The Internal Franchise Business Model
March 9, 2009
April marks the 10 year anniversary of the publication of my book – Act Like an Owner: Building an Ownership Culture. As I was thinking about the experience of writing the book over the weekend, I started to consider whether the central tenants of the book still made sense 10 years later, especially given the economic environment, the changes in how start-ups rise and fall today,the trends in co-working and life-style businesses, and the importance of business model innovation in industries like health care, education, and even IT.
So I though it would be fun to post an “oldie but goodie” and reintroduce the concept of the “internal franchise” business model and ask the question: does this still make sense in 2009?
An internal franchise is a business model based on the concept that if you look at your employees as entrepreneurs who can dramatically improve the performance of your business. And it works. I have seen this business model act as a key catalyst in generating over $50M in shareholder value across several businesses. So here is a basic description of how an internal franchise can act as a business strategy.
The Internal Franchise
An internal franchise consists of three components:
- A business formula
- Empowered employees who act like owners
- An ownership culture
A franchise is a method for marketing and distributing products and services. The franchiser licenses a business system – a complete way of doing business–to a franchisee. The franchisee agrees to operate the business according to specific guidelines. The franchiser/franchisee relationship is governed by a franchise agreement–a binding, legal agreement.
The franchise business model is one of the fastest growing segments of the economy. Franchising provides the opportunity to run your own business, with less risk than starting from scratch on your own. One of the hardest areas in starting a business is to design the business model. In franchising, that is already done for you. You simply have to learn to run the business. You have a serious head start on competitors who start from ground zero.
An internal franchise is similar to a traditional franchise operation. In an internal franchise the company makes its business system explicit and then “franchises” the business system to its employees. The employees are then coached, mentored, and trained to operate the business at the highest level of proficiency. In an internal franchise, the franchise agreement is not a legal binding contract, it’s the company’s culture–an ownership culture.
It turns out that an internal franchise can be an untapped distribution channel for your products and services. When you can turn to your own employees, teach them your business model, and empower them to run the business, you have established a new distribution channel. And it is an effective framework for dealing with the challenges of running a business in today’s competitive, rapidly changing environment.
So what do you think? Does an internal franchise make sense in your business given the ongoing economic, social, and generational shifts?