STRATEGIC FRANCHISING (MGMT 931)
Syllabus
Fall 2013
Krispy Kreme is attempting a comeback after a near-total meltdown following a meteoric run.
What’s wrong with this picture? Boston Market was one of the hottest IPO’s in history, yet ended up in
bankruptcy. How did their franchising strategy contribute to the initial success and ultimate failure of the
company? Starbucks is one of the best-known brands in the U.S, with an easily replicable concept and
success dependant upon multiple points of distribution. Why didn’t Starbucks use franchising to expand?
How did Century 21 convince thousands of independent local real estate brokers to become franchisees?
Is franchising the most efficient form of entrepreneurship, a marketing tool, a distribution technique,
the ultimate capital leverage device, a real estate platform, a combination of some or all of the above, or
something entirely different? Franchising is one of the most effective techniques for rapidly achieving
high growth with maximum capital leverage and preservation of equity. In the U.S., franchising directly
and indirectly currently generates over $2 trillion dollars annually and represents over 13% of the
economy. It has also become a significant factor in international markets, as U.S. companies franchise
abroad and international entrepreneurs import U.S. franchising concepts both as franchisors and as high
growth franchisees.
COURSE CONTENT
This course will explore the strategic issues related to franchising from the franchisor’s point of
view, and will equip entrepreneurs to evaluate whether or not to franchise, and if so, the most effective
way to do so. Topics to be covered will include rapid domestic and international growth, capital leverage,
equity creation, identification of franchisee candidates and risk analysis. Emphasis will be placed on
entrepreneurship and what it implies about operational control and implementation of management
strategies from both franchisor and franchisee perspectives.
The question as to whether or not to franchise revolves around the economic and strategic issues of
capital and human resource usage, the marketing philosophy concerning brand development, sufficiency
of the financial “pie”, issues of operational replicability and ease of quality control, and the trade-off
between partial loss of control (on both sides) and the benefits of franchising. When dealing
internationally additional issues relating to geographic span of control, the rule of law, stages of economic
and social development, as well as the whole range of cultural and language nuances are added to the
decision mix.
Complex as the issues surrounding the decision to franchise may be, the difficulty of actually
managing the franchise system presents even greater challenges. Besides the formidable task of running
the day to day business, inserting the franchise method of doing business into the mix imposes the most
frustrating of business dynamics, i.e., trying to persuade independent minded individuals to conform to
behavior that benefits a group, possibly to the short term detriment of the individual franchisee.
Once the decision to franchise has been made, the next issue deals with the profile of potential
franchisees, who will be the contact point between our customers and our brand. What are the attributes
of the potential candidate that will lead to the successful delivery of our product and conduct of our
business as a franchise? Should we consider only individuals or do large companies have a place in the
mix? What level of business sophistication should they possess? What are their expectations and are they
realistic? How much infrastructure will the franchisor need to support the system, and will the franchise
fees support those costs as well as generate a profit? How much should the franchise cost, both initially
and ongoing, and can the franchisees afford those costs?
How does the franchisor establish and enforce quality standards for the franchised brand? What are
the implications in terms of organizational structure of the home office and economics for the franchisor?
The proximity of new locations to existing locations, as well as whether individual franchisees
should be allowed to operate more than one franchise location and/or more than one business concept is a
particularly troublesome issue. Where does the concept of exclusive territories fit into the mix?
An ongoing issue concerns the managing of advertising funds, which may be solely contributed by
the franchisees but expended at the sole discretion of the franchisor. Managing that issue so that current
franchisees remain supportive and potential franchisees remain willing to join the enterprise is part of the
skill set a franchisor must develop.
Management of the long term continuing relationship is a very sensitive issue. Franchisees need
continuous care and feeding (metaphorically speaking). A successful franchise relationship requires that
the franchisees should be an integral part of the franchisor’s decision making process. But the degree of
that involvement is a slippery slope.
Administrative Matters
This class will explore these issues using both lecture and case discussion methods. The materials
have been assembled from various sources since none of the existing texts seemed to be of Graduate
School level. Class materials will be available both in a case packet and as handouts.
Blackboard and e-mail will be used to make announcements.
Class discussion and participation will be important parts of the learning process since many of the
issues described do not have a clear answer, although there is an approach and process for making the
decisions. To insure that all have an opportunity to participate there will be cold calling. Also, please
bring your nameplates to all sessions as a five week class makes it difficult to remember everyone by
name.
Attendance is critical, especially with the short time frame and due to the fact that class participation
will be part of the grade.
Grades will be assessed as follows:
1) 25% for class participation
2) 75% for a final exam that will be distributed at the last class session and due one week later.
I am committed to being available to class members. You may contact me by e-mail or schedule meetings
at mutually convenient times.
Course Outline
1. What is Franchising?
a) Types of Franchises
b) Threshold Business Issues
c) Advantages and Disadvantages to the Franchisor
d) Advantages and Disadvantages to the Franchisee
e) Elements of a Successful System
f) Key Learnings
2. Starbucks: Why didn’t they franchise? (or did they?)
3. Belly Dance Maternity (case study)
4. Rubbish Boys (case study)
5. Kabloom (case study)
6. Would you buy this franchise?
a) Body Shop (case study)
b) WSJ Ads
7. Choosing Franchisees: What’s the Right Profile?
8. Sources of Revenue
9. The Role of Real Estate
10. Infrastructure/Services Provided
11. Profit “Pie” to Share
12. Multi-Level Franchising
13. Company Owned Stores
14. What Happened?
a) Discovery Zone (case study)
b) Boston Market (case study)
c) Krispy Kreme (case study)
15. Conversion franchising
a) Century 21 (case study)
b) The Dwyer Group
16. Multi-Concept Franchises
17. Market Development/Encroachment
a) Supercuts (case study)
b) Real world exercise
18. International Considerations
a) New York Fries (case study)
b) Why do it?
c) Where to go first?
d) What’s different?
e) Deal Breakers
19. The Relationship
20. Marble Slab Creamery (case study)
21. Sarah Connors (case study)
a) Communications
b) Inclusion (or not)
c) Enforcement of Standards
d) Marketing
e) Expectations
22. The Legal Swamp
a) Litigation
b) Transfer/Exit Strategy
c) Succession (family issues)
d) Termination
23. A futile attempt to catch up
24. A recap of what we discussed
25. Open Discussion
