Intrapreneurship and Corporate Venturing 415ations lack the resources to obtain sustainable competitive advantage. Barringer and Ireland
(2006) offer these steps in the development of a successful franchise opportunity:^11
- Develop a franchise business plan (See Chapter 5).
- Get professional advice. Franchise law is a highly specialized area.
- Conduct an intellectual property audit: What do you control?
- Develop the franchise documents and complete the UFOC.
- Prepare the operating manuals for the prospective franchisees.
- Plan your advertising strategy and franchise training program.
- Put together a team for opening new units.
- Design a strategy for soliciting, qualifying, and selecting new prospects.
- Help franchisees with site selection, financing, and opening.
One of the more unusual franchise systems is Wild Birds Unlimited. It does not do things by the
textbook. Street Story 10.4 offers details.
Competitive Issues
The franchise system engages in two simultaneous competitions: The franchisor competes to sell
franchises, and the franchisee competes locally to sell the product or service. These are interrelat-
ed efforts. If the franchisee faces stiff competition and losses are accumulating, the franchisor will
find it more difficult to sell franchises. Conversely, if the franchisor has trouble selling franchis-
es, it decreases the brand value, name recognition, advertising support, and purchasing
economies of scale that the franchisee relies on for marketing and operations.
The dependency can run in the other direction too. Franchisors depend on their franchisees
for cooperation, so a franchisee rebellion can be a serious problem. The franchisor can discipline
individual franchisees who fail to live up to quality standards or contractual agreements, but a
system-wide rebellion can force the franchisor to negotiate or capitulate. Franchisee rebellions
have occurred in some of the most famous and popular fast-food organizations, including Taco
Bell, KFC, Holiday Inn, and Burger King. Still, for the most part, power is held by the fran-
chisor who screens and selects franchisees, draws up the contracts, and collects the royalties.
One recent franchisee rebellion ended peacefully as the parties agreed to talk things through.
Pop-A-Lock, Inc., had a fight on its hands. The franchisees of this car-unlocking and locksmith
firm were fighting over franchisor support and training, and over the growth of the franchise sys-
tem. Before the franchisees went so far as to sue, they sat down with a new CEO and hammered
out a long-term agreement. Everyone embraced the deal and saved on legal fees. This is consid-
ered a good ending to the conflict.^12
Because of the preponderance of power on the franchisor side, the government regulates the
franchise industry primarily to protect franchisees. The franchising business is regulated both by
individual states and by the Federal Trade Commission (FTC). Much of the regulation has to do
with ensuring that franchisors provide franchisees with the information necessary to make
informed decisions. Franchisees contend that these rules are widely abused or ignored.
Under the current rule, franchisors must disclose all financial terms and obligations of the
franchisee. Franchisors do not have to state how much money franchisees can expect to make,
but they must document their claims if they volunteer this information. Civil penalties of
$10,000 can be levied for each violation. However, individual franchises cannot sue the fran-
chisor under the FTC rule; only the FTC can bring action in federal court.^13