how often they took the position that they owned the brand, product, supply lines, and customer relationships. The following image illustrates this relationship.
Franchising ...
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