This superb business system had its advantage:
For the franchisee, franchising, on the average has a 90% success rate, which is much higher than setting up a traditional business averaging around 20-40% success rate. The franchisee, since they are riding in a proven business system, does not have to reinvent the wheel. They would just have to copy the system and success is almost always guaranteed.
For the franchisor, the advantage is that the risk and the investment needed to grow the business are shared with the franchisees. Another advantage is that franchising can go viral. Business persons within the same network of friends can franchise the same system over and over again, creating the most powerful type of advertising: word of mouth.
However, no system has any disadvantages.
For the franchisee, since they are bound by a contract, the business is a little bit inflexible. Franchisees are always not allowed to conduct activities beyond the contract allows.
For the franchisor, the responsibility is heavier. Maintaining the business system is seriously needed – as a single error in the system, whether it is a lawsuit or a franchisee that does not conform to the system, can destroy the goodwill of the franchise and deteriorate its value.
Thinking of entering into a franchise contract? It is important to know the advantages and disadvantages.