Question

Is franchising entrepreneurial? Please define the ‘franchise’ and critically consider franchising when formulating your answer.

30 Marks

Answer 1

Franchise: A franchise is a business model or business strategy when one party (Franchisor) allows and gives permission to use its proprietary knowledge, processes, or other intellectual property to another party (Franchisee) and sell the product or service under his business name. The franchisor allows to use of its business model, intellectual property, and brand name to get the revenue shared between two parties or on the basis of royalty. A franchise is a type of license that is provided to the franchisee by the Franchisor to have access to the franchisor's knowledge, brand name, or intellectual property rights. When one party owns a franchise and start running a business, takes financial and operational risks through this new venture. There are benefits for a Franchisee in this business model, that he doesn't need to invest in developing technology, creating brand value, and finding customers, as he will get all these when he chooses to Franchise business model.

An entrepreneur is a person who start a new venture from the zero and takes the financial and market risk to develop his business. An entrepreneur needs to start from scratch as he needs to invest in technology, building business & brand value, and needs to find customers by promoting and marketing his product or services. An entrepreneur takes all risks and rewards from the venture and he will be the sole responsibility of success or failure of his venture.

As we can see that both entrepreneurs or franchisees are doing the same things, starts a new venture, takes risks, and serve customers with their products or services. But there are some differences between these two. An entrepreneur is the brand owner but a franchisee is not the brand owner but he acts as an agent or a business partner that shares his profit with the franchise owner. A brand owner of the franchise is the real entrepreneur as he starts the business model or develops products & services for the customers.

The person who came up with the idea or invented the product or service or business model is considered as a true entrepreneur. He provides his business model, product, or services to sell to customers by providing a license to the franchisee and gets the revenue from various franchisees.

A franchisee needs to follow processes or methods of doing business and many times it reflects in the training to the employees. The employees need to follow all procedures or guidelines to fulfill their duties and responsibilities. All the marketing, operational methods, and SOPs are to be followed developed by the franchisor.

As we can see that there are multiple differences between an entrepreneur and a franchisee, but there is not a right or wrong answer for whether a franchise is entrepreneurship. As both has some differences and similarities.