Introduction
To be the manager of a business is a huge responsibility where one is tasked with the job of managing assets, resources, and people at the same time. Businesses are often ventures that people go into as a way to elevate their situation, as well as to achieve a level of financial independence that they desire. In other cases, starting a business is a way to followone’s passion as opposed toconforming to the traditional way of employment(Kaufmann, 1999). While the idea of financialfreedom, or getting the chance to followone’s passions are tempting. The whole aspect of starting, managing, and expanding a business does not always prove easy as people think it does. Businesses are expensive ventures which can either bring the investor a good chunk of money or can lead to losses that can be almost irrecoverable.
With that in mind, this essay will an analytical paper that will use the case study specified or thisassignment. To be more specific, the reading that has been prescribed as the usable case study of this assignment is an excerpt drawn from the book Entrepreneurship and Small Business, which was authored by Shaper, Volery, Weber, and Gibson in 2014. The selected book is one that focuses on the various aspects that surround the creation and management of businesses. It also comprises of what it means to expand a business, and what challenges should be expected during this process (Schaper, Volery, Weber, & Gibson, 2014). This essay will, therefore, use the case study as the basis of the analysis of a concept introduced within the case study and will provide answers for the stated questions at the end of the case study.
Discussion
The case study is one about a lady called Alison who is the owner and manager of a business that she started. The case study explains of how Alison had never started a business until when she was in her late twenties, and she felt that she was tired of working for other people. When she chose to start her business, her main goal was to have a business that deals in the making and selling bespoke women clothing. The idea came from Alison alongside her colleague from where she worked. Having known each other, and having seen that they can work together comfortably, and effectively, Alison,and the colleague came up with the above state idea and got into a partnership to start and manage the business (Schaper, Volery, Weber, & Gibson, 2014). While the business was successful in finding people to finance it, as well as in finding a steady following of customers, the partners were concerned that the business was consuming all of their time. Allison then came up with the idea of finding another person who could manage the business.
This was initially a good idea until they went ahead and added the new member in the partnership. From there, Things began to go in the more undesirable direction and eventually, Alison’s initial partner broke off the partnership and sold her shares (Schaper, Volery, Weber, & Gibson, 2014). This broke down the entire partnership and left Alison as the sole proprietor. Alison was able to scale down and begun to run the business from her own home. So far, it has served her well and has allowed her to focus on the initial idea of bespoke women clothing. However, she feels that she should expand to other towns and cities. This is a process in business that is referred to as franchising.
Franchising is the process whereby the owner of a business will grant another person or entity the right to make use of the company’s brand, and sell the company’s products under agreed terms and conditions(Staff, 2017). According to the Oxford dictionary, a franchise is a license agreement that a party acquires where the license allows the party to access another business’s proprietary knowledge, trademarks, business processes, and rights to provide a service or sell a product(Staff, 2017). The license also specified that the party must also be named, and operate as part of the bigger company by acquiring the company’s brand and name.
The concept of franchising came from the United States who started this business activity from as early as the 19th century. In fact, as is recorded in history, the first man to ever practice franchising was the owner of a sewing machine company which was called Singer(Weaven, Baker, & Dant, 2016). The owner was a man named Isaac Singer, and his company singer was widely known for its production and retail of sewing machines across the United States, and internationally. The reason that Isaac Singer is recognized as the first businessman to make use of the concept of franchising was that, while being the owner of Singer, he made use of his brand, and already brilliant product to ask other business to sell his products(Weaven, Baker, & Dant, 2016). This would enable the other business to make good revenue from the sales of the products from singer, and in turn, they would pay royalties, and other expenses to singer.
Howard Johnson Restaurants were the next to franchise in the 1930’s and then later, many otherbusinesses begun to adopt the same concept. In the world today, the biggest franchisersare from the United States. This is not surprising as this is where the concept was originally invented. Most notably, the biggest franchises in the world today are fast food restaurants such as KFC, McDonald’s, Starbucks, and Dunkin’ Donuts(Staff, 2017). So far, as it has been evident in the trends of franchisers, the most profitable and easiest industry to invest in a franchise is the food industry since it is fast growing, self-sustaining, and ever generating the much-needed revenue. However, for other industries, franchising often proves expensive and tasking. This is however not to say that there are no other industries that focus on franchising (Weaven, Baker, & Dant, 2016). Vending business and cleaning and maintenance services are also viable industries for franchising.
The case of Alison is a complex situation that requires extensive analysis of what it means to franchise, and any advantages and disadvantages that are involved in this business venture. In the case study, it is not explicitly specified that the partnership between her and the second partner ended, but because it is stated that the partnership was dissolved, this essay will assume that Alison is a sole proprietor (Schaper, Volery, Weber, & Gibson, 2014).To answer the question of whether Alison should franchise, it is important to understand what it means for her as a small business owner and as a sole proprietor.
As is explained in the case study, Alison was lucky enough to have downscaled before the depression had hit. If she had not, the bad financial, atmosphere would have sunk her business. In addition, Alison was doing better than ever for herself, when she was operating from her own home since it was providing her with the same wage as she did during the partnership she was in. The business was sustainable in itself, and all that Aliso had to do in remain innovative and keep working hard for her business (Schaper, Volery, Weber, & Gibson, 2014). However, Alison wanted to expand her business and to do this, franchising sounded like a good idea.
Franchising is a business strategy that is profitable for both parties involved, but more so for the franchisor. The franchisor is the person or party that owns the original idea and the original business. It is the franchisor that owns all the rights, trademarks, and proprietary knowledge about the business, its products and services (Alon, 2004). As a result, the licensee that initiates and legalizes a franchise is mostly a way to protect the franchisors proprietary knowledge and ensure that the franchisee abides by the franchisor directives, and rules. On the other hand, the franchisee is the party or individual that asks to make use of the franchisors knowledge, and brand name to conduct their own business. In doing so, the franchisee agrees to the terms specified by the franchisor, and is in most cases, subject to the franchisor (Alon, 2004). As such, in the event that the franchisor chooses to change a certain aspect of their business,the franchisee must also abide and make similar changes.
While it is a good idea to want to expand the business, it is not my recommendation that Alison expands her business through franchising. To explain this, I will highlight the various pros and con that are associated with franchising. In terms of the advantages that are associated with franchising, the most notable is the fact that the franchisor is able to earn royalties and other payments from the franchisee(Bruneel & De Cock, 2016). This is usually based n a clause that is in the licensing agreements and is in usual in form of a percentage cut of the franchisee’s sales. In many cases, the parentage given to the franchisorby the franchisee is 4 to 8% yearly(Bruneel & De Cock, 2016). What this means is that regardless of whether the franchisees business does extremely well, or poorly, they must still provide payment to the franchisor every year on top of other payments as agreed upon in the contract.
Another advantage is the fact that in the right industry, franchising can be extremely profitable for the franchisor. This is especially true in the food and catering industry. Lastly, an advantage for the franchisor is that the license species that the franchisee must abide by the agreements of the contract and follow the lead of the franchisor (Burkle & Posselt, 2008). As a result, in the event that the franchisee chooses to break the license unexpectedly, or breaks any rules, they are often subject to hefty fines,and punishment by the law. These are the only advantages that are straightforwardfor the franchisor. The disadvantages also exist wheresome are only applicable and specific to small business owners.
For the franchisee, an advantage of franchising is the fact that it can make sales very quickly since they use the brand, product, services, and knowledge of an already established business. This removes the struggle of finding popularity and then ensuring that the gained consumers are loyal and ever growing. Another advantage is the fact that in many cases, the franchisor is the one to provide the necessary guidance and resources that are used to run the specific business. This may also include training thefranchisee members (Dant, 2008). While this is an advantage for the franchisee, it is a disadvantage for the franchisor because, it translates to higher expenses, and by extension, a higher operation coast.
Another disadvantage is the issue of imitation. While the law recognizes of the fact that the idea, products, and services provided through the franchisor’s company, as well as their franchises, are the property of the franchisor, the law cannot stop rivals from obtaining the idea and altering it ever so slightly to make it their own. The biggest problem and biggest threat to the franchisor is product imitation by the company’s rivals(Dant, 2008). This then means that for the franchisor it is important to continually be innovative in the products that it sells and services that it provides in order to retain a competitiveadvantage over the rivals.
From this analogy, it is therefore evident that for Alison, expansion of the business through franchising is not a good idea. Why? This is because Alison is a small business owner, and so, she does not have the capital necessary to train additional people on how to create custom-made clothing for women(Dant et al., 2012). Since the idea is hers, and the designs are also hers, she will need to practically demonstrate and train other people who wish to join the franchise,and this will need an excess of money and time. Additionally, Franchising is usually successful when the business sees a high rate of sales all year through. In the event that the company has low sales, or has a weak brand, sales also remain very low making franchising more of an expense than an investment(Dant et al., 2012). Though Alison’s company has a good brand name, franchising would need that her brand is known across multiple states.
Growing a business comes with a number of personal problems which Alison must face while attempting to expand her own. Logistical issues are always the most problematic, where issues such as finding proper geographical locations for optimal sales, as well as, finding the right partners to engage in investment and expansion(Grünhagen, Witte, & Pryor, 2009). Finding more suppliers to meet the demand of the growing business is also problematic, especially when there is the need for a highly reliable supplier of a resource material.In the case of Alison however, perhaps the problem that will be most noticeable is the issue of finding the necessary capital for expansion, as well as ensuring that she remains unique enough to retain competitive advantage(Grünhagen, Witte, & Pryor, 2009). Expansion of a business is also demanding of the owner’s personal time and effort which can affect their personal relationship and time with their families.
While it is very possible for Alison to expand her business successfully, it is also true that Alison is more likely to succeed while expanding through franchising as compared to a bespoke clothing business that is situated in an actual shop. This is true because,for Alison, her view of expansion is based on the positive trend in sales that she has had while operating from home. Being at home, she has little overhead which acts as an expense for her business. As a result, she makes much higher profits since she has no rent to pay. Seeing that she has no physical location where her brand can be seen, and where consumers can walk into, she became innovative and began to use the internet as a place to market herself and gain a following(Kacker, Dant, Emerson, & Coughlan, 2015). The internet is an important tool for any business as it is the fastest way to gain a following and it an inexpensive way to market the company’s brand.
This means that Alison will continue to thrive in her business because she is making use of the best means for advertisement available today. For a business that operates from a physical location, they are more likely to make use of the block-chain method of operation which is well known to be much slower, and much less effective to an online presence(Kacker, Dant, Emerson, & Coughlan, 2015). As such, they are more likely to lose customers over time, as they depend on the popularity of the physical location as compared to letting others known through social media, and other online platforms.
Conclusion
Franchising is a business process that involves granting another party the right to make use of your company’s brand, as well as its products and services in their business. This is usually represented by a license that specified the terms and conditions such as the fact that the franchisee will need to pay royalties to the franchisor yearly as they are using another person’s idea, services and products(Kaufmann, 1999). Franchising has both benefits and drawbacks and these apply differently to the franchisor and the franchisee. Franchising is a viable strategy to use for business expansion must be done with extensive consideration lest it becomes more of an expense than an investment.
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