Franchising is a business model for corporate expansion in which an established company (the franchisor) grants an independent entrepreneur (the franchisee) the right to operate a tried-and-tested business concept under a shared brand.
In return, the franchisee usually pays fees or a share of turnover to the franchisor.
Franchising is based on a standardised system that makes it possible to replicate a business model quickly and on a large scale.
Typical components of a franchise system are:
- Use of an established brand
- a tried-and-tested business and operational model
- Training and knowledge transfer
- Marketing and sales targets
- Quality and process standards
- ongoing support from the franchisor
The advantages of franchising are:
- rapid expansion with a low level of equity capital
- lower business risk for the franchisor
- Franchisees’ use of local market knowledge
- Scaling a proven business model
- greater brand presence in various regions
The model also offers advantages for franchisees:
- Getting started with a tried-and-tested business model
- less risk than setting up a new business from scratch
- Access to the brand, systems and support
- structured processes and training courses
At the same time, franchising also presents challenges, particularly due to the high degree of standardisation and the limited entrepreneurial freedom enjoyed by franchisees.
For start-ups, franchising can be an attractive growth strategy if a business model has already been successfully validated and lends itself well to standardisation and scaling. innoWerft supports founders in developing scalable business models, planning expansion strategies and strategically evaluating growth pathways such as franchising.