Franchisees’ Strict Requirements or Coop Owners’ Freedom of Choice
One reason people want to own their own business is to have an opportunity to do things their way. Owning your own business means you can use your skills and be successful in a way that works for you. When you consider this, you might wonder why so many entrepreneurs choose to operate a franchise. Franchisors push many strict requirements on their franchisees and in many cases this means you are not really running your business your way.
Territorial restrictions
Franchisors often place restrictions on the area in which you are allowed to conduct business and advertise. One of the most unsettling things about territorial restrictions is that often the franchisor does not guarantee they will not sell additional franchises in your territory. If they make such a guarantee, it is often for a limited time. Additionally, you may not be allowed to buy another franchise that they plan to open in your territory, which could mean multiple franchisees are in direct competition. Hopefully the territory is big enough to provide enough customers for everyone.
On the other hand, some franchise agreements have been known to require you open a second or even a third location, regardless of how well the first location is performing. This can put a tremendous strain on resources for a small business owner.
Sometimes with franchisors, just opening new franchises can become the business. The franchisor gets your startup fee and royalties and there may not be much of a reason for them to be concerned about how well your location is doing.
Product or service restrictions
Franchisors require all their locations offer the same products and services. The franchisee does not have the ability to add different products and services that could increase sales, or get rid of something that just does not sell well in his area. This can be especially problematic if you are in the food business by not allowing changes to the menu to fit local tastes. Both those scenarios have an impact on profits. It does not allow your business an opportunity to change in response to changes in the local market. Some franchisors may even go so far as to dictate that you offer those products or services at specific prices, further limiting profits.
Mandatory advertising contributions
Having to contribute to the advertising budget of the franchisor might not sound too bad. You pay for them to advertise for you. However, that contribution is mandatory, so they are in reality, exercising control over your finances. You may find the franchisors’ advertising efforts do not really help your store or worse yet, may hurt it. For example, a franchisor could be using advertising dollars to encourage customers to order directly from them via a catalog or their website, cutting your store completely out of the equation.
The freedom of a cooperative
The above examples are just a few of the ways franchisees can be restricted, it is easy to see how this situation can squelch the creativity and innovation that can make businesses more successful. A co-op like Kaleidoscoops offers solutions to these problems.
There are no territorial restrictions in a cooperative because they are not really necessary. A cooperative corporation is not going around scouting out potential sites with plans to open 30 stores in an area. There is no worry about too many stores in your area. Owner/operators in a cooperative are not restricted to running only one store like in many franchises. If you wish to continue building your business, you can open another location. But if one store is enough for you, there is no pressure to open additional stores.
Co-op owners are not required to contribute a specific portion of their profit to advertising. You are not told how to budget your money. You determine the amount and type of advertising that is appropriate for your store.
An owner/operator of a co-op has the freedom to offer additional products or services they believe can increase profits and better serve your customers. If there is a type of cuisine or old local specialty that is popular in your neighborhood you can adjust your menu accordingly. And if there is something that just does not sell at your location, you are not required to offer it.
If you have considered owning a franchise, you might want to research what a cooperative can offer. Get additional information about opening your own Kaleidoscoops co-op. If you have any questions or comments about our products, you can e-mail us or give us a call at (877) 426-8488.