Franchises also operate in areas other than retail. These include:
- goods and services sold direct to the public, e.g. Tupperware and Dyno-Rod
- Production plants, e.g. the bottling and canning of Coca-Cola, Pepsi and 7up
- cable companies such as CableComms
- care services for the very young and the elderly, e.g. Alphabet Zoo and Community Careline Service.
Another form of franchise is that where an individual or organization is allowed to operate a business on the premises of someone else. For instance, a hotel or hospital, may give a florist permission to open an outlet in their building and charge rent plus a franchise fee (in effect, part of the profits).
Advantages:
- Some authorities say that there is less risk than starting in business as a sole trader and a higher survival rate over the first five years. Others say figures for failure are broadly the same. Much seems to depend on the type of franchise – the most successful are famous names such as Burger King or McDonald’s which sell well known products.
- Selling a known name to the public.
- Advice, guidance and expertise from the franchisor.
- Fewer decisions to make in operating the business.
- With a reputable franchisor, there is no competition within a specified area.
- Most of the profit is retained by the business owner.
Disadvantages:
- Some of the profit has to be paid to the franchisor.
- The owner is not free to make all of his/her own decisions, particularly as to the product range or the prices at which to sell their goods or service.
- Only the franchisor’s good(s) or service(s) can be sold.
- The franchisee is largely dependant on the popularity of the franchisor’s product or service and the amount of advertising undertaken by the franchisor.
- There is a danger that the franchisee will ‘sign up’ with a disreputable organization which takes his/her initial payments for little or no return.
- Long hours and few holidays.
- Business success is dependant on the skill of the franchisee and the strength and dependability of the franchisor. If either are lacking, the business may fail.
Cooperatives
What is the difference between Pulp and Oasis? You may give many different answers but it is unlikely that you would know that Oasis’ songwriting royalties are split unequally (no prizes for guessing that Noel Gallagher has the biggest share!) whereas Pulp operates as a cooperative.
So, what would be the difference if you were a member of the band? In the case of Oasis you would receive about 13 per cent of the royalties (against Noel’s 48 per cent share). If you were a member of Pulp you would receive a straight 20 per cent (bare in mind there are five members in each band).
Jarvis Cocker, a member of Pulp, has been quoted as saying “We grew up in south Yorkshire. It’s is important that nobody is richer than anyone else, otherwise it’s not going to last is it?” Conversely, Noel Gallagher argues, “It’s me who is up until 7am writing the album, and a bass line or drum pattern never made a song better.”
The principal of cooperative workers is that there is no boss, that profits are divided equally and that the business is run in the collective interests of the workforce.
This concept has often been more successful in Europe than it has been in the UK. There are famous and successful worker cooperatives in Spain, France and Switzerland – but few in Britain. People have often wondered why. It is a business sector that people tend to take their own, and varied, opinions on.
Advantages:
- Each worker/owner has a share in the business and an equal voice in making decisions as each of them has one vote.
- Each person has an equal share of the profits.
- It is possible to form a limited company as a worker cooperative and to have the protection of a limited liability.
- Jobs can be rotated so that everyone can have a turn at the pleasant jobs as well as the not so pleasant.
- The workers themselves are not forced to be owners – each worker can decide for him or herself.
Disadvantages:
- Although special forms of finance are available for cooperatives, some organizations (banks, insurance companies etc.) may hesitate about dealing with cooperatives because there is no recognized leader who takes responsibility.
- Suppliers may be reluctant to sell goods on credit for the same reason.
- Job rotation means that some people will do jobs they are not trained, or ill-equipped, to do.
- Decision making can take a long time if there are a lot of people to consult.
- Disciplining or sacking may be difficult to do if everyone is ‘friends together’.
- Good leaders may be stifled and feel they cannot develop their full potential.
- Decisions which are made for the good of the workforce may not be the best for the firm, e.g. a new machine which will produce better quality goods but ill make three workers redundant may be rejected.
By Laurence Osborne