Franchise Owner Operator VS Franchise Investors
Aspiring business owners seeking to break into franchising are faced with two options: being an owner-operator or an absentee-owner. Franchisors are in little doubt as to which model they prefer – the owner-operator, due to their greater hands on involvement. Do you know what the difference is, and what each means for you as a business owner?
The owner-operator, by definition, is in the store running day-to-day operations. They have no other job but running the store. This means they are able to exert more personal control over the business and marketing. Just as importantly, because you’re completely hands-on with the establishment of the business, it often requires less capital to grow the business, albeit it may take a little longer.
In contrast, the absentee-owner is not in the business every day. This is a businessperson who may have other business interests, such as having multiple franchises, and instead hires a manager to run the business on their behalf. Of course, the absentee-owner may not be working ‘in’ the business every day, but he is working ‘on’ it every day, by making the high-level strategic and growth decisions.
Pros and Cons
Apart from the already mentioned issue of capital, each has its definite pros and cons.
- Franchisors prefer it – a franchisor typically wants franchisees who have a burning desire to work the business hands-on and learn everything about it. You therefore have a better chance of being accepted as a franchisee.
- Personal services businesses require a personal touch with clients. You have to love putting people before anything else – and a manager may not have that passion.
- It is highly dependent on the type of franchise: fast food chains with standardised operations are easily managed via a manager.
- Many franchisors stipulate as a condition that the franchisee be an owner-operator.
- An owner-operator actively involved in the day-to-day running of the operation has more control over the business and can make immediate decisions.
The Absentee-Owner Franchisee
- The major pro of being an absentee-owner is the ability to own multiple franchises, and therefore to grow one’s personal wealth at a faster rate.
- It is highly dependent on the type of franchise: franchises that require personal expertise in a field, a license of some form or special care in the daily activities will require an owner-operator.
- Being an absentee-owner typically requires more capital, and the additional overheads (such as manager’s salary) reduce the profit margin per store.
- An absentee-owner must have a proven track record with a strong, reliable management and operations team. If you are an aspiring business person or novice, rather acquire experience by being an owner-operator, and maybe subsequently buy a second outlet.
Research conducted in the US suggests that the above arguments, and pros and cons, can evolve over time as franchising matures and becomes more (and highly) competitive. In fact, in the US there are publicly listed franchisee companies owning hundreds of franchises. The industry research firm FranData has estimated that multi-unit operators in the US own more than one-third of all franchised restaurants — over 150,000 locations. Because the costs of starting up a new franchise in that country have escalated considerably, and the risk of business failure increased in a far more cutthroat competitive environment, some franchisors in the US only sell to multi-unit operators or ‘area developers’.
However, South Africa is nowhere near this level of maturity and is in fact still in its early days in which it is still possible to bootstrap your way to ownership of a franchise store without having to spend millions. It remains the case for an aspiring business person that, rather than trying to figure out a business idea, you could affordably buy into a big chain with a proven system and established brand name, and make a profit.