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From Ice Cream to the Internet: Using Franchising to Drive the Growth and Profits of Your Company

Book Description

In this book, Dr. Scott A. Shane systematically helps businesses assess the pros and cons of the decision to franchise.  This book focuses squarely on the issues and challenges faced by franchisors. Shane answers key questions such as: What do successful franchisors do differently from unsuccessful franchisors? Why do some companies in an industry choose to franchise while their competitors don't? How does the decision to franchise affect your ability to compete with firms that don't? For businesses that choose to move forward, Shane presents proven principles for every aspect of building a successful franchising system, including: recruiting, selecting, managing and supporting franchisees; establishing territories and pricing; managing expansion; and navigating the unique legal and institutional challenges of franchising.

Table of Contents

  1. Copyright
    1. Dedication
  2. Acknowledgments
  3. About the Author
  4. Introduction
    1. The Purpose of This Book
    2. How Is This Book Different from Other Books?
    3. What This Book Does Not Do
    4. Who Should Read This Book and When Should They Read It?
    5. Sources of Knowledge Underlying This Book
    6. The Key Lessons
    7. An Overview of Chapters
  5. 1. Is Franchising Right for Your Industry?
    1. What Is Franchising?
    2. A Very Brief History of Franchising
    3. Local Production in Limited Geographic Markets
    4. Physical Locations Are Helpful
    5. Industries Involving Local Knowledge
    6. Industries Demanding Local Discretion
    7. Standardized, Codified, and Easily Learned
    8. Brand Names: An Important Competitive Advantage
    9. Labor-Intensive Industries
    10. Cost and Risk
    11. Measuring Performance
    12. Summary
  6. 2. The Advantages of Franchising
    1. Selecting and Providing Incentives to Outlet Operators
      1. Effective Selection
      2. Better Incentives
    2. Obtaining Resources for Rapid Growth
      1. Capital Acquisition
      2. Human Resource Acquisition
    3. A Lucrative Financial Model
      1. Risk Sharing
      2. Return on Investment (ROI)
    4. Summary
  7. 3. The Disadvantages of Franchising
    1. Goal Conflict Between Franchisors and Franchisees
      1. Maximizing Sales versus Maximizing Profits
      2. Conflict over Outlet Concentration
      3. Conflict over Collective Action
      4. Obsolescing Bargain
    2. Transaction Cost Problems
      1. Free Riding
      2. Hold-up
      3. Under Investment
      4. Loss of Intellectual Property
    3. Innovation and Change
      1. Making Changes to Structure
      2. Product Innovation
    4. Financial Returns
    5. Summary
  8. 4. What Business Concepts Can Be Franchised?
    1. Valuable System to Sell
    2. Transferable Concept
      1. Replicable Concept
      2. Concept That Can Be Codified
      3. Teachable Concept
    3. Large Pool of Potential Franchisees
    4. Summary
  9. 5. Key Franchising Policies
    1. Ownership of Franchised Outlets
    2. Mechanisms to Control Franchisees
      1. Writing Detailed Contracts
      2. Reserving Termination Rights
      3. Controlling Sources of Supply
      4. Requiring Exclusive Dealing
      5. Ensuring Royalty Payments
      6. Providing Franchisees with Excess Profits
    3. Term of the Contract
    4. Franchisee Advertising
      1. National Advertising
      2. Local Advertising
    5. Complements
    6. Summary
  10. 6. Franchisee Support and Assistance
    1. Training
    2. Support Services
      1. Field Operations Evaluation
      2. Centralized Services
      3. Communication
      4. How Many Services to Provide—and When to Start Offering Them
    3. Real Estate Services
      1. Site-Selection Assistance
      2. Lease-Negotiation Assistance
    4. Financing Franchisees
    5. Summary
  11. 7. Territorial Strategies
    1. Multiunit Franchising
      1. Master Franchising
      2. Area Development
      3. Subfranchising
    2. Right to Expand
    3. Exclusive Territories
    4. Complements
    5. Summary
  12. 8. Pricing Franchises
    1. Franchise Fee
    2. Royalty Rate
    3. Relationship Between Franchise Fees and Royalty Rates
    4. Summary
  13. 9. Expansion Strategies
    1. When Should You First Franchise?
    2. How Many Outlets Should You Own?
      1. Company-Owned Outlets in New Franchisors
      2. The Early Growth Period
      3. Buying Back Outlets in Mature Systems
      4. Conversion Franchising
    3. Which Outlets to Franchise
    4. Geographic Expansion Strategy
    5. International Expansion
      1. When to Expand Overseas
      2. Changes You Need to Make for International Expansion
    6. Summary
  14. 10. The Legal and Institutional Environment for Franchising
    1. Federal Law
    2. State Law
      1. Registration States
      2. Relationship States
    3. Franchisor Certification
    4. Summary
  15. 11. Recruiting, Selecting, and Managing Franchisees
    1. Recruiting Franchisees
      1. Why Do People Buy Franchises?
      2. An Effective Franchise Sales Force
    2. Selecting Franchisees
      1. Industry Experience
      2. Startup Experience
      3. Net Worth Requirements
      4. Psychological Attributes
    3. Stages of Screening
    4. Managing Franchisees
      1. Minimizing Conflicts
      2. Generating Value
      3. Communicating Clearly
      4. Controlling Carefully
    5. Summary
  16. Conclusions
    1. A Final Comment
  17. Notes
    1. Introduction
    2. Chapter 1: Is Franchising Right for Your Industry?
    3. Chapter 2: The Advantages of Franchising
    4. Chapter 3: The Disadvantages of Franchising
    5. Chapter 4: What Business Concepts Can Be Franchised?
    6. Chapter 5: Key Franchising Policies
    7. Chapter 6: Franchisee Support and Assistance
    8. Chapter 7: Territorial Strategies
    9. Chapter 8: Pricing Franchises
    10. Chapter 9: Expansion Strategies
    11. Chapter 10: The Legal and Institutional Environment for Franchising
    12. Chapter 11: Recruiting, Selecting, and Managing Franchisees