Intrapreneurship and Corporate Venturing 417Despite regulation and potential problems, franchising remains popular because it enables
businesses to expand quickly with other people’s money and lets a self-motivated owner/manag-
er control the operation. For franchisors to take advantage of these two benefits, they must be
able to deliver a franchiseable product and business system.
Franchisee Considerations
Franchisees must be careful in evaluating franchise opportunities and choosing the best option.
Potential franchisees are urged to examine their personal preferences for risk, autonomy, and hard
work. They should consider how their talents and experience will contribute to making the fran-
chise a success. Because of the constrained nature of the franchise agreement, franchising is not
for every “wannabe” entrepreneur.
Franchisee Requirements
What are the most important things for franchisees to look for?
- Proven operating locations serve as a prototype for the franchisee. This demonstrates do-ability to
the customer. These stores have been tested and their operations refined. They are prof-
itable, and the books should be open for qualified franchisees. The operation must be trans-
parent enough for the franchisee to believe that he or she can manage it. - A credible top management team demonstrates to franchisees that they will not be alone and that
there is sufficient expertise at the franchisor level to handle any emergency or contingency. - Skilled field support staff will train the franchisee and communicate the franchisor’s message to the
units in the field. They help the franchisee attain his or her goals. - A distinctive and protected trade identity will enable the franchisee to use the trademarks, signage,
slogans, trade dress, and overall image. The franchisee should be concerned that quality, per-
ceived or real, is similar throughout the system. - A proprietary operations manual comprehensively explains the proven methods of operation and
management. It should be easy to read and understand. - Training programs, both on-site and at headquarters, should be regularly updated, and available
to franchisee staff and management. - Disclosure and offering documents that meet all federal and state regulations are required. In
addition, a franchise agreement that balances the needs of the franchisor and franchisee
should be prepared. - Advertising, marketing, public relations, and promotion plans should be prepared and available.
The franchisor should be ready to show how a national and regional product reputation will
be developed for the benefit of the franchisee. - A communications system should be established for ongoing dialogue between franchisor, franchisee,
and the entire franchise network. This includes meetings, scheduled visits, and attendance at
association conferences, as well as random calls and inspections. - Sufficient capital must be on hand to get the franchise system off the ground. These substantial
costs to the franchisor are described in Table 10.2A. The franchisee is responsible for due
diligence before investing in any franchise operation. There are many horror stories of fran-
chisees caught unaware and unprepared either by unscrupulous franchisors or by difficult
economic times. Despite regulation, unprincipled dealers and susceptible buyers abound.
Table 10.3A summarizes the types of issues to be resolved in the contract.^14 Franchisees should
retain competent counsel to advise them on all matters.