Business Friday – Do it or buy it

Welcome to “Business Friday – Do it or Buy it” or “The basic concept behind franchising”

So there’s an interesting concept in business planning and development called “do it or buy it”. Its a fairly simple concept really and nevertheless its the cornerstone of the franchising method.

Basically, when you want to build up a company, expand, reach out to new markets or even change some aspects of your business, you can choose between doing it by yourself, meaning you will be creating it from scratch or buying something an already existing, proven to work.

Lets do a quick example to make things clear:

I want to start selling my products in another country. So one aspects i have to make sure work for my expansion plans to be successful is the distribution. I can build it from scratch, buy trucks or planes, get warehouses and hire people, get things arranged to move my products around by myself. Or I can just “buy” some space in another companies distribution network. Let them distribute my products for a fee. Using their trucks, their warehouses, their people, and their knowledge.  (Technically, i could also buy their company, but lets assume i don’t have that amount of money).

Now if the other country is my neighbor country i might be willing to invest and make all the arrangements myself, but what if its far away, or i don’t really have much idea about how things work there, and cultures are very different. The beauty of this is, if i use another company for it, they already have the experience, are used to the countries cultural environment, know the people and how they have to be handled, know how to do business there.

So the franchise concept is built on this idea. I have something that works, I sell you the right to use it, so you save yourself a lot of work in finding stuff out. I give you all my knowledge, experience and findings in this business area, and you just pay me and go do it elsewhere or for someone else, where I would not go anyway. You on the other hand, add you local knowledge to it, your cultural background, your drive and passion for a new venture, and of course, your money.

So thats the way a lot of the big fast-food chains, coffee shops and clothing companies work. They sell you their idea, get a incredibly fast expansion rate and you put your coins into a working business concept.

 

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Posted on November 4, 2011, in General, Ideas and concepts and tagged , , , , , . Bookmark the permalink. 2 Comments.

  1. Interesting concept. Just a brief reflection: Does the franchise concept or idea somehow undermines the possibility of innovation in those fields? For example, doesn’t any fast food business has to somehow to relate to the McDonald’s model? The McDonald’s model is like fordism if you are in that business you can’t escape the shadow of it.

  2. It does of course twart the thrive to innovate. But salaries dont get paid by innovating, but by making money. And its always better for an investor to invest in something safe than trying to “luck out” with a huge innovation.
    Nevertheless i think innovative business ideas will never cease to show up, coming from the “poorer” investors, the risk takers and the crazy people.

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