Companies like Dunkin’ Donuts—which makes my favorite coffee—have used franchising to grow very rapidly and secure a significant share of their markets before competitors could catch up. Can business leaders use similar conventions to drive revenue and build long-term value? YES! Think of it as an Internal Franchise.
In a franchise system, a franchisor licenses a business formula—a complete way of doing business—to a franchisee. The franchisee agrees to operate the business according to specific guidelines and to pay the franchisor a percentage of sales as a royalty. The franchisor/franchisee relationship is governed by a franchise agreement, a binding legal agreement.
The franchise sector is one of the fastest growing segments of our economy. Franchises employ more than 11 million people. The sector has outpaced construction, durable and non durable goods, manufacturing, and financial services. In fact, a new franchise outlet opens every eight minutes in the United States.
One reason for this success is that franchising provides the opportunity to run your own business with less risk than starting from scratch on your own. One of the hardest parts about starting a business from scratch is designing the business concept. In franchising, this step is already done for you. You simply have to learn to run the business. You have a serious head start on competitors who start from zero. That is why many Americans are turning to franchising to pursue their entrepreneurial dreams.
In an Internal Franchise, a company makes its operating model explicit and then franchises the operating model to its employees. The Internal Franchise is a framework for creating the ultimate channel of distribution for your products and services. The employees are then coached, mentored, and trained to operate the business at the highest level of proficiency. In an Internal Franchise, the franchise agreement is not a binding legal contract; it’s the company’s culture, an ownership culture.
Business leaders understand it is more difficult now to hire and retain an engaged, loyal workforce. They are looking for ways to motivate and inspire that next generation of leaders to innovate and take on additional responsibilities, and they are always trying to find new channels of distribution for their products and services.
If franchising is a method of marketing and distributing products and services, then an Internal Franchise is the last untapped distribution channel for your products and services. A channel of distribution is simply an avenue to move your products and services into the market. Creating this untapped channel forms a new energy in your organization and an opportunity to leapfrog your competitors.