“None of us is as good as all of us”*
* Ray Kroc – architect of the expansion of the McDonald’s franchise
Sooner or later, many entrepreneurs achieve the point where their organisation is rock solid: the concept works, the product or service package has proven successful, and the financial results are beyond satisfactory. At that point, the next natural step is clear: why not GROW the business! Anyone considering growth is soon faced with some key strategic choices. As an entrepreneur, are you going to set up and finance every branch or new unit yourself? Is franchising the right formula for growth? Like Ray Kroc, are you going to opt for commercial cooperation with partners who believe in the commercial concept and are also willing to invest in their own business, while contributing to the overall growth of the business format?
Even start-ups and new entrepreneurs soon have to make important choices. Do you opt for complete independence, with maximum scope for personal creativity, innovation and developing your own concept? Or could using a proven and successful business franchise format in which structure, support and brand awareness are central (but where not all aspects can be configured freely), be a better alternative? Those who opt for franchising are consciously choosing to be independent entrepreneurs but within a set of clearly defined rules. Franchise agreements are intended to protect and strengthen the brand, the network of franchisees and their joint success, even if this sometimes limits individual freedom and creative scope.
Before committing to a franchise formula, it is essential for a potential franchisor to first assess the ‘franchisability’ of his/her business format. Not every successful concept is automatically suitable for franchising. There are four key criteria that a franchise system must meet:
- Strongly distinctive concept: the concept must be unique and offer clear added value compared to competitors.
- Strongly positioned and recognisable brand: the brand must be recognisable and inspire confidence in customers and franchisees. The brand is one of the foundations of the franchise system.
- Proven financial success: the system must be demonstrably profitable and have a stable financial basis.
- Replicability and transferable know-how (‘savoir-faire’): the processes, knowledge and expertise must be easily transferable to franchisees so that the concept can be implemented consistently in multiple locations.
Having confirmed that this checklist of basic criteria is met, you can begin further development of the concept. This preparatory phase will include: – definition of standards, training, support services, including IT, and operational organisation. You also need to work on a strong legal framework and a robust financial plan. Taken together, these aspects constitute the fundamental blueprint for the franchise system.
The Belgian legislator has ‘translated’ the building blocks mentioned above into a legal definition of ‘commercial cooperation agreements’[1]. Although that is, arguably, less important for the purposes of this article, nevertheless, being aware of the Belgian law requiring documentation of precontractual information (set forth in the 2024 “PID Act”), is essential. As implemented in the Belgian Code of Economic Law, the PID Act obliges franchisors to provide reliable pre-contractual information to prospective franchisees, thereby reducing the risk of misunderstandings.
For now, however, let us go back to the key question at the heart of this article. ‘Is franchising the right business format that will permit optimal growth of my business?’
What are the reasons why entrepreneurs may consider creating or joining a franchise? A non-exhaustive overview of the main advantages and disadvantages for both franchisors and franchisees is set forth below:
