The landscape of small businesses has changed in recent years, with the rise of social media, the availability of dropshipping, and the ease of 3rd party selling platforms.
All this combined with the coronavirus pandemic forcing everyone in to their homes often with prolonged periods of time off work and ready for inspiration, we’re seeing more people than other start their own businesses – and the exposure of this has been amplified with it being promoted socially online.
There is a huge variety of shapes, sizes and types of business. Perhaps the most commonly found currently online are MLMs (Multi Layered Marketing) companies; whereby an individual signs up to sell someone else’s products and takes a percentage of the sale. Examples include Arbonne cosmetics, Herbalife nutrition and Usbourne books. MLMs rely heavily on social media for both product and recruitment production and so as people are becoming more aware of this way of working, they’re frequently mistaking them for franchises - yet the reality could not be further apart.
Investopedia defines a Franchisee as “an independent small business owner who operates a third-party retail outlet called a franchise. In doing so, the franchisee has purchased the right to use an existing business’ trademarks, associated brands and other proprietary knowledge to market and sell the same brand; upholding the same standards as the first business”.
In the UK, many businesses operate as franchises; including McDonalds, Subway, Starbucks, Molly Maid and TaxAssist Accountants. Franchisees buy the rights to open their own premises running the business using the existing brand’s trademarks, property and marketing to operate as that brand in their own space. They pay an ongoing fee (usually a percentage of profits combined with a set cost) back to the overarching brand but operate the individual business by themselves with full end-to-end management responsibilities.
MLM operators are certainly more visible on social media and online, but that’s not because they count as a full business owner. MLM operators are simply marketers working on a commission basis for a mother company. Investopedia defines MLMs as “a strategy used by direct sales companies to sell products and services. Existing member promote and sell their offerings to other individuals and bring on new recruits into the business. Distributors are paid a percentage of their recruits’ sales. New recruits become the distributor’s network or downline and are, in turn, encourages to make sales to earn money”. While MLM operators are responsible for their own income they are not owning or operating any part of a business as such.
While Franchisees own, operate and run a full business every day, MLM operators instead sell someone else’s products by simply ordering them as and when they’re able to make sale. Most commonly, MLM operators function as delivery people for products.
The term Entrepreneur is sometimes overused, but Investopedia defines it as “an individual who, rather than working as an employee, founds and runs a small business, assuming all risks and rewards of the venture”. Only a very particular type of person is able to become an Entrepreneur and find success as one – as it’s no mean feat and involves a lot of hard work! The British Library lists the key characteristics that one must possess to be a successful Entrepreneur as passion, innovative thinking, persistence, resourcefulness, risk taking and personal discipline.
Absolutely! Although a Franchisee has bought in to an existing business they still work toward the full challenge of daily business ownership and management; embracing the demands and responsibilities this involves. The risk of business failure entirely lies with a Franchisee – after all, just because people know a brand name doesn’t mean that they will choose to attend, frequent or purchase from this specific business. The financial risk of a Franchisee includes the initial and onward fee paid to the Franchisor, for which the individual will remain responsible.
There is a well-documented school of thought amongst some business scholars that Franchisees do not count as Entrepreneurs, as they believe the franchise owner to be the Entrepreneur: using the Franchise selling as an additional source of income.
Whilst indeed franchise owners are Entrepreneurs, so too are Franchisees! Both oversee the day-to-day operations of their own business and hold financial and professional responsibility for the success and survival of it. There are still opportunities for Franchisees to be creative and innovative in their business management, just with the reinforcement and security of an existing brand behind them. The key characteristics of Entrepreneurs certainly match up well with those of Franchisees.
Franchisees can be as strategic and creative as they wish to be in the ownership and management of their Franchise – it is for them to decide on which strategy and development methods they wish to use in order to not just make a success of their business but also to grow it properly. While indeed Franchisees do exist who wish only to run a small business with no further growth, there are plenty who do utilise their Entrepreneurial spirit and skills to develop their Franchise alongside any other businesses to strategise and enhance their brand. Wise Franchise owners are able to quickly identify those Franchisees who are particularly successful and strategic in their business thinking and will often work collaboratively with those people to deliver the best possible brand experience and to find other possibilities for professional and business development.
Choosing to be a Franchisee is a brave decision to make and those taking the plunge need to be full of determination, grit and stamina in order to make it work. A dash of Entrepreneurial spirit and a good attitude works wonders to flourish a business and help it go from success to success through time.
A successful Franchisee needs to be comfortable being a leader and a follower; Being able to lead your teams to success within your own business, whilst also being comfortable following the guidelines and parameters set out by the master franchise. Franchise business shapes its success by creating a consistency across the brand; Macdonalds would not be so wildly successful if every branch made a different type of burger.
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Dave Georgetti, Franchise Owner