Ever wonder how franchisees interact with their franchisor? Most franchises choose one of two ways for providing sales and support services to franchisees: Directly by the franchise company to the individual franchisees (known as direct franchising) or via a master licensor.
If the franchise is expanding via master licensor, it means they’ve contracted with a person or entity to provide services to franchisees in a specified territory (typically a major market outside of their home market.
The master licensor typically pays the franchise company a significant initial fee for the rights to develop the territory and then retains most or all the initial fees and royalty fees paid over time by the individual franchisees in the territory.
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That master is usually responsible for recruiting the individual franchisees and providing all training and support they need, both initially and on an ongoing basis. Franchise companies often select the master approach in the belief it will result in more rapid system growth with less initial capital risk for the company.
What you need to know
There is no reason for you, the franchise buyer, to place a higher value on either the direct or master approach. Each strategy can be effective or terrible, depending on the skills and resources brought to the selected approach.
One significant difference between these strategies relates to your research. In the case of a master, you need to completely and somewhat independently investigate both the franchise company and the master organisation.
Keep in mind the saying that “you’re only as strong as your weakest link.
A great master can’t do anything about a franchise system that does not have a strong, viable business model to take their concept to market. Conversely, even a strong and viable business model can be invalidated by a weak or ineffective master licensor.
Whether you choose a franchise with a direct or a master approach, you should be aware of the fact that the skills needed to provide effective franchise sales results are quite different from the skills needed to provide operational and marketing support to an operating business.
One of the red flags in any master situation (or direct, for that matter) is when you find one person who is purporting to do both these jobs.
As a franchisee, you’re going to need a strong franchise sales effort to build the value of the brand around your operation. You won’t get that value if they can’t sell effectively. You’re also going to need support to help you operate the business effectively, and you typically don’t get that from a sales person. You really need both skills, so make sure you have talented people in both positions, especially in a master approach.
Knowing your master franchisee
If you decide to investigate a master franchise, make sure to visit with a number of franchisees from all over the system. Then make sure to visit with a significant number of franchisees located in the territory of the master you’ll be working with. You need to see a strong track record in each iteration before you proceed.
If you like and are confident with either the franchise company or the master, but not both, you have a serious problem.
If the problem lies with the franchise company, forget this one and go find a different franchise opportunity. This is the only safe and smart move to make.
If the problem lies with the specific master you would be working with, you can either relocate to a different territory that has a good master or find a different franchise opportunity altogether. In any case, do not assume you will have an experience different from the majority of the franchisees you visit with during your research calls – that’s a recipe for disaster.
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As a final note, when you investigate a master franchise company and you are located in a territory that doesn’t have a master yet, watch to see if the company immediately tries to sell you on being the master. Though this may seem like an incredible compliment, don’t let your ego get in the way of your common sense. If you don’t have experience in franchise sales, marketing and operations, you’re looking at a huge risk.
Remember that a job offer from NASA doesn’t automatically make you a rocket scientist. If you’re thinking of becoming a master licensor, at the very least you should carefully research the previous experience of the other successful masters to make sure you have the necessary skills and capital to make this opportunity a good one for you.